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- Assume that an economy operates according to the sticky-wage model. The nominal wagewas set to make labor supply and labor demand equal when the expected price levelequaled 120 (as measured by the consumer price index).a. Use a graph of the labor market to illustrate what happens to the quantity oflabor employed if the actual price level over the time period when wages arestuck equals 110.b. Use a graph of the production function to illustrate how the quantity of outputproduced changes if the actual price level equals 110 when the expected pricelevel is 120.c. Given the unexpectedly low price level, will this economy be operating above,below, or at the natural rate?Congratulationst You have been appointed an economic policy adviser to the United States, You are told that the economy is significantly abowe futtemplyoment GDP. Based on this inlormation, how can the economy would adjust to reach LR.SR Equilbrium (Classical View)? The economy wilt experience low unemployment rate, pushing wages up, and increasing the pelces of a key input (labor). shatting the sAS to the left (up). The economy will experience high unemployment rate, pushing wages down, and reducing the prices of a key input (labor). shiting the SAS to the right (down). The econoriny wil experience low unemployment rate, decreasing inceme, which will eventually shift the AD to the left. The eooncmy will experience low unemployment rate, pushing wages up, and increasing the prices of a key input (labor), shiting the sAs to the night (down).Assume an economy operates in the intermediaterange of its aggregate supply curve. State thedirection of shift for the aggregate demandor aggregate supply curve for each of thefollowing changes in conditions. What is theeffect on the price level? On real GDP? Onemployment?a. The price of crude oil rises significantly.b. Spending on national defense doubles.c. The costs of imported goods increase.d. An improvement in technology raises laborproductivity.
- FRED -Unemployment Rate 10 9. 4 1970 1975 1980 1985 1990 1995 2000 2010 2015 2020 Shaded areas indicate US recessions Source: US. Bureau of Labor Statstics myl red/gwoss What is the relationship between the unemployment rate and Real GDP? O Unemployment increases when Real GDP decreases O Unemployment and Real GDP both increase in periods of stagflation O Unemployment and Real GDP are not related O Unemployment decreases when Real GDP decreasesQuestion 5 The economy's MPN is given by MPN=100-N0.5 where N is the level of employment. How much is the aggregate labor demand when the real wage is w 20? 120 64,000 O 6400 80 Question 6 The ECON 103 professors have two hundred midterm exams to grade. They offer to hire you to help them grading, paying you twice the amount you would normally receive (because fow students are willing to work during the term), You take the job. This would be an example of the substitution effect being stronger than the income effect. the income effect being stronger than the substitution effect. the substitution effect being equal to the income effect. a pure income effect.Suppose a market basket of goods and services costs $400 in the base 'year and the consumer price index (CPI) is currently 125. This indicates the price of the market basket of goods is now: $275. $425. $500. $525. Which of the following will most likely occur during the recessionary phase of a business cycle? O Real GDP nises, and the unemployment rate falls O Real GDP declines, and the rate of inflation nises O The sales of most businesses decline, and the unemployment rate nses Inflation rises, and employment population ratio falls
- 11 which of the following is a macroeconomic * decision or concent the unemployment rate for the entire economy the price of oil O the unemployment rate for a firm O how many television sets to produce OColumns 1 and3 in the table below show employment and the price level in the economy. Aasume that the labour foroe in the economy is 11.0 milion. Compute and enter in column 2 the unemployment rate at each level of employment. For nach row (xcopt the first), compute and enter in column 4 the annual rate of intation. (Round your answers to hwo decmal places) Employment (milions of workers) Price Rate of Infation Lhemployment Rate (%) Level () 9.5 1.2 9.6 1.28 9.7 1.37 9.8 1.48 1.62 10 1.79 10.1 201 10.2 231.If the employment rate of output exceeds the planned aggreagte expenditure what will happen to the unemployment rate assuming that it will persist in the future?
- Two main macroeconomic concerns are the problems of inflation andunemployment.a. What are the social costs of inflation? Explain TWO of them? b. What is natural rate of unemployment? Explain the TWO main causesof natural rate of unemployment. With reference specifically to ONEof these causes, suggest ONE practical government policy that reducesthe natural rate of unemployment.Which of the following is incorrect about the Keynesian model shown below? Price Level P₁ AD₁ E₁ Y₁ Real GDP SRAS AD E₁ YpThe economy has shifted and the quantity of the real GDP supplied has increased. What has potentially happened to aggregate price levels? Potentially the price levels have increased to a higher aggregate price level and if the wages are sticky, businesses have hired more employees as labor has become cheaper. O Potentially the price levels have decreased to a lower aggregate price level and if the wages are sticky, businesses have hired more employees as labor has become cheaper. Potentially the price levels have increased to a higher aggregate price level and if the wages are sticky, businesses have fired some employees as labor has become too expensive.