a. In an article in the New York Times in 2009, the author makes the following...

a. In an article in the New York Times in 2009, the author makes the following statement: “And whenever the economy begins growing again, it won’t feel good for a while. The unemployment rate may continue to rise into 2010.” Why would the unemployment rate continue to rise if the economy has begun to grow again? (3pts)

b. Why isn’t unemployment rate equal to zero when the economy is at full employment? Briefly explain. (3pts)

c. If the quantity of final goods and services produced decreased, could real GDP increase? Could nominal GDP increase? If so, how? Briefly explain. (3pts)

Solutions

Expert Solution

a.The rise in unemployment may continue to rise eventhough economy start growing post recession since though economy has started rising there is still spare capacity with the firms because of continued contractuon during recession which can not be overcome by one year of growth and require sustained growth over few year. Another factor involves lagging effect where the firms during recession first start companies reduce avoidable cost or redundant cost first without affecting the headcount but during period this become unsustainable firms start reducing headcount or freeze hiring even though economy start growing again.

b.Full employment means the nation is operating at the frictional unemployment level which means only unemployment Remaining is of the workers who are in between the job changes and will get jobs in next couple of weeks or so or the structural unemployment caused since the worker doesn't have the necessary skills as demanded by the market.so, even though total unemployment is not zero since people are transitioning between the jobs but that is always bound to happen.

c.If the quantity produced decreases real GDP will not increase since the gross value of the output in real terms will not increase post adjusting inflation on other hand Nominal GDP may increase because of inflation which can increase the gross value of output.

Rahul Sunny answered 2 months ago

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