Question

1.In cases where the output gap is positive and negative, explain the relationship between the unemployment rate and the natural unemployment rate.

2. Explain how advances in technology affect labor productivity. Do decreasing yields appear? Give an example of the advancement in technology. Use the graph of the productivity curve to show your answer.

3. Explain what caused inflation. Why do you think it is easier to estimate the ten-year average inflation rate from the inflation rate in a single year?

4. Describe the impact of a European Central Bank's decision to reduce the amount of money on macroeconomic balance for the short term. Describe the adaptation process that turns the economy into full employment.

Answer 1

1) the unemployment rate that is associated with the actual output it is known as actual rate of unemployment or simply Unemployment rate. On the other hand the unemployment rate that is associated with the the potential output or full employment output is known as the natural rate of unemployment.

Now if the output gap is positive, it means that the actual output in the economy is greater than its potential output. It means unemployment rate is less than the natural rate of unemployment.

On the other hand if output gap is negative, it means that the actual output in the economy is less than the potential output in the economy. As a result, the unemployment rate in the Economy is greater than the natural rate of Unemployment.

So if the output gap is positive the unemployment rate is less than the natural rate of unemployment. And if the output gap is negative then the unemployment rate it is greater than the natural rate of unemployment.