Question

Intermediate Macroeconomics

True/False:

a) Between 1870 and 2007 the US economy grew by 4% on average per year.

b) Frictional Unemployment is caused by structural changes in economic activity, such as movements from a manufacturing economy to a service economy.

c) During the Great Recession GDP dropped by 4.5% (from peak to trough) and unemployment rate peaked at 10%.

d) Monetary Policy is conducted by the Federal Reserve, while Fiscal Policy is conducted by the Federal Government.

e) The full-employment level of Y is the level of output that firms in the economy supply when the labor market has cleared (i.e. when the labor market is in equilibrium).

Answer 1

(a) False: Between 1870 and 2007 the US economy grew by 4% on average per year.

Explanation: Between 1870 and 2007 the US economy grew by 2.03% on average per year (excluding great recession period).

(b) False: Frictional Unemployment is caused by structural changes in economic activity, such as movements from a manufacturing economy to a service economy.

Explanation: Frictional unemployment occurs when workers are in the search for a new job or switch from one job to another.

(c) True: During the Great Recession GDP dropped by 4.5% (from peak to trough) and the unemployment rate peaked at 10%.

(d) True: Monetary Policy is conducted by the Federal Reserve, while Fiscal Policy is conducted by the Federal Government.

Explanation: Monetary policy is conducted by the central bank of the country and fiscal policy is conducted by the government of the country.

(e) True: The full-employment level of Y is the level of output that firms in the economy supply when the labor market has cleared (i.e. when the labor market is in equilibrium).

Explanation: At the full employment level of output, the labor market is in equilibrium.