Question

- Label the following statement as true or false:

If (u−un)>0(u−un)>0 then (Y−Yn)>0

- Label the following statement as true or false:

If (u−un)=0(u−un)=0 then (Y−Yn)=0

-Label the following statement as True or False:

The IS curve shifts up (or to the right) with an increase in G, an increase in T and an increase in x (risk premium)

-Label the following statement as true or false:

The natural rate of unemployment is unaffected by policy changes.

- Label the following statement as true or false:

A permanent, large increase in the price of oil reduces the natural rate of unemployment

-Label the following statement as true or false:

Most workers are typically paid their reservation wage.

Answer 1

If (u−un)>0(u−un)>0 then (Y−Yn)>0 this statement is false. because if unemployment is more than natural unemployment rate there is no way the level of income is more than equilibrium income.

If (u−un)=0(u−un)=0 then (Y−Yn)=0 this statement is true because, at the level of equilibrium income, the unemployment rate is at natural unemployment level.

The IS curve shifts up (or to the right) with an increase in G, an increase in T and an increase in x (risk premium). this statement is false. IS curve never goes towards the right when T(tax) increases or risk premium increases.

The natural rate of unemployment is unaffected by policy changes. this statement is false. because proper policy affecting the mobility of labour between region and occupations lead to the reduction of the natural rate of unemployment.

A permanent, large increase in the price of oil reduces the natural rate of unemployment this statement is false. because natural unemployment is those who are frictionally unemployed or structurally unemployed. hence mere reduction in oil price may not reduce the natural rate of unemployment.

Most workers are typically paid their reservation wage. this statement is false. because only the marginal worker is paid his/her reservation wage.

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