Question

Answer true,false,or uncertain.Please briefly explain your answer.

a)

—the unemployment rate is decreasing,employment is increasing.

Answer true,false,or uncertain.Please briefly explain your answer.

b)

Consider a standard Keynesian model but with two types of consumers,Type A who have low marginal propensities to consume and Type B who have high marginal propensities to consume.

—An economy with relatively more Type A consumers is more vulnerable to a negative shock to investment demand.

Answer true,false,or uncertain. Please briefly explain your answer.

c)

Consider a Keynesian model but where investment(just like consumption)is

increasing in aggregate income,e.g.,because investment depends on business cash flow.

—Now that investment depends on aggregate income,a fiscal stimulus has more

effect on equilibrium output.

Answer true,alse,or uncertain.Please briefly explain your answer.

d)

Consider a standard AD-AS model.

—An increase in the inflation target is associated with a short-run decrease in unemployment but not a long-run decrease in unemployment.

Answer true,false,or uncertain.Please briefly explain your answer.

Answer 1

( a ) The statement is true.

When unemployment rate is decreasing ( that is, when number of people with no job opportunities are decreasing ), it would certainly mean that they are able to find work and therefore, employment is increasing.

( b ) True.

Low marginal propensity to consume for more consumers would mean a negative shock in investment demand leading to consumers least likely to spend on consumption. Therefore, this statement is true.

( c ) True.

When increase in investment is increase in aggregate income. a fiscal stimulus such as in the form of increase in government spending will certainly have more effect on equilibrium output.

( d ) True.

According to the AD-AS model, since people realize price increase in the long run, in the short run inflation increases employment. However, when workers realize inflation or price rise in the goods, they ask for higher wages which leads to unemployment numbers same as before.