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Chapter 17: Q.c - For Critical Thinking (page 389)

Why might it be the case that even if distorted beliefs alter real GDP and the unemployment rate today, such beliefs might be unlikely to arise among households and firms again in the future? Explain your reasoning.

Short Answer

Expert verified

Monetary breakdown without satisfactory government guidelines is a common example in the financial history of the US.

Step by step solution

01

Given Information

The United States economy encountered an emergency in 2008driven by a subordinate market and subprime contract emergency and declining dollar esteem.

02

Explanation

Since the 1970 s, a few arising nations have started to close the financial hole with the United States. As a rule, this has been because of moving the production of merchandise previously made in the U.S. to nations where they could be gotten for adequately less cash-flow to take care of the expense of delivery in addition to a higher benefit.

Hence, past beliefs in view of dread of monetary downturn and ascent of developing business sectors, the specific reactions to new data, social learning through gatherings, social associations/organizing and the inventory of data by the media distinguish the potential for one-sided convictions among US families and firms.

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Most popular questions from this chapter

Take a look at Figure 17-3. Explain whether the cyclical unemployment rate is positive, zero, or negative at point E2, after the shift in the aggregate demand curve from AD1to AD2. In addition, explain whether the cyclical unemployment rate is positive, zero, or negative at point E3the shift in the short-run aggregate supply curve from SRAS1to SRAS2.

Explain whether the cyclical unemployment rate is positive, zero, or negative at the point E2, after the shift in the aggregate demand curve from AD1to AD2. In addition, explain whether the cyclical unemployment rate is positive, zero, or negative at a point E3, following the shift in the short-run aggregate supply curve from SRAS, toSRAS.

Suppose that the greater availability of online job placement services generates a reduction in frictional unemployment during an interval in which the inflation rate remains unchanged. Would the result be a movement along or a shift of the short-run Phillips curve? Explain your reasoning.

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aHow would this affect the actual unemployment rate?

b How would such a change affect estimates of the natural rate of unemployment?

c If this computational change were made, would it in any way affect the logic of the short-run and long-run Phillips curve analysis and its implications for policymaking? Why might the government wish to make such a change?

Consider the diagram below, which is drawn under the assumption that the new Keynesian sticky-price theory of aggregate supply applies. Assume that at present, the economy is in long-run equilibrium at point A. Answer the following questions.

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b. Other things being equal, after the event and adjustments discussed in part (a) have taken place, what will happen to the equilibrium price level and to equilibrium real GDP in the long run? Explain.
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