Which of the following will increase the respective unemployment rate, ceteris paribus? (Answer Yes or No)
U3 U6
An increase in the number of unemployed workers 1. _______ 2. ______
An increase in the number of part-time workers who want to work full-time 3. _______ 4. ______
An increase in discouraged workers 5. _______ 6. ______
An increase in People working in jobs below their skill level (underemployment) 7. _______ 8. ______
An increase in the number of people institutionalized 9. _______ 10. ______
People entering the labor force 11. _______ 12. ______
Use the following diagram of the liquidity preference/money market model with exogenous money to answer questions 13-17. Note whether the nominal interest rate (i) increases (?), or decreases (?).
13. An open market sale of government bonds by the Federal Reserve to banks. ` _______
14. A decrease in inflation. _______
15. An increase in the reserve requirement. ________
16. An increase in taxes (hint: what happens to income?). ________
17. A decrease in the discount rate. ________
Use the following information to answer questions 18-25. For each of the following questions note what happens to the equilibrium inflation rate (?) and the equilibrium growth rate of real GDP (y). State whether the variable has increased (), decreased () or has remained the same (NC). Assume all changes are ceteris paribus. Choose from options a through h immediately below. Each answer below is used only once.
a. ?,y b. ?,y c. ?,y(NC) d. ?,y
e. ?,y f. ?,y(NC) g. ? (NC),y h. ? (NC),y
18. Early predictions suggest the UKs economy will grow only 0.2 per cent in the first quarter . . .Unless something changes dramatically, labour productivity will again decline, prolonging Britains slump, now already into its second decade. Since the start of 2008, UK output per worker has grown at an average annual pace of only 0.2 per cent.[footnoteRef:1] What is the effect of this decline in productivity growth? [1: Chris Giles, Britains most dynamic industries are lacking fizz, Financial Times (March 27, 2019).]
19. What is effect of an increase in taxes in the short run when the economy is operating at potential output?
20. What is effect of an increase in taxes in the intermediate run when the economy is operating at potential output?
21. What is effect of an increase in taxes in the long run when the economy is operating at potential output?
22. US crude [oil prices] closed below $60 a barrel for the first time in five and a half years.[footnoteRef:2] What is the effect of this fall in oil prices in the short run if the economy is operating at potential output? [2: Gregory Meyer, US oil price below $60 a barrel, Financial Times (December 11, 2014).]
23. Spending by US households jumped by the most in nearly six years in May, lifted by stronger incomes.[footnoteRef:3] What is the effect of this in the long run if the economy is operating at potential output? [3: Sam Fleming, US spending shows economic rebound under way, Financial Times (June 25, 2015).]
24. Poland decreased its main interest rate by a bigger than expected 50 basis points on Wednesday.[footnoteRef:4] What is the effect of this on the Polish economy in the short run if they are in a recessionary gap? [4: Henry Foy, Poland cuts rates as Germany and Russia fears weigh on economy, Financial Times (]
25. Some economists are projecting business investment to increase by over 8 percent in the fourth quarter.[footnoteRef:5] What is the effect of this through the demand channel in the intermediate run if the economy is operating at potential output? [5: Kathleen Madigan, WSJ Survey: Economists See Second-Half GDP Growth of 3%, Wall Stree Journal (August 7, 2014).]
Short Analysis (25, up to 10 extra points)
Use the framework of the balance of payments to explain why Argentina is so susceptible to crises . . . and why the US, though with some similar patterns is much less so. https://youtu.be/b4P_yviHlbo
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