/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q. 2 - For Critical Thinking Why would using the U6 unemploym... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 17: Q. 2 - For Critical Thinking (page 392)

Why would using the U6 unemployment rate instead of the traditional unemployment rate almost certainly yield different "appropriate" activist macroeconomic policies?

Short Answer

Expert verified

As a result,stimulus will boost aggregate demand, raise inflation by a full percentage point, and have no effect on the unemployment rate the unemployment rate remains steady, the Fed does not need to reduce its support.

Step by step solution

01

Step: 1 Introduction:

Unemployment occurs in economics when people are unemployed while actively looking for work. The employment rate is determined as a percentage of the total population of jobless people by the total number of people in the labour force who are currently employed.

02

Step: 2 Umemployement Criteria:

In 2012, the Fed took a middle ground by attaching its interest rate objective to the unemployment rate. As soon as jobless rates were high, the (passive) monetary policy was focused on maintaining the targeted interest rate. However, when the objective was altered as soon as the jobless rate went below that threshold, this became active. The other option was to maintain a level of inflation and unemployment.

03

Step: 3 Unemployment rate: 

Target deflation to stay around a certain level means lower unemployment rate, which limits the interest rate's flexibility. Gross Domestic product cannot rise in the long term, therefore unemployment rate remained at its base rate. A stimulus will boost aggregate demand, raise inflation by a full percentage point, and have no effect on the unemployment rate. Because the unemployment rate remains steady, the Fed does not need to reduce its support.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Take a look at panel (b) of Figure 17-4, and suppose that the economy initially operates at point A, at which the inflation rate is 0percent and the unemployment rate is 6percent, which is the natural rate of unemployment. Then the inflation rate increases to 3percent. Does reduced cyclical, frictional, or structural unemployment account for the resulting decrease in the unemployment rate at pointB ? Explain briefly.

The real-business-cycle approach attributes even short-run increases in real GDP largely to aggregate supply shocks. Rightward shifts in aggregate supply tend to push down the equilibrium price level. How could the real-business-cycle perspective explain the low but persistent inflation that the United States experienced until 2007?

Suppose that economists were able to use U.S. economic data to demonstrate that the rational expectations hypothesis is true. Would this be sufficient to demonstrate the validity of the policy irrelevance proposition?


Both the traditional Keynesian theory discussed in a previous chapter and the new Keynesian theory considered in this chapter indicate that the short-run aggregate supply curve is horizontal.

a. In terms of their short-ran implications for the price level and real GDP , is there any difference between the two approaches?

b. In terms of their long-ran implications for the price level and real GDP, is there any difference between the two approaches?

Evaluate the following statement: "In an important sense, the term policy irrelevance proposition is misleading because even if the rational expectations hypothesis is valid, economic policy actions can have significant effects on real GDP and the unemployment rate."
See all solutions

Recommended explanations on Economics Textbooks

Taxation Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.