For the following questions, consider the figure below. Initially, the economy is at the equilibrium in point A. Wage 16 14 12 10 8 69 4 2 LD₁ 6 78 ·a LS A LD 2 > 3 Quantity of labor (in millions) a. If a crisis moves the labor demand to the curve LD₁ and wages are flexible, what is the new equilibrium wage? What is the new equilibrium wage if wages are downward rigid? b. If an overheated economy moves the labor demand to the curve LD2, will the unemployment rate change? What do you expect to happen with the price levels? Explain why this situation is also a problem for the policy-maker. c. Cite one fiscal policy and one monetary policy that the government or the Fed can enact to reduce the rate of inflation. Be specific.

For the following questions, consider the figure below. Initially, the economy is at the equilibrium in point A. Wage 16 14 12 10 8 69 4 2 LD₁ 6 78 ·a LS A LD 2 > 3 Quantity of labor (in millions) a. If a crisis moves the labor demand to the curve LD₁ and wages are flexible, what is the new equilibrium wage? What is the new equilibrium wage if wages are downward rigid? b. If an overheated economy moves the labor demand to the curve LD2, will the unemployment rate change? What do you expect to happen with the price levels? Explain why this situation is also a problem for the policy-maker. c. Cite one fiscal policy and one monetary policy that the government or the Fed can enact to reduce the rate of inflation. Be specific.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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