Chapter 17.1, Problem 3R

To determine

To evaluate the effect on employment rate when government tightens the money supply to slow inflation.

Explanation of Solution

Economists analyze the money supply and create policies that revolve around it by regulating interest rates and raising or lowering the quantity of money that flows through the economy. Assessment of the private and public sectors is carried out due to the possible impacts of the money supply on price level, inflation and the business cycle.

When the government tightens the money supply to slow inflation, cyclical unemployment happens, it is a factor of general unemployment that recognizes within the business cycle with the repeating patterns of development and generation that occur. Recurring unemployment will be low at the point where business cycles are at their peak, on the grounds that the aggregate monetary yield is being increased.Cyclical unemployment is the portion of total unemployment that arises primarily from cycles of upturn and decline in the economy.

Economics Concept Introduction

Introduction: The money supply, on the date determined, is all the currency and other liquid instruments in the economy of a country. The money supply contains approximately both cash and deposits and can be used just as easily as cash.