Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 20, Problem 3.3P
To determine
To explain
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In a neoclassical model, describe how each of the following developments or measures will impact unemployment:• a rise in income levels for consumers throughout the economy• cheaper imported products• a fall in government spending
However, the labor market is a derivative of the goods market in the Keynesian theory (“principle of effective demand”). Therefore, unemployment is explained by the lack of demand in the goods market. According to the Keynesian theory, what would happen to the unemployment rate if real wages fall? How should unemployment be reduced?
Which of the following policies would Keynesian economists recommend to help lower the rate of unemployment?
a) All of the choices are correct
b) Decreases taxes on households
c) Increase government spending
d) Increase the money supply
e) Decrease business taxes
Chapter 20 Solutions
Principles of Economics (12th Edition)
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- Analyse how a Neoclassical version of the labour market would indicate that, in equilibrium, all unemployment is voluntary, and how, assuming imperfect competition instead, would account for the existence of some involuntary unemployment.arrow_forwardIn the Neoclassical Model, which of the following is more likely to be associated with a high level of unemployment? A) A low money wage. B) A low real wage. C) A high rate of interest. D) A high rate of inflation. E) None of the above.arrow_forwardAccording to neoclassical theory, compensating consumers for inflation as measured by a base year weighted index can overcompensate them because: A some goods may be inferior B relative prices may not have changed C some goods may give disutility D goods are substitutable in consumer preferencesarrow_forward
- However, the labor market is a derivative of the goods market in the Keynesian theory (“principle of effective demand”).Therefore, the unemployment is explained by the lack of demand in the goods market.According to the Keynesian theory, what would happen to the unemployment rate of real wages fall? How should unemployment be reduced?arrow_forwardThere is an on‐going debate on how unemployment benefits affect the unemployment rate. In the context of the Mortensen‐Pissarides model, unemployment benefits are represented by the variable b. Explain carefully how an increase in b affects each equilibrium condition (Beveridge curve, vacancy supply condition, and wage setting curve.) How is the steady‐state unemployment rate impacted by an increase in b? Use the simulation tool here, https://www.briancjenkins.com/dmp‐model/simulation‐tool.html, to check your answer.arrow_forwardWhy would neoclassical economists think that the government doesn't need to take many steps to combat unemployment? Whether you concur or disagree Explain.arrow_forward
- A key difference between neoclassical and Keynesian economists is how to predict and treat the future growth of the economy. Neoclassicalists believe the focus should be on ____________ and Keynesians believe the focus should be on _________________. A, B, C, OR D ONE ANSWER A short-term problems; long-term problems B long-term problems; short-term problems C long-term problems; long-term problems D short-term problems; short-term problemsarrow_forwardIn the Keynesian framework, which of the following events might cause inflation? Group of answer choices interest rates rise none of the above exports decrease a large increase in the price of the homes people own.arrow_forwardIn the Keynesian model (that is, the short run), what causes recessions?arrow_forward
- According to neoclassical labor supply model, one reason why women have lower labor force participation than men is gender wage gap, the fact that their time in labor markets is less valued than men. True Falsearrow_forwardWhat happens when firms and workers underestimate future prices in the economy? Focus your answer on what would happen to actual output as opposed to the expected potential output. (Course is macroeconomics).arrow_forwardIf a neoclassical model shows increasing wages growing faster than productivity in the economy over the long run, what else will likely occur? inflationary increase in price level substantial short-term off-setting decrease in output change in government policy to decrease in aggregate demand short-run decrease in cyclical unemploymentarrow_forward
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