Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 9, Problem 1RQ
To determine
The factors that would decide the FE line’s position and examples of economic changes that would make the line shift to the right.
Expert Solution & Answer
Answer to Problem 1RQ
The position of the FE line would be decided by the production function and the labor market. Aspects such as a rise in labor supply or a rise in the capital stock could make the line shift to the right.
Explanation of Solution
The full employment line in economics is associated with the labor market. It is a vertical line drawn at the level of output when it is at full employment. At the full employment level, the economy would produce output not taking into account what the real interest rate is. Along the full employment line, any given point would be in equilibrium with regard to the labor market. The factors that decide the position of the FE line are the production function and the labor market. The FE line could shift due to various economic changes. A rise in the supply of labor could make the line shift to the right. Further, an increase in the capital stock would also do so. Beneficial supply shocks could also make a shift in the FE line to the right.
Economics Concept Introduction
Introduction: The FE line or the full employment line is discussed in the field of economics with regard to the labor market. The full employment line would be drawn as a vertical line in a graph. There would be various aspects that would decide the position of the full employment line as well as factors that could create a shift in the full employment line.
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