For this question, assume that expectations of productivity growth adjust slowly. Now, suppose that there is a 3% reduction in productivity. Explain how this 3% reduction in productivity can cause changes in the unemployment rate
What will be an ideal response?
The PS curve will shift up as productivity growth occurs; however, it will not shift up as much. If expectations of productivity are slow to adjust, the WS curve continues to shift up by a larger amount (based on past increases in A ). The real wage will rise by the actual change in productivity. The unemployment rate will, however, increase because of the larger shift in the WS curve.
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Suppose the banks in the Federal Reserve System have $400 million in transactions accounts and the reserve requirement is 0.10. Ceteris paribus, if the reserve requirement is decreased to 0.05, then excess reserves will increase by:
A. $1 million. B. $20 million. C. $40 million. D. $2 billion.
Who officially determines whether the economy is in a recession or expansion?
A) The president of the United States B) The U.S. Congress C) The Federal Reserve Board of Governors D) The National Bureau of Economic Research