Common sense suggests (and macroeconomists agree!) that sustained economic growth over extended time periods is more important than the economy's short-term fluctuations
Why, then, do macroeconomists (and policymakers, and the general public) care so much about the business cycle?
One reason is impatience. Periods of high unemployment are costly in terms of lost output and personal distress. A portion of lost output is investment that would have contributed to long-run growth. The business cycle involves inflation, also, which causes uncertainty and distorts incentives in ways that lower investment and reduce long-run growth. If inflation is allowed to rise, corrective measures are likely to reduce economic activity, reducing or delaying the desired long-run growth.
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The number of unskilled workers employed before and after a change in the minimum wage is found to be the same. This means
A) the minimum wage change did not affect the unskilled labor market. B) nothing, unless we also know that the number of hours worked by each worker has not changed. C) the minimum wage could be below the equilibrium wage for unskilled labor. D) either b or c E) none of the above
The foreign exchange system that has the highest foreign exchange risk is
A) the Gold Standard B) the fixed exchange rate. C) the floating exchange rate. D) the Bretton Woods system.