Assume that the economy is in equilibrium when the real interest rate rises. Explain, step-by-step, how the components of expenditure adjust to bring the economy to its new equilibrium
What will be an ideal response?
An increase in the real interest rate reduces consumption, investment, and net exports. Reduced expenditures cause an unplanned inventory adjustment to which firms respond by reducing output. The economy is moving to the left along the IS curve. The slope of the IS curve reflects the further output declines that occur as consumption falls in response to declining output, until the change in consumption has converged to zero (the marginal propensity to consume is less than one).
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During the 2008 - 09 recession, the U-6 measure of the unemployment rate
A) which counts marginally attached workers as unemployed but does not count discouraged workers as unemployed, reached 17 percent. B) which counts all part time workers as employed, reached 12 percent. C) which counts discouraged workers as unemployed but does not count marginally attached workers as unemployed, reached 17 percent. D) which counts marginally attached workers and discouraged workers as unemployed, reached 17 percent. E) which counts marginally attached workers and discouraged workers as employed, reached 10 percent.
The figure above shows a labor market. If there is a monopsony in this labor market, employment is
A) 0 hours per week. B) 50 hours per week. C) 100 hours per week. D) 150 hours per week.