Imagine a central banker who takes office believing that, ultimately, the best way to stimulate an economy is to keep people guessing. This means the policy maker will often, but not always, announce one change but then actually do something else. What do you think of the central bank's chances for achieving its objectives and why?
What will be an ideal response?
This violates one of the requirements of a well-designed policy framework and that is credibility. If policymakers aren't credible their actions will not become stabilizing but destabilizing, and if the goal of economic policy is to reduce systematic risk, this non-credibility isn't going to work. Systematic risk will actually increase and we are likely to see a less stable economy with a slower growth rate as people spend considerable time and effort trying to guess what the policymakers are likely to do.
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The effect of legislation establishing a minimum wage above the market clearing wage is
A) unemployment. B) a shortage of labor. C) higher wages for all workers. D) a shift of the demand for labor curve.
Which of the following is an example of frictional unemployment?
A. Dora lost her job when the textile factory closed. She does not have skills to work in another industry and has been unemployed for over a year. B. Hector looked for a job for five weeks after finishing college. He turned down several jobs that didn't fit his skills, but now has a job that requires the expertise he gained in college. C. George is an unskilled worker who mows lawns in the summer, but is unemployed the rest of the year. D. Marsha was laid off from her job with the airline because the recession has reduced the demand for airline travel. She expects to get her job back when the economy picks up.