Answer to Question #52691 in Economics for candy

Question

1.) Assume that the full-employment level of output is $5000 billion and the natural unemployment rate is 6%. Suppose the current unemployment rate is 8%.

What would be the current level of output according to Okun'slaw ,when the Okun's law coefficient is 2? (Show your calculations)

2.) Draw a diagram showing the phases of the business cycle and the turning points (use the technical names). Using the diagram to illustrate the concepts of recurrence and persistence.

3.) Use an aggregate supply and aggregate demand diagram from Chapter 8 of Able and Bernanke to answer parts (a.) and (b.) below :

(a.) Answer as a Classical economist: Can an attempt by each and every person to increase their savings, result in an overall reduction in national saving?

Answer Yes or No and explain with a diagram.

(b.) Answer as a Keynesian economist: Can an attempt by each and every person to increase their savings, result in an overall reduction in national saving?

Answer Yes or No and explain with a diagram.

 

Answer 1

1.) If the full-employment level of output is $5000 billion, the natural unemployment rate is 6%, the current unemployment rate is 8%, Okun's law coefficient is 2, then the current level of output according to Okun's law is Y = 5000*(1 - 2*(0.8 - 0.6)) = $4800 billion.
2.) The term "business cycle" (or economic cycle or boom-bust cycle) refers to economy-wide fluctuations in production, trade and general economic activity. Business cycles are identified as having four distinct phases: expansion, peak, contraction, and trough.
3.)
(a.) According to Classical view an attempt by each and every person to increase their savings, result in an overall reduction in national saving.
(b.) According to Keynesian view an attempt by each and every person to increase their savings, result in an overall reduction in national saving?