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Macroeconomic Questions

A) How can output and unemployment rise at the same time?

b) What are the major macroeconomic goals of all societies?

c) Why are imports subtracted in calculating GDP?

d) How would you differentiate between economic growth and development?

e) Is zero inflation attainable and/or undesirable? Why?

Solution Preview

a) How can output and unemployment rise at the same time?

A positive demand shock can cause output and employment to rise at the same time.

Another explanation:

Assume an increase in prices.

At the nominal wage, firms demand more labor.
Workers should supply less labor causing excess demand, which bids up the nominal wage until the original equilibrium is restored. However, at the lower actual real wage, they believe nothing has changes, so effectively their supply schedule shifts out (Misinformed, they are willing to supply more labor at a lower real wage). The result is higher employment and output.

source: http://personal.rhul.ac.uk/urte/250/5.%20ADAS.ppt.

b) What are the major macroeconomic goals of all societies?

Full employment, stability and economic growth are the major macroeconomic goals of all societies. If these three goals are achieved, a society and its economy will head in the right direction towards progress. Full employment is achieved when all available resources (labor, capital, land, and entrepreneurship) are used to produce goods and services. This goal is commonly indicated by the employment of labor resources (measured by the unemployment rate).

Stability is achieved by avoiding or limiting fluctuations in production, employment, and prices. Stability seeks to avoid the recessionary declines ...

Solution Summary

How can output and unemployment rise at the same time?

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