2 Look up the current unemployment rate for the US Does this

2. Look up the current unemployment rate for the US. Does this seem like we are at or near full employment or well above it or well below it? 10 points

3. Answer True or False for each of the following. 3 pts each

Expansionary policy is used to fix an expansionary gap.

If US prices are relatively high, the quantity of US goods demanded is high, aote.

The short-run AS curve overall has a positive slope in part because of the misperceptions.

Improvements in technology would be likely to shift the AS curve to the left.

Wages and prices are particularly flexible in the downward direction.

4. Choose which graph best displays the following situation. In each case list whether unemployment and inflation are higher or lower than normal.

a. a cyclical unemployment (15 pts)

b. stagflation (15 pts)

c. the “new economy” (15 pts)

Graph A Graph B

Solution

1) The flat portion of the As curve shows the classical range where increase in aggregate demand leads to increase in output without much inflation or influence on price. The nearly vertical portion of the AS curve shows the Keynesian region where increase in aggregate demand causes output to increase by little as the economy nears the full employment level and there is increased inflation in the economy. In between these two regions lies the intermediate region where change in demand leads to both change in output and price level.