A main reason for the low unemployment rate from 1995...

A main reason for the low unemployment rate from 1995 through most of the 2000s was because of Question content area bottom Part 1 A. the government's policy of tightening immigration policies. B. increased defense expenditures by the government. C. the rapid development of the Internet industry and other new technologies. D. government's more liberal social benefit programs. E. higher oil prices.

Transcript

00:01 Today we'll be solving problem one from chapter 29 of economics 12 edition.

00:06 This question gives an excerpt from the wall street journal, and it wants you to explain why there's such a high unemployment rate.

00:13 Is there not enough government spending? is it a structural issue, such as workers being tied to their location by mortgages or being unable to fill job openings? and the question wants to know, which theory regarding the business cycle would argue that most of this high unemployment is cyclical? and the answer to this question is that the business cycle theory would be mainstream business cycle theory, because this theory asserts that high unemployment is a symptom of cyclical changes in aggregate demand.

00:42 Here we have two plots.

00:46 In a business cycle expansion, potential gdp increases, and the long -run average supply curve shifts to the right.

00:53 So here you can see the long -run average supply curve shifts from long -run average supply not to long -run average supply one.

00:59 If the aggregate demand curve shifts to the right by a smaller amount than a recessionary gap arises.

01:07 So if the long run, if the aggregate demand curve shifts to the right by a smaller amount, so that would be at this point here, oops, at this point here, then a recessionary gap arises where the potential gdp or is greater than the real gdp.

01:30 This causes companies to pull back spending on labor and the real wage rate and quantity of labor decreases.

01:44 So the labor demand curve shifts to the left from labor demand zero to labor demand not.

01:50 And the quantity of labor demanded also decreases along with a decrease in the real wage rate...

Question

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