Michael Parkin
ISBN #9780133872279
12th Edition
839 Questions
Homework Questions
This section covers a broad spectrum of macroeconomic theories concerning business cycles, inflation, and deflation. It explains how mainstream business cycle theory attributes fluctuations around potential GDP to varying aggregate demand, while Real Business Cycle (RBC) theory emphasizes technology-driven productivity shocks. The text distinguishes between demand-pull inflation (caused by rising aggregate demand) and cost-push inflation (triggered by increased production costs), and examines the role of expectations in stabilizing or destabilizing inflation. Additionally, it addresses deflation’s causes, consequences, and remedies, and uses the Phillips curve to illustrate the short-run trade-off between inflation and unemployment versus the long-run neutrality of monetary policy.
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What is the cause of the high unemployment rate? One side says there is not enough government spending. The other says it's a structural problem-people who can't move to take new jobs because they are tied down to burdensome mortgages or firms that can't find workers with the requisite skills to fill job openings. Which business cycle theory would say that most of the unemployment is cyclical? Which would say it is an increase in the natural rate? Why?
On top of rising energy prices, a severe drought, bad harvests, and a poor monsoon season in Asia have sent grain prices soaring. Globally, this is the third major food price shock in five years. Explain what type of inflation the news clip is describing and provide a graphical analysis of it.
Some events occur and the economy experiences a demand-pull inflation. What might those events have been? Describe their initial effects and explain how a demand-pull inflation spiral results.
Some events occur and the economy experiences a cost-push inflation. What might those events have been? Describe their initial effects and explain how a cost-push inflation spiral develops.
Some events occur and the economy is expected to experience inflation. What might those events have been? Describe their initial effects and what happens as an expected inflation proceeds.