7.If the free market fixes a recession by itself (no government action), what is

Question

7.If the free market fixes a recession by itself (no government action), what is the technical term for that in economics? Who believes more strongly that government action is unnecessary, (neo)classical economists or Keynesians?

8.What are the U.S. government’s definitions of “employed” and “unemployed”? What’s the difference between frictional and structural unemployment?

9.What is “inflation”? What causes inflation?

10.If the government cuts income taxes, what will probably happen to consumer spending? What happens to aggregate demand?

11.How is business investment in machines and buildings affected by interest rate changes?

12.Define budget deficit and budget surplus.

13.To fight a recession, what would Keynesians recommend that the government do with government spending? Transfer payments? Taxes?

14.The Federal Reserve is responsible for what sort of policy? If the Fed wants to boost the GDP, what will it probably do with interest rates and the money supply?

15.What does it mean if a country has a “comparative advantage” in producing and exporting something? How do tariffs affect imports?

Explanation / Answer

7. The technical term is "Self Correcting'', when the free market fixes a recession by itself, now according to the neo classical economist like adam smith beleives that government action is unnecessary, and market will correct itself in the long run.

8. According to the US Bureau of labour statistics, the people who are jobless, looking for jobs in prior 4 weeks and available for work are defined as unemployed, whereas employed are those persons who did any work for pay or profit during the survey reference week.

Frictional Unemployement is an unemployement which is caused when workers transit between one job to the other, whereas Structural Unemployement is due to changes in the market conditions and business cycles.

9. The Rise in the price of goods in services in the market is called as inflation, inflation is caused due to rise in demand of goods and services due to rise in personal disposable income, government subsidies, high income, government's fiscal expenditure etc.

10. If Government cuts income tax, then the personal disposable income will rise, therefore the purchasing power of the people will rise, due to which the consumer spending is high and resulting in high aggregate demand as per the law of demand.

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