1. If you could pick only 1 focus, should policy- makers focus on minimizing inf
ID: 1161344 • Letter: 1
Question
1. If you could pick only 1 focus, should policy- makers focus on minimizing inflation or should they focus on minimizing unemployment? Explain and include concepts from your readings in your answer. 2. We learned that self-repairs and doing things at home are not included in GDP. Yet some cultures and societies rely on self-subsistence; they hunt their food, grow their vegetables and cut the trees to build their homes ("Alaska, the Last Frontier"!). And these societies exist in the U.S. Do you see any danger to omitting this activity from GDP? Explain. Post your answer as a reply to these instructions. 20 Points for your answer to the above questions. Be sure to use some concepts from the text or powerpoints in your explanations/justifications for your answer. 200 words minimum. Due Thursday at 11:59PM.Explanation / Answer
1)
In situations when an economy faces stagflation where there is high rate of unemployment and also high rate of inflation exit then it becomes a major problem for policy makers to make policies to correct the problems of economy. Because if measures are dipted to reduce unemployment then inflation will rise and if measures are adopted to reduce inflation then unemployment will rise. Thus in this situation policy makers have to make a tradeoff between how much to control each.
It has been suggested by theories like NAIRU that accelerating inflation generally occurs when the unemployment rate gets below the natural level rate of unemplpyment. The natural rate of unemployment is that unemployment level which exist in an economy and is not becaus eof business cycle being down rather it is mainly because of frictional unemployment and henec it is natural. Thus policy nakers may take various policy measures like expansionary policies throygh fiscal and monetary measn to reduce the unemplpyment rate until it reaches the natural rate of unemplpyment. When it reaches the natural rate then expansionary policies shoudl eb stopped to reduce more unemployment as it would then accelerate inflation highly. IN order to have the price stable the policies should be expansionary until the unemployment rate reaches to the level of natural rate of unemployment.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.