5. How does cyclical unemployment relate to a nation’s production possibilities

Question

5. How does cyclical unemployment relate to a nation’s production possibilities curve and how does cyclical unemployment behave across the business cycle? 6. What sorts of events can knock an economy off its long-run equilibrium, full-employment level of real GDP? 7. By referring only to the pattern of quarterly macroeconomic equilibriums, which of the recessions since 1970 would you argue that the Great Recession most resembles? Explain. 8. Why do changes in the money supply not cause changes in the nation’s production possibilities frontier?

Explanation / Answer

5) cyclical unemployment behaves cyclically in the business nature , at high business cycle the cyclical unemployment will be lower because their is high productivity which means the country is functioning at optimal resource usage on the production possibility curve.When the economic output falls ,GDP falls with rise in cyclical unemployment.

6)Long run equlibirum are affected by changes in the monetary policy , when the output is fixed shift in the fiscal policy are not affected because the AS curve is vertical , it is better to work with sound monetary policy so that there is fall in the interest rates inducing investment and output demand in the economy .

7) Similar era was 2000s with supply shocks and fall in the output andGDP in the economy.Fall in the production possibilities of the country and rising inflation causes recessionary trends when the business cycles fell and gave rise to cyclical unemployment .

8) PPF is concerned with lcombination of resources available in the economy .Inducing money supply in the economy pushes interest and investment in the economy ,this induces production and output generation but not necessarily ensure optimum utilisation of the country's resources .

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