Discussion Posts

Discussion One

The U.S. enhanced federal unemployment insurance that lasted for about 18 months since 2020 came to an end at the beginning of September, making about 9million U.S. residents lose such benefits. This will also cause a reduction in the checks of 3 million Americans with about 300 dollars. Over the few months, U.S. has reported a rapid increase in unemployment claims due to the rapid spread of the delta variant. The new variant has led to many layoffs rendering many Americans jobless (Rugaber, 2021). This has contributed to the significant rise in the application for jobless aid from the labor department.

Research reveals that the country had been experiencing a very low number of claims over the years, with the only rise being experienced during the global recession that happened in 2008. However, since January 2020, initial unemployment claims rose sharply from a low of fewer than 1 million people to about 6.9 million. This rise can be attributed to the lockdown that was instituted last year, where millions of people were rendered jobless, and others received huge pay cuts (Rugaber, 2021). Additionally, it can also be attributed to the slow-down of production and activities in companies, thus reducing the demand for labor.

Generally, the uncertainty in the economy led to low investment, which often translates to inflation. During the lockdown, the shutdown of production activities led to the shortage of goods and services, thus causing inflation. According to the law of demand and supply, a shortage of goods implies that demand is higher than supply can cover; thus, suppliers tend to increase prices, causing inflation (Marca English, 2021). However, due to the high unemployment, aggregate demand tends to be low due to decreased purchasing power. However, this only holds in the short run. In the long run, there cannot be a tradeoff between inflation and unemployment.

References

Marca English. (2021, September 8). Extended unemployment benefits: How to apply for benefit extension. MARCA. https://www.marca.com/en/lifestyle/us-news/2021/09/08/6138c576268e3ecc038b45bf.html

Rugaber, C. (2021, September 16). U.S. unemployment claims rise after hitting pandemic low. AP NEWS. https://apnews.com/article/business-health-pandemics-coronavirus-pandemic-economy-9d58528c65714d3e06c33b96cbf0c63c

 

 

Discussion Two

The government controls the supply of money in the economy through the Federal Reserve, which the government has mandated to undertake actions that control monetary supply. These actions entail enacting expansionary and contractionary monetary policies such as open market operations, Federal Reserve requirements, and interest rate changes, among others (Cachanosky et al., 2021). When money supply in the economy is low, the fed enacts expansionary monetary policies such as selling the securities it held in its reserves, thus increasing supply. This can also be achieved through a reduction in reserve requirements for commercial banks. However, when supply is high, and inflation is increasing rapidly, the fed enacts contractionary policies to lower the supply.

Recently, the economy has been experiencing a recession due to the pandemic that led to the shutting down of operations. Money supply in the economy went down, lowering the aggregate demand of the economy. The economic downturn created harsh conditions for growth and led to the inability of the business to thrive. The economy is experiencing high unemployment rates that can be attributed to the pandemic (Cachanosky et al., 2021). Low-income levels within the economy lower the purchasing power of the consumers, thus lowering their quality of life. Therefore, the fed has been forced to enact expansionary monetary policies that will help boost economic growth and conditions, making them more favorable for consumers and businesses.

The fed lowered the Federal Reserve requirement imposed on commercial banks, thus increasing the disposable income available to these banks, increasing their ability to loan (Cachanosky et al., 2021). Lower interest rates attracted more borrowers to take on loans, leading to an increase in the money supply. Additionally, the fed also enacted expansionary fiscal policies that encouraged the government to increase its spending, increasing the money supply. These actions reveal that the economy is shrinking, but it is expected to start expanding as time progresses. The fed should impact the business cycles because some of the conditions in certain cycles are worse for the economy. Factors to be considered are unemployment, inflation and GDP.

Reference

Cachanosky, N., Cutsinger, B. P., Hogan, T. L., Luther, W. J., & Salter, A. W. (2021). The Federal Reserve's response to the COVID?19 contraction: an initial appraisal. Southern Economic Journal, 87(4), 1152-1174.

Homework Questions

1. Suppose the adult population over the age of 16 is 237.8 million and the labor force is

153.9 million (of whom 139.1million are employed). How many people are “not in the labor force?” What are the proportions of employed, unemployed and not in the labor force in the population?

Hint: Proportions are percentages.

Answer; The number of people not in the labor force 83.1 million.

The proportions of the employed is 58.5%, 6.2% unemployed and 35.3 % in the labor force.

3. Over the long term, has the U.S. unemployment rate generally trended up, trended down, or remained at basically the same level?

Answer: In the long run, unemployment in the U.S. can be said to have trended down consistent.

However, this trend has been disrupted occasionally by various events such as the great recession and the pandemic.

5. Beginning in the 1970s and continuing for three decades, women entered the U.S. labor force in a big way. If we assume that wages are sticky in a downward direction, but that around 1970 the demand for labor equaled the supply of labor at the current wage rate, what do you imagine happened to the wage rate, employment, and unemployment as a result of increased labor force participation?

Answer: If the demand for labor equals the supply of labor then the economy can be said to be at full employment. Therefore, unemployment rate would be very low and the wage rate would be at the equilibrium rate.

32. If many workers become discouraged from looking for jobs, explain how the number

of jobs could decline but the unemployment rate could fall at the same time.

Answer; when workers are discouraged looking for jobs, then the supply of labor becomes; Companies will be forced to offered high wage rates to attract workers thus lowering unemployment. However, in the long run, companies will have to look for cost effective ways to get the job done such as through investment in technology.

36. Why do you think that unemployment rates are lower for individuals with more education?

Answer: Generally, educated people are deemed to be more skilled and thus they are considered first during recruitment hence the lower rates on unemployment among the educated persons.

45. A country with a population of eight million adults has five million employed, 500,000 unemployed, and the rest of the adult population is out of the labor force. What’s the unemployment rate? What share of population is in the labor force? Sketch a pie chart that divides the adult population into these three groups.

Answer: The unemployment rate is 6.25%. The share of proportion in the work force is 68.75%. The employed is 31.25%

Labor force    Unemployed                 68.75                             Employed

                                

 

 

 

 

 

 

 

4. Edna is living in a retirement home where most of her needs are taken care of, but

she has some discretionary spending. Based on the basket of goods in Table 9.5, by

what percentage does Edna’s cost of living increase between time 1 and time 2?

Table not provided

8. If inflation rises unexpectedly by 5%, would a state government that had recently

borrowed money to pay for a new highway benefit or lose?

Answer: The statement government would benefit because the amount repaid would be lower in terms of value than the money borrowed.

22. Inflation rates, like most statistics, are imperfect measures. Can you identify some ways that the inflation rate for fruit does not perfectly capture the rising price of fruit?

Answer: When the increase in inflation does not reflect the increase in price of most goods because not all goods are included in the consumer price index such as fruits.

7. List the areas where government policy can help economic growth.

Answer: Government policy can help economic growth in areas such as taxation, interest rates, government spending and investments.

10. What are the “advantages of backwardness” for economic growth?

Answer;

The advantages of backwardness are the ability to adapt new technology, faster growth due to convergence and strong driving forces.

22. Over the past 50 years, many countries have experienced an annual growth rate in

real GDP per capita greater than that of the United States. Some examples are China,

Japan, South Korea, and Taiwan. Does that mean the United States is regressing

relative to other countries? Does that mean these countries will eventually overtake the

United States in terms of rate of growth of real GDP per capita? Explain.

Answer: The U.S is regressing relative to other countries; however, it still remains top in ranking of countries according to GDP. However, if the trend continuously, it is likely to be surpassed by other nations such as Japan and China. With forecasts stating that Japan and China are likely to outdo the U.S. by 2033.

 

3. The short run aggregate supply curve was constructed assuming that as the price of

outputs increases, the price of inputs stays the same. How would an increase in the

prices of important inputs, like energy, affect aggregate supply?

Answer:

An increase in price of inputs leads to lower supply since companies are forced to buy less inputs which leads to lower output. This translates to lower aggregate supply.

5. Suppose the U.S. Congress passes significant immigration reform that makes it

easier for foreigners to come to the United States to work. Use the AD/AS model to

explain how this would affect the equilibrium level of GDP and the price level.

Answer

An increase in immigrants increases the supply of cheap labor thus causing the wage rate to go down. However, this would lower the production cost leading to lower price level. When prices go down, demand increases thus increasing the GDP of the country. 

12. Suppose, after five years of sluggish growth, the economy of the European Union

picks up speed. What would be the likely impact on the U.S. trade balance, GDP, and

employment?

Answer;

The impact of economic growth in the European Union would lead to an appreciation of the Euro relative to the dollar. This would make U.S. exports cheaper in the European Union thus causing a increase in trade balance. Increased imports boosts economic growth since it increases production levels creating more jobs. Therefore, the GDP would increase and unemployment would decrease.

41. Why would an economist choose either the neoclassical perspective or the

Keynesian perspective, but not both?

Answer; the two perspectives have different views on how the government should act during various economic conditions. For instance, the Keynesian perspective argues that the government should undertake actions during periods on recession to lower unemployment and inflation rates while the neoclassical argues that the market should be allowed to regulate itself.

46. Hydraulic fracturing (fracking) has the potential to significantly increase the amount

of natural gas produced in the United States. If a large percentage of factories and utility

companies use natural gas, what will happen to output, the price level, and employment

as fracking becomes more widely used?

Answer:  If companies use natural gas, output would increase and price level would decrease because the taxes on emissions and caps has made companies to limit their production activities. Additionally, the taxes paid increased the cost of production leading to high price levels. Increased production leads to low unemployment.