Macroeconomics

Follow these steps:
A. Identify the problem: Inflation (I) or Unemployment (UE). If Unemployment, state which type of unemployment.
B. If it is cyclical unemployment, list the two ways Fiscal Policy can be used to resolve the problem. If it is some other type of unemployment state what the government should do.
C. If the problem is Inflation, list the two ways Fiscal Policy can be used to resolve the problem.

1. Most people are employed. People are spending more money than ever; they are buying very high dollar goods. Many retailers have found that they can charge higher prices.
   A. ______________________________________________________________

B. ______________________________________________________________

C. ______________________________________________________________

2. By late 1979 a recession began, during this time orders for goods were declining and inventories increased. Many people are searching for work.
   A. _____________________________________________________________

B. _____________________________________________________________

C. _____________________________________________________________

3. The United States is in a deep depression that is greater that the great one of the 1930’s.
   A. ______________________________________________________________

B. ______________________________________________________________

D. _____________________________________________________________

4. Parkview high students, as well as, most students around the country are being paid high wages at fast food restaurants. Many of these students are willing to pay high prices for cars, junk food and stereos.
   A. ______________________________________________________________

B. ______________________________________________________________

C. ______________________________________________________________

5. During the last 6 months the consumer price index has increased by 10%.
   A. ______________________________________________________________

B. ______________________________________________________________

C. ______________________________________________________________

6. Because of sluggish sales in new homes around the nation, 22% of the construction workers in that industry are unemployed. This raised the national unemployment rate to 7%.
   A. ________________________________________________________________

B. ________________________________________________________________

C. ________________________________________________________________

7. Out of work construction workers on Interstate 20 are now looking for work.
   A. ________________________________________________________________

B. ________________________________________________________________

C. ________________________________________________________________

8. A general decline for consumer goods around the nation has caused many manufacturers to reduce their work force.
   A. _______________________________________________________________

B. _______________________________________________________________

C. _______________________________________________________________

9. The government has awarded over 2 billion dollars in gov’t contracts this past 6 months. People are buying expensive homes and new Corvettes like crazy.
   A. _______________________________________________________________

B. _______________________________________________________________

C. _______________________________________________________________

10. People are buying only basic necessities and because of that, workers at fast food restaurants and movies theaters are without work.
    A. _______________________________________________________________

B. _______________________________________________________________

C. _______________________________________________________________

11. The unemployment rate has climbed to 12%, this is the highest since 1935.
    A. _______________________________________________________________

B. _______________________________________________________________

C. _______________________________________________________________

12. Because of a general drop in demand, home computers and other luxury items are in less
    demand over the last few months; many companies have laid off workers.
    A. _______________________________________________________________

B. _______________________________________________________________

C. _______________________________________________________________

13. Prices for new homes and cars have gone up quickly over the last 3 years so that most
    consumers cannot afford to buy either.
    A. _______________________________________________________________

B. _______________________________________________________________

C. _______________________________________________________________

Sample Solution