Why the neoclassical economists believe that nothing much needs to be done about unemployment.
1. Economists expect that as the labor market continues to tighten going into the latter
part of 2015, that workers should begin to expect wage increases in 2015 and 2016.
Assuming this occurs and it was the only development in the labor market that year,
how would this affect the economy from a neoclassical perspective? What if it was
also accompanied by an increase in worker productivity? Use diagrams to illustrate
your answer.
2. From a Keynesian point of view, which is more likely to cause a recession:
aggregate demand or aggregate supply, and why? Use diagrams and a real world
example to answer the question.
3. Explain what types of policies the federal government may have implemented to
restore aggregate demand and the potential obstacles policymakers may have
encountered.
4. How did the Keynesian perspective address the economic market failure of the
Great Depression? Use a Keynesian Cross model and diagrams to illustrate your
answer.
5. Explain why the neoclassical economists believe that nothing much needs to be
done about unemployment. Do you agree or disagree? Explain.
6. What do you think the Federal Reserve Bank did to the reserve requirement for
commercial banks during the Great Recession of 2008–2009?
7. Explain the difference between how you would characterize bank deposits and
loans as assets and liabilities on your own personal balance sheet and how a bank
would characterize deposits and loans as assets and liabilities on its balance sheet.
8. Explain what would happen if banks were notified they had to increase their
required reserves by one percentage point from, say, 9% to 10% of deposits. What
would their options be to come up with the cash?
9. Specify whether expansionary or contractionary fiscal policy would seem to be
most appropriate in response to each of the situations below and sketch a diagram
using either a Keynesian Cross model OR a Neoclassical model to illustrate your
answer:
a. A recession.
b. A stock market collapse that hurts consumer and business confidence.
c. Extremely rapid growth of exports.
d. Rising inflation.
e. A rise in the natural