Macro economics short answers - Essay Example

1. What is structural unemployment? What causes it? (10 points) List and explain 3 reasons. Structural unemployment is a kind of unemployment where, at a specified wage, the quantity of labor supplied is greater than the quantity of labor demanded. This type unemployment caused by a mismatch between the needs of the employers and the attributes (for example skills, age, or location) of the unemployed. This occurs due to some reasons namely;a) Minimum wage laws- government laws that set a minimum wage above labor market equilibrium creating a surplus of workersb) Efficiency wages – companies often set wages above equilibrium in hopes that it will motivate them and thus increase their productivity.c) Trade Unions – groups that negotiate salaries, allowances, and benefits with companies – unionized employees are paid wages above equilibrium level2.

What institutions promote economic growth in any country? Why some countries are economic miracles and others--economic disasters? (North Korea and South Korea) What is productivity (define) and what leads to increases in productivity? (15 points)Some institutions and institutional arrangements boost economic growth. Institutional arrangements outline the formal and informal rules of the game that direct how people interact. These arrangements form incentives and outline expected and tolerable forms of behavior in social interaction.

The institutions that boost economic growth include:a) Open markets – trade generates wealthb) Property rights – rights of ownership facilitate exchange of goods and services.c) Rule of law – stable legal arrangements employed uniformly encourage long-term investment.d) Entrepreneurship and innovation – increasing the benefits from innovative efforts adds to economic activity.Productivity is referred to as the ratio between the output quantity and the quantity of inputs. It determines how well production inputs, like labor and capital, are being employed in an economy to create a specified level of output.

Factors that lead to increases in productivity include capital accumulation, more access to natural resources, technological innovation, transformation in labor processes like division and specialization, improvements in business practices and transformation in patterns of trade.3. Extra Credit (10 points). According to chapter 3 in Free to Choose "The Anatomy of the Crises" what are the causes of Great Depression? What did the Fed not do in time according Milton Friedman?Great depression was as result of crash of the stock market.

Once the stock market plunged, fearful that banks would fail, people started to withdraw their money. Almost overnight, they put thousands of banks under threat. The more money people withdrew, the more banks failed, and the more banks failed, the more money people withdrew. By 1933, nearly 11,000 of the nation’s 25,000 banks had fallen. In order to boost economic activities the Fed was to put in place policy measures geared toward increasing money supply in the economy but it did not do that in time leading to economic downfall.