Unemployment and inflation

Question 1

Joseph Schumpeter Creative detruction

Answer 1

Changes in the economy will create declining industries and structural unemployment only solvable by retraining

Question 2

2 cause of Recession

Answer 2

Market failure

Government failure

Question 3

NURU

Answer 3

An aggregate unemployment rate at which all micro labour markets are in equilibrium
Therefore anyone wanting a job can get one

Question 4

Expectations revolution?

Answer 4

Rational agents would second guess government policy, and thereby policy becomes ineffective as prices and wages take expected policy into account
The free market should be left instead to fix this

Question 5

5 deregulation policy prescriptions

Answer 5

Remove price controls
Deregulate industry
Privatise
Cut T + G
Make central bank independent

Question 6

How did Japan enter depression/liquidity trap? (3)

Answer 6

Massive housing bubble due to easy credit crashed
September 1990 share prices down 50%, and 82% by 2008
2004 houses selling at 1/10 of peak price

Question 7

Keynesian vs. New classical policy in crisis

Answer 7

Keynesian more appropriate when economy demand deficient

New classical more appropriate if economy is supply constrained

Question 8

Success of New classical theory

Answer 8

1980’s implemented in Reagan-Thatcher area first
Lifted millions of poverty globally
Improved efficiency of markets