Answered: Some people have said that the Soviet…

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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6) Some people have said that the Soviet Union saved too much. Explain the benefit of saving in the long run and how over-saving could be possible.

7) Give an example of a government policy that could change savings behavior and an example that could change the productivity in an economy.

8) Explain why the Federal Reserve’s goals of lowering inflation and unemployment creates a time consistency problem. Explain using the short and medium run Phillip’s curve.

9) Show a liquidity trap situation on an IS-LM graph. Explain the possible policy changes to end this situation.

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Definition Definition Relationship between the rate of unemployment and the rate of inflation that shows that the lower the initial rate of unemployment, the greater the rise in wage rate corresponding to a given rise in the rate of unemployment. The Phillips curve assumes that the ratio between prices and nominal wage rates is constant in the short run. Presented graphically, the Phillips curve shows an inverse relationship between the rate of unemployment and the rate of inflation.

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