Answer to Question #320956 in Macroeconomics for ken

Question

Distinguish between (3 marks each)

i. Open market operations and exchange rate

ii. Monetary and fiscal policy

iii. Classical and Keynesian aggregate supply curve

iv. Structural and cyclical unemployment

v. Phillips curve and IS curve

Answer 1

I.

Being an open market is an economic system with little or no impediments to free-market activities, rules or practices that impede free-market activity are all characteristics of an open market. Competitive hurdles to the entrance may exist in open markets, but there are never any regulatory barriers to entry. One currency is exchanged for another is the exchange rate between two currencies. The long-term Phillips curve is a vertical line that indicates that there is no permanent trade-off between inflation and unemployment in the long run. On the other hand, the short-run Phillips curve is typically L-shaped to show the early inverse relationship between the two variables. Inflation lowers as unemployment rates rise; as unemployment rates fall, inflation rises. It is also defined as the worth of one country's currency in terms of another.

In an open market, the pricing of products or services is mostly determined by supply and demand factors, with little interference or outside influence from huge corporations or governmental bodies. Free trade policies, which aim to remove discrimination against imports and exports, go hand in hand with open markets. Buyers and sellers from other economies may trade willingly without a government imposing tariffs, quotas, subsidies, or restrictions on products and services, which are significant obstacles to entry into international commerce.

II.

Monetary policy refers to central banks' operations to accomplish macroeconomic policy goals such as price stability, full employment, and steady economic development, while Fiscal policy refers to the federal government's tax and spending policies. The Fed is not involved in the fiscal policy decisions made by Congress and the Administration.

III.

The aggregate supply curve in the classical model is vertical (price level on the y axis), indicating that output is fixed and bound by technology and inputs. Prices are negotiable. As a result, if the demand curve shifts, the influence will be solely on the price level rather than output.

The aggregate supply curve in the Keynesian model is horizontal at some price level. If demand changes, it will not influence output.

So the major distinction is in pricing flexibility and the ability to increase production through aggregate demand stimulation.

IV.

Cyclical unemployment is only brief and usually lasts only as long as a business cycle is suffering. Cyclical unemployment is caused by the natural ups and downs in a business cycle, such as expansions and contractions in economic growth.

On the other hand, structural unemployment refers to long-term changes in the labor force structure of the economy over a lengthy period. Structural unemployment can occur due to a worker's lack of skills or technological advancements that have rendered employees unemployed.

V.

The Phillips curve illustrates the link between inflation and unemployment. The long-term Phillips curve is vertically described by curve, indicating that there is no permanent trade-off between inflation and unemployment in the long run. On the other hand, the short-run Phillips curve is typically L-shaped to show the early inverse relationship between the two variables. Inflation lowers as unemployment rates rise; as unemployment rates fall, inflation rises.