Answer to Question #138775 in Macroeconomics for Abdulahe

Question

what could make the Canadian economy operate at an above full-employment level macroeconomic equilibrium (i.e. an equilibrium that is inflationary)? What can policy analysts do to restore the economy back to its full employment level?

Answer 1

$$Solution$$

The Canadian economy can operate at an above full employment equilibrium level if it produces goods and services at a rate that is higher than its potential or the long-run average levels that are determined by its gross domestic product, and this can lead to inflation.

Some of the policies that can be taken to restore the economy back to its full employment level are;

• Policy analysts should ensure aggregate demand is kept sufficiently high.
• Share of profits must have the right mix of labor-using and labor-saving investment is undertaken given the rate of growth of the labor force
• The wages should not rise much faster than the production of labor.