Answer to Question #316271 in Macroeconomics for Khadija

Question

The college graduates of 2000 could hardly have asked for better luck. The unemployment rate dropped to 4.1 % in May 2000- roughly, the lowest level in a generation- and employers were literally scrambling for new hires. Starting salaries rose, many graduating seniors had numerous job offers, and some firms even offered $10,000- $20,000 bonuses to students who signed the dotted line.

(i) Briefly explain and justify what prevailing situation was taking place in the year 2000. (2 marks) (ii) Identify and explain two (2) fiscal policies and two (2) monetary policies that the US government may have used to correct this situation. (6 marks) (iii) Use a diagram to illustrate the correction measures. (2 marks) 

Answer 1

(i) Briefly explain and justify what prevailing situation was taking place in the year 2000. (2 marks)

In the year 2000, there was a high unemployment rate with minimal job opportunities up for grabs amongst the graduates.

Companies went through a rough period, making it impossible for them to open doors for job seekers.

(ii) Identify and explain two (2) fiscal policies and two (2) monetary policies that the US government may have used to correct this situation. (6 marks) 

when an economy goes through uncertain periods where inflation looms as the unemployment rate increases, the government seeks interventions through corrective measures to maintain the economy's stability.

Two fiscal policies

1. contractionary fiscal policy

is a policy whereby the government collects a lot of revenue through taxes compared to how it spends. This policy is suitable for a booming economy as it slows the pace of solid economic growth.

2. expansionary fiscal policy

The government spends more on its economy than what it collects through taxes. It is suitable during recess as it steers the economy to a high employment rate.

Two monetary values

1. contractionary monetary policy

The government limits the amount of money lent to businesses. in response, the banks increase the interest rest scaring away borrowers, thus controlling the money supply. 

2. expansionary monetary policy

The government provides a lot of money for lending through banks. The banks reduce their rates hence attracting more borrowers. The employment rate will build-up, and the economy's stability affirms itself.

iii. Diagram to illustrate correction measures