The unemployment rate is one measure of the economic health of our nation. Explain how the existence of
discouraged workers and underemployed workers may undermine the usefulness of the unemployment rate
for this purpose.
2. Will it take a smaller amount of government spending to increase the level of national income if the
government balances its budget or if it runs a budget deficit? Explain.
3. Explain why the natural rate of unemployment is not equal to 0.
4. Explain how each of the following affects the natural rate of unemployment:
a.the introduction of unemployment programs that temporarily replace lost income for unemployed
b.government funding for campus career placement centers that teach students how to write resumes and
interview, and that schedule and coordinate on-campus interviews with potential employers
c.government legislation that mandates that large employers hold jobs for employees who leave to take
care of infants or sick family members
5. a.When the United States experienced double-digit inflation rates in the 1970s, people routinely bought
houses that were more expensive than they could easily afford. Explain their behavior.
b. Mortgage companies responded to this behavior, in part, by offering variable rate mortgages, where the
interest rate for the loan varies with the inflation rate. Explain their behavior.
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