Part A Describe three (3) ways we can use macroeconomic analysis, with one (1) o
ID: 1189348 • Letter: P
Question
Part A
Describe three (3) ways we can use macroeconomic analysis, with one (1) original example for each way.
You are running a small yard maintenance business for the summer. What do you expect to happen to the number of yards you can maintain in a day as you add workers if you don't purchase more capital equipment (like mowers and leaf blowers)? Provide at least two (2) supporting facts to support your response.
Part B
Using the real business cycle theory, explain two (2) effects of an adverse technological shock on the labor market and on the output market.
Suppose you were interested in increasing technological progress in your country. Suggest two (2) ways to do this.
Explanation / Answer
a.
On adding workers, would incrementally less productivity out of each additional worker. Holding constant materials, such as mowers and leaf blowers, it would be able to maintain more yards per day. But on hiring more workers, there could be waits for utilize of the tools, to the next job. This is the forecast of the principle of diminishing returns.
b.
Technology shocks are procedures in a macroeconomic model that modify the production function. A technology shock affects an industry‘s productivity, this may be a positive shock, or a negative shock. Negative shocks are much less common than positive shocks as technology rarely moves backwards.
Real business cycle theory (RBCT), refers to the theory where any kind of shock has continuing effect into many other shocks.
For example the price of oil will increase during the process of extracting oil. Hence, few people could pay for oil which drove economic movement.