What
are some current trends that might lead to increased productivity? Have you
experienced any technological change in your job that greatly affected your
productivity?
Improved technology, operating procedures, and even better management
techniques, can make the production process more efficient, inexpensive,
and thus raise productivity. Technology has enabled companies to use
cheaper outsourced labor in developing countries, to keep better track of
changing consumer desires and thus suit their inventories and products
better to consumer demand, has improved communication through the use of
the Internet, and allowed more competitive pricing for businesses and
consumers on comparative Internet sites.
Question 8:
When the economy is out of equilibrium, what kind of activities are firms,
consumers, and the government likely to change?
If prices are high, and consumers are not buying goods, inventory builds up
and firms drop their prices to get rid of stockpiled goods. If demand is
high because goods are cheap, eventually firms will not be able to produce
enough to meet demand, and prices will rise as the goods grow scarcer. The
government, to limit inflation will likely make it more attractive for
individuals to save by raising interest rates and curtail its spending,
while to encourage a recessionary economy to expand, it will encourage
consumers to spend and borrow by lowering the interest rate and increase
government spending.
Should each of these types of unemployment be treated equally
by the government?
Structural unemployment is due to changes in the structure of the economy,
like workers who once worked in offices as typists, but whose jobs are now
being done by computers. These workers require retraining, to become
productive members of society. Frictional unemployment is transitional
unemployment, such as workers transitioning from part-time employment
during their education to full-time employment. The government is unlikely
to be able to or need to address this problem. However, cyclical
unemployment is what we think of as real unemployment, or workers actively
looking for work who cannot find jobs, because of the recessionary state of
the economy.
Question 10:
Suppose that inflation is 25% per year. Would this economy be better,
worse, or the same as an economy where inflation is 5% per year? In both
cases, all prices (including wages) are subject to inflation.
Inflation is detrimental to the economy because wage increases tend not to
keep pace with prices. Thus, last year's salary will buy fewer goods than
it did the year before, and the economy with 25% inflation will be
substantially worse off than the economy with 5% inflation unless wages are
rising faster than prices (which would be favorable for consumers, but an
unlikely scenario).
