Answered: The 50 unemployed have nothing to live…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The 50 unemployed have nothing to live on; prudence and compassion alike dictate that something be done about their plight. The unemployed propose that unemployment insurance be paid to each of them at a level equal to half the wage (or $1 per year), and that this be financed by government borrowing to cover the deficit created by this spending. (To keep things simple, we assume that workers are either employed all year or unemployed all year and that government borrowing does not raise interest rates and crowd out private investment.) Using the data from the situation described as the unemployment equilibrium above (investment = $100; employment = 100), the aggregate supply is unchanged, but what happens to aggregate demand, which is now increased by the unemployed spending their unemployment insurance checks (they, like the workers, do not save; they consume all their income)?

What will aggregate demand be? $_____________________
Will aggregate demand equal aggregate supply? _______________
Would you expect capitalists to continue to hire the same number, more, or fewer workers? _____________________

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