Author Question: In the 1970s, savings and loan associations primarily earned their income from extending fixed-rate ... (Read 698 times)

jon_i · **on:** Jun 30, 2018

In the 1970s, savings and loan associations primarily earned their income from extending fixed-rate home loans. They extended many of these loans in the early 1970s when inflation was low. Were the savings and loans winners or losers as inflation skyrocketed in the late 1970s?

Question 2

What are the three major types of unemployment? What are their causes?

vkodali · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The savings and loan associations were big losers. Those who lend at fixed interest rates lose when there is unanticipated inflation. The S&Ls extended loans at relatively low nominal interest rates compared to what was charged for loans in the late 1970s. The S&L loans were repaid in dollars that had far less purchasing power than at the time the loans were extended.

Answer to Question 2

The first is frictional unemployment. Persons who are between jobs as they move from one position to another, can be considered frictionally unemployed. Frictionally unemployed persons generally find work relatively quickly. Since some normal movement between jobs is acceptable, economists don't worry much about frictional unemployment.

The second type of unemployment is structural unemployment in which persons have lost jobs because of a change in the structure of the economy, such that certain jobs have been eliminated. Structurally unemployed persons are less likely to find another job in less time than a frictionally unemployed person. An example of a structurally unemployed person is a middle manager at a large corporation who loses her job when the company downsizes.

Cyclical unemployment, which arises when the level of economic activity declines, is the third type of unemployment. If the economy operates at less than full employment, cyclical unemployment will exist. The usual cure for cyclical unemployment is an increase in output, which requires more labor to produce it.