Author Question: First, explain each of the following: hysterisis and Eurosclerosis. Second, explain how each of them ... (Read 28 times)

dakota nelson · **on:** Jun 30, 2018

First, explain each of the following: hysterisis and Eurosclerosis. Second, explain how each of them can be used to explain the relatively high natural rate of unemployment in Europe.

What will be an ideal response?

Question 2

Explain what types of policies a central bank can implement to reduce the interest rate.

What will be an ideal response?

lucas dlamini · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Hysteresis suggests that the natural unemployment rate is not independent of the actual unemployment rate. In Europe, high unemployment would result in an increase in unemployment benefits that would cause an increase in the natural rate. Eurosclerosis suggests that the high natural rate is a result of structural problems such as high minimum wage, reluctance of labor unions to accept wage cuts.

Answer to Question 2

Central banks have two options to reduce the interest rate: a central bank purchase of bonds or a reduction in the required reserve ratio. Both policies result in an increase in the money supply and a reduction in the interest rate.