Author Question: Explain why the Fed does not consider zero unemployment as a desirable goal. What will be an ... (Read 13 times)

iveyjurea · **on:** Jun 30, 2018

Explain why the Fed does not consider zero unemployment as a desirable goal.

What will be an ideal response?

Question 2

Profit maximization implies that firms will want to ________.

A) accumulate capital while the MPK is greater than the real wage
B) accumulate capital while the MPK is greater than the rental price of capital
C) accumulate labor while the MPK is greater than the rental price of capital
D) accumulate labor while the MPK is greater than the real wage
E) none of the above

lin77x · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

If the unemployment rate was zero, cyclical unemployment would have to be negative and real GDP would greatly exceed potential GDP. When real GDP exceeds potential GDP, the inflation rate increases, which is not compatible with the Fed's goal of price stability.

Answer to Question 2

B