No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Eighteen: The “macro” view of the economy 469 CHAPTER EIGHTEEN ANSWERS 1. False. Due to heterogeneity of resource inputs, its doubtful the government could only affect resources that are idle.) 2. False. 3. False. It is an excellent measure of what it measures, but there are many things (both economic and non-economic) that we value that are not included in GDP. 4. False. We need of job churn as new industries come on line and older ones fail; this leads to frictional unemployment. It’s possible that very low unemployment rate could be indicative of a stagnant economy. Nevertheless, a low unemployment rate that is not the result of inflationary policy is generally a very good thing. 5. False. 6. False. 7. True. 8. False. It refers to government action that takes resources away from the private sector, such that the private sector is “crowded out” of the activity. 9. True. 10. Economic growth enables robust job creation which supports new labor market entrants. It also provides a higher social output to be able to deal with any material concern, to include our ability to pay down our national debt. 11. Generally, no. Even more broadly, GDP is not necessarily the best descriptor of economic activity. While consumption is the ultimate goal of production, yet it is prior production which allows the possibility of consumption. This suggests measures that include production may be more appropriate. 12. Ceteris paribus is a reasonable assumption for microeconomics, since although we know that other things are always changing, they are not necessarily changing because of the effect we are trying to investigate in our micro analysis. With macroeconomics, a change in one of the variables, is necessarily going to induce changes in other variables; ceteris paribus thus is generally inapplicable in macroeconomic analysis. 13. c. Multiplier 14. d. U-6 rate