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Unformatted text preview: ESSAY #1 1. Cyclical, Structural and Frictional Unemployment 2. Structural unemployment 3. Since this refers to structural unemployment it cannot be fought by standard expansionary policies, rather in order to reduce ESSAY #2 1. The Fed rises interest rates by means of a contractionary monetary policy. The three instruments that the Fed use for such p i) Sell of government securities through open-market operations. ii) Increase the required reserve ratio iii) Increase the discount rate By increasing the interest rates in the economy, the Fed induces a fall in private investment, which in turns reduces aggregate Sheet1 Page 2 this will reduce the demand for money until demand equals supply. in this case raising the skills of American workers. In other words the Fed can do nothing to solve this problem....
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