Question

The "big three" concepts of macroeconomics are the unemployment rate, the inflation rate, and productivity growth. Discuss which of these concepts primarily relate to the behavior of the economy (i) in the short run and (ii) in the long run.

Answer 1

Step-by-step explanation:

The rate of unemployment and the rate of inflation can be used to assess an economy in short run, more focus is on the trend of inflation and unemployment and its effect on business cycle.

The rate at which productivity increases determines standard of living.

• Increase in inflation often leads to increase in price which in turn also results to increase in spending.

•When the rate of unemployment gets beyond the natural rate, it could lead to recession in an economy while if the unemployment rate stays below the natural rate the economy will be in boom.

•Inflation rate and unemployment rate basically helps to determine economic trend.