a. What factors might contribute to a low level of productivity in an economy? C

Question

a. What factors might contribute to a low level of productivity in an economy? Compare these to the rapid productivity growth experience by the United States during the 1990s.

b. Why do economists pay more attention to national economies than state or regional economies?

c. Discuss the differences between unemployment and underemployment and give examples of each. Include in your contribution the differences between fiscal and monetary policy and how each would be used to reduce high levels of unemployment.

Explanation / Answer

a. What factors might contribute to a low level of productivity in an economy? Compare these to the rapid productivity growth experience by the United States during the 1990s. Low levels of employment (or high unemployment), low rates of technological progress, or a net decrease in population (such as what's currently happening in Russia - people are immigrating out *and* not having "enough" kids). In the 1990s, by contrast, the U.S. had (1) high rates of employment, (2) high rates of technological progress via the dot com boom, and (3) a high net influx (or increase) of immigrants.

b. Why do economists pay more attention to national economies than state or regional economies? The most important measures of economic performance - GDP, national income, national output, trade deficits/surpluses - are calculated at the national (or federal) level. Moreover, the U.S. is a duty-free zone, though protectionism continues to plaugue companies outside of these fifty states, forcing the U.S. to pay duties (or "trade taxes") on exports and imports to countries like China or Japan.

c. Discuss the differences between unemployment and underemployment and give examples of each. Include in your contribution the differences between fiscal and monetary policy and how each would be used to reduce high levels of unemployment.

Unemployment: In the labor force but not employed whatsoever. For example, a teacher who has been laid off and is currently interviewing for another teaching position but has not been hired yet.

Underemployed: In the labor force but not employed to his or her fullest capacity. For example, a Harvard grad with MBA and Ph.D. degrees working as a part-time public school substitute teacher - or worse, as a waitress.

Fiscal Policy: Government spending to manipulate rates of aggregate demand. Fiscal policy can be used to launch a "public works" program to decrease unemployment and underemployment.

Monetary Policy: The Federal Reserve's manipulation of the Fed Funds Rate ("Discount Rate"), the ammount of cash in circulation, or altering the reserve requirement. Expansionary monetary policy can be used to increase the amount of money that banks can lend, indirectly inducing lending and prompting individuals to feel confident that they can take out loans and launch new businesses.

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