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Suppose the Economy Is Experiencing Rapid Growth and the Unemployment

question 170

Essay

Suppose the economy is experiencing rapid growth and the unemployment rate is below the natural rate. Using aggregate supply and aggregate demand, explain how the economy adjusts back to potential GDP (full employment).


Definitions:

Self-Serving Bias

A common tendency to attribute one's successes to personal characteristics and failures to external factors.

Situational Attribution

The process of attributing a person's behavior to external or environmental factors, rather than to internal dispositions.

Self-Fulfilling Prophecy

A belief or expectation that influences a person to act in ways that cause the belief to become true.

Human Nature

The innate characteristics, including ways of thinking, feeling, and acting, which all human beings share.

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