Question

Imagine that the U.S. economy has an initial unemployment rate equal to the natural rate of unemployment. Identify each event as a factor that will either increase or decrease unemployment in the short run. increase An oil cartel raises oil prices. The U.S. dollar gains value against foreign currencies. American consumers expect higher income in the future. Brazil experiences economic growth and increases its demand for U.S. exports. U.S. real estate values rise.

Answer 1

Explanation:

Let’s explore one by one as proposed:

An oil cartel raises oil prices: all prices in the oil-related products will increase making it more expensive for companies to be able to afford employees. As the US economy is heavily based on oil import and consumption, the unemployment rate (let´s call it UR from now on) would increase. Countries that export more than import could benefit from this scenario.

The U.S. dollar gains value against foreign currencies: It would be more expensive to produce goods in the US as its currency becomes stronger. Hence companies could choose to produce overseas, increasing the UR. One of the factors that attract investments is a cheap currency, meaning that a company could operate there at lower costs than anywhere else.

American consumers expect higher income in the future: As fights about average salary would arise between employees and companies, igniting even sindicalization, its proper to think that the same as above could occur; companies could choose to produce overseas in countries less demanding of labor rights and income, such as China provinces (I would recommend for you to watch American Factory, a awarded Netflix documentary about that subject).

Brazil experiences economic growth and increases its demand for U.S. exports: as I said in the first alternative, a country that has increased or more expensive exports could benefit from that creating more jobs, in this case decreasing the UR. If Brazil demands more US products, more has to be produced by the country, which would mean more people employed in this attractive sector.

U.S. real estate values rise: to be honest, it only affects indirectly. As housing becomes more expensive, people have to work more to be able to afford housing. That would mean they seeking better-paying jobs or in the absence of those being homeless of at least unable to buy a home. We could argue that the UR would decrease because it becomes more expensive to afford housing and hence people would migrate more but that’s a long shot rationale.  

Answer 2

Answer:

Increase:

An oil cartel raises oil prices.

The U.S. dollar gains value against foreign currencies.

Explanation:

Decrease:

Brazil experiences economic growth and increases its demand for U.S. exports.

American consumers expect higher income in the future.

U.S. real estate values rise.