Question

(1) Why is the IS curve downward slopping

(2) What is the Neo-classical Phillips Curve

(3) Why is the Great Recession the worst post-WW2 recession?

(4) What has been happening to the returns to a college education over the past 50 years or so, compared to only receiving a high school education? What explains this difference?

Answer 1

1)

IS curve traces out relationship between interest rate and output level. When interest rate falls, more investment activities tend to spike up output level. There is inverse relationship between interest and output level.

Hence IS curve is downward sloping.

2)

Neo-Classical Phillips curve is related to long run. There is no trade off between inflation and unemployment rate. Tradeoff between inflation and unemployment could be seen in short run only.

3)

Great recession or economic crisis caused by the severe fall in aggregate demand. Fall in demand caused unemployment and fall in output level.

unemployment was as high as 10 % and investment activities were severely affected adversely.

4)

Returns to a college education over the past 50 years have increased significantly. College education makes students more skilled and expert in activities so they tend to satisfy rising demand for skilled workers.

While students who receive school education tend to be less skilled and less efficient and it fetches them lower salary.