Briefly answer the following questions.
(a) Consider the scenario in which UK households only buy books
from two firms, one also in the UK and another in France.
Assume that the UK households buy books worth £100M from the
UK firm and £20M from the French firm. Furthermore, assume
that half of the books sold by the UK firm are used, while the
French firm only sells new books. By how much do these
transactions affect GDP in the UK? Explain your answer.
(b) Consider the following statement: ‘Unemployment benefits
stabilize unemployment over the business cycle but increase the
natural unemployment rate.’ Are there circumstances in which this
statement is correct? Explain your answer.