Released Exam 2005

Question 3

Types of unemployment (1) • Unemployment related to the process of
  changing Frictional jobs, which may involve a period out of work.
  Improve by: increasing flow of information — job centres • The
  category of unemployed whose number Cyclical varies according to the
  business or economic cycle. Demand-deficient / Keynesian AS Macro
  Economics March 2014 NB: Not just in a recession (e.g. in a boom,
  bankruptcy lawyers have no business\!)

Types of unemployment (2) Structural Hidden AS Macro Economics March
  2014 • When there is a mis-match between the skills of those
  unemployed and the skills that new jobs require. Improve by:
  supply-side policies such as retraining • Unemployment which is known
  to exist but is not included in the official government figures
  Especially amongst illegal immigrants — evaluation on official figures

Types of unemployment (3) Classical / The more they push wages up,
  depending on the elasticity of labour supply and demand, the more
  unemployment Seasonal AS Macro Economics March 2014 • This type of
  unemployment occurs when trade unions bargain for higher wages, which
  leads to fall in the demand for labour. • A type of unemployment that
  occurs due to the seasonal nature of the job is known as seasonal
  unemployment. E.g. tourism tutor2u

Question 18

Unemployment rate = \# of unemployed people total labor force

Question 19

  • Classical economists vs. Keynesian economists

    Classical Economics The market is perfect and self- sustaining
Government intervention can only be a detriment to the economy The
market automatically adjusts to "booms" and busts Supply = Demand
David Ricardo Historical Perspective:Classical economics came of age
during and after industrialization. Say's Law: Supply Creates its own
demand. The economy is stimulated when more goods are produced.

    Keynesian Economics The market is imperfect and not self- sustaining
Equilibrium may include unemployment, negative growth Consumer income
stimulates demand, which causes economic growth. When economic growth
is lacking, the government should John Maynard Keynes stimulate
demand. Historical Background: The Great Depression

    Keynes Must pull economy out of bust (short term focus) People have
chaotic 'animal spirit' The economy can be steered A 'circular flow of
income' exists Economic regulation is good Bail-outs good The short
run is most important Pro-Government Govenrment acts in best interest
of public Savings should be spent now Kept bad businesses afloat to
protect jobs Economy can settle at sub-optimal level without help
Respect for human suffering and job protection Hayek Must avoid
boom-bust cycles (long term focus) People are rational The economy
must consist of free market forces Markets are not easily predictable
Economic regulation is bad Bail-outs bad The long run is most
important Anti-Government (causes malinvestment) People act in their
own best interest Savings should be hoarded for future (classical
view) Liquidation of bad businesses necessary Economy will settle at
optimal level unhindered Respect for entrepreneurship and economic

Question 22

![Appreciation/Depreciation N [14-191 14. If the dollar depreciates relative to the peso, the peso will (appreciate/depreciate) relative to the dollar. 15. Appreciation of the dollar will tend to (increase/decrease) American imports & (increase/decrease) American exports 16. The yen price of the dollar has decreased from AM X Y150=$I to YIOO=$I, which means the dolla (apprec/gugs), which (incr/decr) our imports from Japan 17. Depreciation of the euro will (increase/decrease) European exports & (increase/decrease) their imports. 18. If Mexico decides to increase their investments in the U.S., the peso Will (appreciate/depreciate) whi would (increase/decrease) [Mexico's imports U.S. exports to Mexico. 19. If the exchange rate changes so that more Japanes yen are required to buy a dollar then the yen will (appreciate/depreciate) and Americans will purchase (more/less) Japanese goods. Rat" Rate 1 of Dollars Y 120 Y 100 # Of Dollars ](./media/image172.png)

Question 26

  • Stagflation is often caused by a SUPPLY side shock.

    Stagflation is often caused by a supply side shock. For example,
rising commodity prices, such as oil prices, will cause a rise in
business costs (transport more expensive) and short run aggregate
supply will shift to the left. This causes a higher inflation rate and
lower GDP. NOV 28, 2012 Stagflation I Economics Help

Question 32

The international sector. The international sector includes exports
  (X), which add to to the value of aggregate demand, and are an
  injection into the circular flow of income, and imports (M), which
  reduce aggregate demand, and are a withdrawal from the circular flow.
  International sector of the economy - Economics Online\_the\_economy/The\_international\_sector.html

Withdrawal Imports Households Spending Firms Saving Goods &
  Investment Taxation Financial Sector Government Spending Public Sector
  Trade Sector Exports Injection

Question 36

36. According to the theory of rational expectations, a fully
  anticipated expansionary monetary policy will (A) increase potential
  output B increase unem 10 ment (C) have no impact on real output
  promote t e p ucuon o consumer goods over capital goods (E) result in

![The rational expectations theory is an economic idea that the people make choices based on their rational outlook, available information and past experiences. The theory suggests that the current expectations in the economy are equivalent to what people think the future state of the economy will become. Rational Expectations Theory

  • Investopedia ](./media/image177.png)

    Rational Expectation Theory • Rational expectations theory is based
on three assumptions Individuals and firms learn through experience to
anticipate the consequences of changes in monetary and fiscal policy
They act instantaneously to protect their economic interest thus
nullifying the intended effects All resource and product markets are
purely competitive

Question 42

  • Current account deficit = Capital account surplus

  • Capital account surplus = Current account deficit

Question 44

(46%) 48. Assume that the government implements a deficit-reduction
  policy that results in changes in aggregate income and output. Then
  the Fed engages in monetary policy actions that reverse the changes in
  income and output caused by fiscal policy action. Which of the
  following sets of changes in taxes, government spending, the RR, and
  the discount rate is most consistent with these policies? Taxes a.
  Increase b. Increase Government Spending Increase Decrease Required
  Reserve Ratio Discount Rate Decrease Decrease Increase No chanqe The G
  would increase T and decr G to reduce the deficit which would reduce
  AD. To reverse this & incr AD, the Fed would decr the RR & NC the DR
  to lower the I.R. \[decreasing the Discount Rate would have been
  better but is not a choice here\]

Question 46

prime rate noun NORTH AMERICAN the lowest rate of interest at which
  money may be borrowed commercially. Translations, word origin, and
  more definitions

Question 47

47. Which of the following best explains why transfer payments are
  not included in the calculation Of gross domestic product? (A)
  Transfer payments are used to pay for inter- mediate goods, and
  intermediate goods are excluded from gross domestic product. (B)
  Transfer payments are a government expenditure, and government
  expenditures are excluded from domestic uct. (C) Recipients of
  transfer payments have not produced or supplied goods and services in
  exchange for these payments. men o trans er paymen are usu y children,
  and income earned by children is excluded in gross domestic product.
  (E) Recipients of transfer payments are some- times not citizens of
  the United States.

What are excluded in GDP? Example of Intermediate Goods: .
  Intermediate Bricks and cement used in the construction of house Steel
  used in production of cars Wood used in furniture like sofa, dining
  table and so on. Glass used for making spectacles Vegetables used by
  restaurant owner Gold and silver used for making ornaments Cotton used
  for making

What are excluded in GDP? . Intermediate goods . Transfer payments
  GRANTS SOCIAL SECURITY SYSTEM LOANS Examples of certain transfer
  payments include • welfare (financial aid) • social security •
  government making subsidies for certain businesses (firms) Global fuel

What are excluded in GDP?

What are excluded in GDP? . Intermediate good . Transfer payments .
  Home Production . Pollution/ nvironmental amage

What are excluded in GDP? . Intermediate goods . Transfer payments .
  Home Production . Pollution/environm ental damage Illegal Goods x Fake
  / Counterfeit Products Smuggled Goods

Question 51

51. An increase in which of the following will lead to lower
  inflation and lower unemployment? (A) Exports (C) Labor productivity
  overnment spen Ing (E) The international value of domestic currency

Question 52

52. An unanticipated decrease in aggregate demand when the economy
  is in equilibrium will result in (A) a decrease in voluntary
  unemployrnent (B) a decrease in the natural rate of unemployment a
  decrease in a ate su I (D) an increase in unplanned inventories an
  Increase In rate 01 anon

EQUILIBRIUM EXPENDITURE 1.When aggregate planned expenditure exceeds
  real GDP, an unplanned decrease in inventories occurs. 2.When
  aggregate planned expenditure is less than real GDP, an unplanned
  increase in inventories occurs. 3.When aggregate planned expenditure
  equals real GDP, there are no unplanned inventories and real GDP
  remains at equilibrium expenditure Dr. Mazharul Islam 14

Rea I awegate expenditures, AE (trillions Of Lars) An in @ 2006
  Prentice Hall Business Publishing FIGURE 11 -10 Macroeconomic
  Equilibrium An Real GOP, r (trillions Of dollars) Economics R Glenn
  Hubbard, Anthony Patrick O'Brien

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