Question

If the number of the people in the labor force __________ and the number of people working _________ then the unemployment rate must have ___________.

Select one:

a. Increases; declines; increased

b. Increases; increases; decreased

c. Increases; increases; increased

d. Decreases; declines; increased

In the Keynesian View, an increase in all of the below will increase the current period’s GDP, EXCEPT:

Select one:

a. Increase in the money supply

b. Increase in spending by consumers

c. Increase in saving

d. Increase in government spending on goods, such as office equipment.

So long as the loanable funds market clears (adjusts in response to changes in demand and supply), an increase in consumption by households will result in

Select one:

a. An increase in investment by businesses.

b. A decline in the production of capital goods.

c. A decline in the interest rate.

d. An increase in the production of capital goods.

According to the Keynesian View of monetary policy, the central bank should provide incentives to __________ during a recession and _________ during a period of unsustainable boom.

Select one:

a. the government to reduce its spending; to increase its spending

b. banks to reduce loans; to increase loans

c. consumers and businesses to increase spending; to lower spending

d. banks to hold more reserves, to hold less reserves

In the Austrian View, in a market economy without government intervention, if there is an unusually large number of unemployed workers looking for a job without success

Select one:

a. The market wage rate will increase, giving an incentive to many of the workers to accept a new job, and as a result, the labor market will clear rather quickly.

b. The situation will last for a long time, because of the downward stickiness of the wage rate, unless the government intervenes by increasing its spending.

c. The market wage rate will decline, making it profitable for some businesses to hire many of these workers, and as a result, the labor market will clear rather quickly.

d. Many of the businesses will become pessimistic about their future prospects, leading them to decrease their investment in capital goods, and as a result, the number of unemployed workers will become even larger.

Answer 1

Question 1

Option A is correct - Increase ; declines ; increased.

Labor force = Number of employed + Number of unemployed

If the number of people in the labor force increases and people working declines, that means the number of unemployed has increased more.

We know that - Unemployment rate = Number of unemployed / Labor force

As the number of unemployed increases , unemployment rate increases too.

Question 2

Option A is correct - Increase in money supply

In the Keynesian view, the current period's GDP is affected by four components of aggregate demand and that is - Consumption expenditure + Investment expenditure + Government spending. Savings is also considered here as it makes investment possible in the economy.

The only component that does not affect current period's GDP in Keynesian view is the money supply.

Question 3

Option B is correct - A decline in the production of capital goods

An increase in consumption means that people are saving less. Less savings will lead to lesser deposits in banks. With lesser funds for lending, interest rates will increase and borrowing will decrease and so does the investments. Low investment will lead to decline in the production of capital goods.

Question 4

Option C is correct - consumers and business to increase spending ; to lower spending

During recession there is lower production, lower wages and high unemployment in the economy. For stabilizing economy in such a condition, the central bank should provide incentive to consumers and business to increase spending so that the economy gets back on track and its GDP starts increasing.

During a period of unsustainable boom, there are high prices , high demand and more money in the economy which even leads to decrease in the value of money. In such a case central bank should provide and incentive to lower spending so that the economy gets stabilized from such a boom.