Question

Question 162 pts

"In the U.S. or Britain, economic recoveries put people back to work relatively quickly. But Italy is bogged down by high labor costs and other structural factors (such as employment protection laws) that discourage hiring. So, the recent unemployment rate of 12% is not likely to fall by much in the near future." Economists would refer to the situation in Italy as

a high natural rate of unemployment

a high cyclical rate of unemployment

a low structural rate of unemployment

a high frictional rate of unemployment

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Question 172 pts

Assume the non-institutionalized working-age population is 16 million, 1 million workers are unemployed but not actively looking for work, the labor force is 11 million, and total employment is 9 million. Given this information, the measured unemployment rate is approximately

20%

12.5%

18%

9%

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Question 182 pts

Investment, as defined by economists and national income accountants, would NOT include which of the following actions by the Ford Motor Company?

Purchase of a new robotic machine (from a plant in Ohio) to assemble cars.

Purchase of U.S. government bonds.

Addition of 1,000 new cars to inventories.

Construction of another assembly plant in the United States.

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Question 192 pts

The Federal Funds rate (on commercial bank-to-commercial bank loans) is low if

commercial banks face a high customer demand for loans.

commercial banks have a high level of capital.

there are no excess reserves in the banking system.

lots of banks have excess reserve (above the required level).

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Question 202 pts

The “Ricardian equivalence” concept is based on the idea that:

since most people can borrow funds when needed, they always consume according to their permanent income

people believe that debt-financing merely postpones taxation

a tax cut may ease a person's liquidity constraints, inducing her/him to consume more

the people who get the tax cut are often not the same people who pay the higher taxes later

Answer 1

162. Since the unemployment rate of 12% is not likely to change and is stable at this rate, Italy has a high natural rate of unemployment.

172. Unemployment rate = Number of unemployed people actively seeking work / Total labour force

Labour force = Number of employed + Number of unemployed and seeking work

Number of unemployed and seeking work = Labour force - Number of employed = 11 million- 9 million = 2 million

Unemployment rate = 2/11 = 0.18

The correct option is 18%.

182. Purchase of government bonds by Fords does not add to new production capacity, so it is not considered as investment.

192. By reducing the reserves, the banks are able to loan out more funds. So, the federal funds rate is low when there are no excess reserves in the system.

202. According to ricardian equivalence, debt financed spending only postpones taxation. So, people believe that debt financing merely postpones taxation.