Question

1. Frictional unemployment can be reduced by good economic policy. T or F

2. Price indexes are biased because some goods are improved over time. T or F

3. GDP does not include costs of pollution due to production in the period. T or F

4. The excess reserve deposit ratio is controlled by commercial banks and if the excess deposit ratio increases, the money supply also increases. T or F

5. The government debt is government spending plus transfer payments minus taxes. T or F

Answer 1

1. False

Frictional unemploymnet takes place when the worker remains unemplyed and the time spent by him while searching for a job or switching from one job to another. It can be solved by providing educational advice to the employees and making the job related information available to them.

2. True

Price indexes are sometimes biased because the products improved over a period of time due to technological advancements, for instance, the usefulness of tires of cars improved in the recent past and thus the life improves but it is not reflected in the price index.

3. False

Cost of pollution due to production is a social cost which is not included in GDP but is only considered as the harm caused to the society.

4. False

The excess deposit ratio is controlled by Central Bank by changing the Cash Reserve Ratio at any point of time in order to fight against the recession and inflation.

5. True

Government debt is all government spending and future transfer payment minus the receipt in the form of taxes.