Question

QUESTION 5

1. Which of the following statements is true about price ceilings?

   		price ceilings create surpluses for goods but shortages for services.
   		Price ceilings cause goods to be rationed by some other means than legally determined market prices.
   		Ration coupons are the only way to ration goods when price ceilings are in place.
   		All of the other statements are correct.

QUESTION 6

1. Which of the following statements is correct?

   		Frictional unemployment is the result of friction between labor and management over how best to perform work.
   		Structural unemployment is unemployment resulting from changes in the structure of consumer demand or technology.
   		Cyclical unemployment is also called wait unemployment because this unemployment depends on the timing of the business cycle.
   		Search unemployment is the broadest unemployment category because it covers all other types of unemployment.

QUESTION 7

1. The economic performance in the Great Recession of 2007–2009 clearly illustrated the relationship that if interest rates fall, then investment spending will increase.

   True

   False

QUESTION 8

1. The law of demand states that if price increases, other things being equal, the demand for the product will decrease.

   True

   False

  

Answer 1

Question 5

a) False. Price ceilings create a shortage of both goods and services as during price ceilings quantity demanded of goods and services becomes more than their total quantity supplied..

b) TRUE. Neither the buyer nor the seller is involved in rationing decisions. This ceiling causes the goods to be rationed by some other means such as Government control and the role of market conditions gets reduced.

c) FALSE. Non-rationing price devices or techniques such as QUEUING (first come first serve basis) are also used to ration the goods when price ceilings are in place.

d) FALSE as option a) and c) are incorrect.

Question 6

a) Frictional Unemployment is basically a result transition of labor employments within an economy. This type of unemployment includes both types of workers; one type who is leaving the jobs and the other type who is entering into the workforce. This unemployments occurs only because of friction in the labor force. Management has no role in increasing this type of unemployment. So, this option is FALSE.

b) This type of unemployment occurs when there is an increasing mismatch of skills between the unemployed people and the jobs which are available in the economy. Technological Changes or De-industrialisation or changes in consumer demands may increase this type of unemployment. So, this option is also TRUE

c) Cyclical Unemployment occurs due to any downturn in the economy or if any business cycle occurs. But it is not called as wait unemployment. So, FALSE.

d) Search Unemployment is also known as Frictional Unemployment, therefore, it does not encompass all other types of unemployment. So, FALSE

Question 7

TRUE. During Recession, interest rates fall as people become skeptical about borrowing money and they tend to save more for their rainy days. However, investors take this situation as a lucrative opportunity to invest in the market in order to get higher returns in the future when the effect of recession slows down. Also, lower interest rates at recession period induce more investment as it is negatively related to the interest rates (according to IS-LM theory).

Question 8

TRUE. This is a law of demand which states that if the price of good increases then its demands falls, keeping other factors such as Price of a substitute and complementary goods, the income of the consumer, taste/preferences of consumer CONSTANT