Question

1. Minimum-wage laws

Select one:

a. affect highly-educated workers more than high school dropouts.

b. cause labor shortages, which further raise wages above equilibrium.

c. reduce unemployment.

d. None of the above is correct.

2. The natural rate of unemployment

(i)	is the economy's desirable level of unemployment.
(ii)	arises from a single problem that has a single solution.
(iii)	is the amount of unemployment that does not go away on its own.

Select one:

a. (i) and (ii) only

b. (iii) only

c. (i), (ii), and (iii)

d. None of the above is correct.

3. Reserve requirements are regulations concerning

Select one:

a. the amount of reserves banks must hold against deposits.

b. reserves banks must hold based on the number and type of loans they make.

c. the interest rate at which banks can borrow from the Fed.

d. the amount banks are allowed to borrow from the Fed.

4. When conducting an open-market purchase, the Fed

Select one:

a. buys government bonds, and in so doing decreases the money supply.

b. buys government bonds, and in so doing increases the money supply.

c. sells government bonds, and in so doing decreases the money supply.

d. sells government bonds, and in so doing increases the money supply.

Answer 1

1. Option D.

• Minimum wage laws are those laws that require firm's to pay a minimum amount of wages to their employees.
• This increases the amount of labour supplied in the markets which then increases the unemployment when more workers are hired.

2. Option B.

• The natural rate of unemployment is a type of unemployment which exists within an economy in the absence of cyclical unemployment.
• It is the unemployment type which exists even when there is full employment level and does not go away even in the long run.
• It is the sum of structural unemployment and frictional unemployment.

3. Option A.

• Reserve requirements refers to the minimum amount of reserves that Fed requires every banks to hold against the deposits.
• When Fed increases the reserve requirement, the money supply decreases within the economy.
• Similarly when it decreases the reserve requirement, the money supply increases as the banks can increase the lending activity.

4. Option B.

• Fed conducts an open market purchase of buying and selling of government securities in order to increase or decrease the money supply within the economy.
• When conducting an open market purchase, the Fed buys government bonds from open markets.
• This increases the money supply and inflation rates within the economy.