Question

30) Which of the following types of unemployment can exist in an economy that is at its potential output level?

a.         cyclical unemployment only     

b.         structural unemployment only  

c.         frictional, cyclical, and seasonal unemployment only     

d.         frictional, seasonal, and structural unemployment only  

e.         there will be no unemployment in an economy that is at the potential output level

31) In the long run, but not in the short run,

a.         cyclical unemployment can exist          

b.         structural unemployment can exist        

c.         frictional unemployment can exist        

d.         the actual rate of unemployment equals the natural rate of unemployment

e.         actual output can exceed potential output

32) If the price level turns out to be higher than expected,

a.         businesses increase production

b.         the potential output level increases       

c.         initially, the short-run aggregate supply curve shifts rightward; later, there is an upward movement along that curve  

d.         initially, the short-run aggregate supply curve shifts rightward; later, there is a downward movement        along that curve        

e.         a contractionary gap develops

33) Suppose that between 2004 and 2014, Jack's salary increased from $100,000 to $200,000 per year and the price index increased from 100 to 300 during the same period. Which of the following statements best describes Jack's situation?

a.         his real income and money income have both increased

b.         his real income increased and money income decreased

c.         his real income and money income both decreased        

d.         his real income decreased and money income increased

e.         his real income and money income remained unchanged

Answer 1

30. (d) frictional, seasonal, and structural unemployment only .

Frictional unemployment exists in any economy due to people being in the process of moving from one job to another. Seasonal unemployment occurs when people are unemployed at particular times of the year when demand for labour is lower than usual. Structural unemployment is a form of involuntary unemployment caused by a mismatch between the skills that workers in the economy can offer, and the skills demanded of workers by employers.

Thus cyclical unenemplyment does not exist in an economy that is at its potential output level. Cyclical unemployment results when the overall demand for goods and services in an economy cannot support full employment. It occurs during periods of slow economic growth or during periods of economic contraction.

31. (d) the actual rate of unemployment equals the natural rate of unemployment.

The natural rate of unemployment is a combination of frictional and structural unemployment that persists in an efficient, expanding economy when labor and resource markets are in equilibrium.

32. (a) businesses increase production

In the short run, when the price level increases the prices of firms products increase on average while some resource costs remain fixed by contract in the short run --profits will increase if output expands. When the actual price level exceeds the expected price level on which long-term contracts are based, firms find it profitable to expand production. At such times, the economy's output is greater than its potential output. The economy can produce more than its potential output for only a short period of time, since resources must be used more intensively than is optimal.

33. (d) His real income has decreased and money income has increased.

His money income has doubled but the price index (inflation) has tripled. Thus his money income has increased but real income has decreased.