Unemployment

Question 1

Formula for Unemployment rate

Answer 1

Unemployment rate
= (Number of unemployed/Labor Force)*100%

Question 2

Formula for GDP growth rate

Answer 2

= (GDP current year - GDP previous year) / GDP previous year X 100%

Question 3

Formula for Expenditure Multiplier for CLOSED economy

Answer 3

K = 1/[1 – b(1- t) + m]

where b is MPC
t is marginal tax rate
m is the marginal propensity to import

Question 4

Costs of Unemployment

Answer 4

• Loss of income and skills
• Loss of self-respect, hope and morale
• Suicide and mental illness rises
• Social problems like family disintegration and rise divorce rate and fall
  in birth rate
• Can lead to violent social and political change
• Heightened racial and ethnic tensions

Question 5

Formula for Labor force participation rate

Answer 5

Labor force participation rate =
(Labor force/Working age population) x 100%

Question 6

Factors shifting LAS curve

Answer 6

1. Changes in quantity of Labor
2. Changes in quantity of Capital
3. Improvement in Technology

Question 7

Nominal GDP uses __________ year price.

Answer 7

Current year price

Question 8

A change in consumption, investment, government purchases or net
exports will cause a ___________ in AE.

A. Movement
B. Shift

Answer 8

B. Shift

Question 9

Formula for Expenditure Multiplier for OPEN economy

Answer 9

K = 1/(1-MPC) = 1/MPS

Question 10

Is AD curve:

A. Upwards sloping
B. Downwards sloping

Answer 10

B. Downwards sloping

Question 11

The LAS curve is _________.

Answer 11

Vertical

Question 12

2 Factors affecting IMPORT

Answer 12

1. Domestic country real GDP
2. Foreign Exchange rate

Question 13

4 Factors affecting CONSUMPTION

Answer 13

1. Disposable income (Yd)
   - Income Tax
2. Wealth
3. Future income
4. Interest rates on loans

Question 14

Inflationary Gap

Answer 14

• Economy is producing above full employment equilibrium.
• Is an equilibrium where actual real GDP is more than potential real GDP.

Question 15

Recessionary Gap

Answer 15

• Economy is producing BELOW full employment equilibrium.
• Is an equilibrium where actual real GDP is LESS than potential real GDP.

Question 16

Graphically, Equilibrium occurs where AE cuts the ___ line.

Answer 16

45°

Question 17

At equilibrium, Real GDP ≠ AE

A. True
B. False

Answer 17

B. False

Question 18

What is an economic indicator used by government to measure its national income?

Answer 18

Gross Domestic Product (GDP)

Question 19

The SAS curve is:

A. Upward Sloping
B. Downward Sloping

Answer 19

A. Upward Sloping

Question 20

3 factors contributing to Economic Growth

Answer 20

1. Technological advance
2. Rise in quantity of capital
3. Invest in education and training

Question 21

Real GDP = (Nominal GDP/Price Index)*100

A. True
B. False

Answer 21

A. True

Question 22

Long-run Macroeconomic Equilibrium

Answer 22

D = SAS = LAS

Question 23

Limitations of using real GDP to measure standard of living

Answer 23

1. Household production are not included
2. Does not consider leisure time
3. Does not consider health and life expectancy
4. The underground economy are not included
5. Does not consider environment issues
6. Does not consider the distribution of the output/income
7. Does not consider political freedom and social justice

Question 24

Factors shifting SAS curve

Answer 24

1. Changes in Resource/Input prices:
   * Wages, Rent, Price of raw materials or Price of oil
   - Increase in the price of resources raises the cost of production and reduces
   profit.
   - Input Prices ↑ = Profit ↓ = SAS ↓
   - SAS falls and the SAS curve shifts to the left.
2. Natural Disasters (i.e. flood, drought, earthquake)
   - Earthquake destroys office buildings and factory and production will fall.
   - Natural Disasters ↑ = Profit ↓ = SAS ↓
   Hence, SAS falls and SAS curve shifts to the left.

Question 25

Real GDP uses __________ year price.

Answer 25

Base year price

Question 26

Expenditure approach to calculate GDP

Answer 26

GDP = AE = C + I + G + (X – M)

Question 27

Short-run Macroeconomic Equilibrium exists when

Answer 27

AD = SAS

Question 28

Cyclical unemployment

Answer 28

* Caused by the recession phase of the business cycle. * Fall in AD will reduce production level and hence increases cyclical unemployment.

Question 29

2 Factors affecting EXPORT

Answer 29

1. Foreign countries real GDP Foreign countries real GDP ↑ = X ↑ 2. Foreign Exchange rate Foreign Exchange rate ↑ = Price of Foreign Goods ↑ = Price of Domestic Goods ↓ = X ↑

Question 30

Formula for Change in real GDP

Answer 30

Change in real GDP = expenditure multiplier x initial change in spending

Question 31

Changes in price will cause _________ along the AD curve: A. Movement B. Shift

Answer 31

A. Movement

Question 32

Income approach to calculate GDP

Answer 32

GDP = Total Income = Wages + rental income + interest income + profit

Question 33

Increase in AE is a vertical _________________ of the AE curve. A. Upward Movement B. Downward Movement C. Upward Shift D. Downward Shift

Answer 33

C. Upward Shift

Question 34

Factors shifting AD curve

Answer 34

1. The world economy i. Changes in exchange rate (X,M) ii. Changes in foreign countries real GDP (X) 2. Fiscal Policy (Changes in 2 Fiscal tools: G and Taxes) and Monetary Policy (Changes in money supply which lead to changes in interest rates [C, I]) 3. Expectations i. Changes in future income (C) ii. Changes in future profits (I) 4. Other factors: i. Changes in wealth (C) ii. Changes in stock of capital (I) iii. Changes in inventory level (I) iv. Changes in domestic country real GDP (M)

Question 35

Increase in LSL will _______ the curve to the ________. A. Shift, Left B. Shift, Right C. Move, Left D. Move, Right

Answer 35

B. Shift, Right

Question 36

Formula for Labor Force

Answer 36

Labor Force = Number of unemployed + Number of Employed

Question 37

6 Factors affecting INVESTMENT

Answer 37

1. Interest rate on loans Interest Rate ↑ = I ↓ 2. Acquisition, maintenance, and operating costs Operating Costs ↑ = I ↓ 3. Business taxes Business Tax ↑ = I ↓ 4. Stock of capital goods on hand Stock of capital goods ↑ = I ↓ 5. Inventory (unsold goods) Inventory ↑ = I ↓ 6. Future profit Future profit ↑ = = I ↑

Question 38

LAS is the relationship between the quantity of real GDP supplied and the price level at __________________

Answer 38

Full employment

Question 39

The quantity of real GDP supplied at full employment is ________, which is independent on price level. A. Real GDP B. Potential GDP C. Expected GDP D. Ideal GDP

Answer 39

B. Potential GDP

Question 40

Structural unemployment

Answer 40

* Arises when changes in technology or international competition change the skills needed to perform jobs or change locations of jobs. * Due to mismatch of skills or knowledge of the labor and the current available jobs in the labor market.

Question 41

Frictional unemployment

Answer 41

* Refers to individuals searching for jobs (in-between jobs) or waiting to take jobs soon. * Due to normal labor market turnover * Includes fresh graduates seeking employment.

Question 42

Changes in LAS = Changes in SAS A. True B. False

Answer 42

A. True

Question 43

How can the central bank increase money supply? A. Buy government bonds B. Sell government bonds

Answer 43

A. Buy government bonds

Question 44

How can the central bank decrease money supply? A. Decrease Required Reserve Ratio B. Increase Required Reserve Ratio

Answer 44

B. Increase Required Reserve Ratio

Question 45

How can the central bank increase money supply? A. Increase Discount Rate B. Decrease Discount Rate

Answer 45

B. Decrease Discount Rate

Question 46

3 Factors affecting Money Demand (md) curve

Answer 46

1. Changes in Real GDP Real GDP ↑ = Demand for Money ↑ 2. Changes in Price Level Price Level ↑ = Demand for Money ↑ 3. Financial Innovation Financial Innovation ↑ = Demand for Money ↓