prashantsahni

According to Keynesian school theory, business cycles are caused by:

A) changes in technology over time.

B) inappropriate variations in the growth of the money supply.

C) excessive optimism or pessimism among business managers.

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In Keynesian business cycle theory, business cycles are caused primarily by changes in expectations about economic growth. Business managers overinvest when they are excessively optimistic and underinvest when they are excessively pessimistic.

prashantsahni

When economists are speaking of the labor-force participation rate, they are referring to which of the following? The labor-force participation rate is the percentage of the:

A) working-age population who are working.

B) labor force who are new entrants (less than one year of work experience).

C) working-age population who are either working or actively looking for work.

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The labor-force participation rate is the percentage of the working-age population who are employed or actively seeking employment. The labor-force participation rate can be calculated as: (the labor force / working-age population) × 100.

prashantsahni

Bradley works a 14-hour-per-week job as a bartender at McQuigley’s Pub. Maddeline left her position at a commercial bank to raise her two-year old daughter. How would these individuals be classified from the viewpoint of employment statistics?

[td=1,1,120]Bradley

Maddeline

A) Employed Employed

B) Not in labor force Not in labor force

C) Employed Not in labor force

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The labor force includes all people who are either employed or actively seeking employment. As such, Bradley is considered employed from the viewpoint of employment statistics whereas Maddeline is not counted in the labor force.

prashantsahni

Unemployment can be divided into the following three categories:

A) Frictional, seasonal, cyclical.

B) Technical, frictional, seasonal.

C) Frictional, cyclical, structural.

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Unemployment can be divided into frictional, cyclical, or structural unemployment.

prashantsahni

Steve Walker, CFA, is attending an economics lecture, during which the lecturer makes the following two statements about consumer price inflation:
Statement 1: High-definition televisions are considerably more expensive than traditional models. This means consumers are spending more money per television unit, which represents a form of inflation.
Statement 2: Employment contracts with automatic increases based on the Consumer Price Index fail to increase wages in line with the cost of living because of biases in the price index.
Should Walker agree or disagree with these statements?

Statement 1

Statement 2

A) Agree Agree

B) Disagree Disagree

C) Disagree Agree

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Walker should disagree with both statements. Price changes resulting from increases in the quality of goods, do not represent inflation. However, the Consumer Price Index is affected by biases from product quality, as well as new goods and substitution, causing it to overstate the rate of inflation. As a result, increases in wages that are based on CPI will more than compensate for actual increases in the cost of living.

prashantsahni

Which of the following is the most accurate definition of the labor force?

A) All people of working age.

B) Those people of working age who are not retired or in prison.

C) Those people of working age who are either employed or seeking employment.

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The labor force includes people of working age (16+) who are either employed or seeking employment. People who are not employed or seeking employment (e.g., homemakers, full-time students, "discouraged" workers) are not counted as part of the labor force.

prashantsahni

Which of the following is the most accurate definition of the unemployment rate? The unemployment rate is the number of:

A) unemployed individuals divided by the number of employed individuals.

B) individuals employed divided by the number of people who are unemployed and retired.

C) unemployed individuals divided by the total labor force.

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The unemployment rate of a country is the percentage of people in the labor force who are unemployed. It is calculated as: unemployment rate = (number of unemployed / labor force) × 100. The labor force includes those individuals who are employed or are actively seeking employment.

prashantsahni

When individuals are unemployed because they do not have perfect information concerning available jobs, this is:

A) structural unemployment.

B) frictional unemployment.

C) natural unemployment.

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Frictional unemployment exists because workers and employers do not have perfect information and must expend time and resources on search activities.

prashantsahni

Which of the following is the least likely one of the types of unemployment?

A) Frictional.

B) Structural.

C) Temporal.

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There are three types of unemployment: frictional, cyclical, and structural.

• Frictional unemployment is due to constant changes in the economy that prevent qualified workers from being immediately matched with existing job openings.
• Cyclical unemployment is when the economy is operating at less than full capacity.
• Structural unemployment is due to structural changes in the economy that eliminate some jobs while generating job openings for which unemployed workers are not qualified.

prashantsahni

Which type of unemployment describes situations where qualified workers are not immediately matched with existing job openings?

A) Frictional.

B) Structural.

C) Cyclical.

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Frictional unemployment will prevent qualified workers from being immediately matched with existing job openings. Two causes are imperfect information and the job search conducted by both employers and employees.