Wendy01

Exercise Problems:
1. Government policies to stimulate an economy suffering a recession and designed to reduce unemployment in the short run are most likely directed towards reducing which type of unemployment? A. Cyclical B. Frictional C. Structural		Ans: A; cyclical unemployment occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work. Here government stimulates economy in order to increase aggregate demand, and the unemployment drops. B is incorrect, frictional employment means people who are not working at the time of filling out the statistical survey because they just left one job and are about to start another job. Government policy cannot reduce this unemployment. C is incorrect, structural unemployment occurs when a labor market is unable to provide jobs for everyone who wants one because there is a mismatch between the skills of the unemployed workers and the skills needed for the available jobs. Increase of aggregate demand cannot reduce the employment.