The unemployment rate of teen-agers is substantially higher than the unemployment rate of prime-age workers primarily because teen-agers
Answer(s): D
Youthful workers experience more unemployment because they change jobs and move in and out of the labor force often.
Frictional unemployment means
Frictional unemployment refers to unemployment due to constant changes in the economy that prevent qualified unemployed workers from being immediately matched up with existing job openings. It results from the scarcity of information and the search activities of both employers and employees for information that will help them make better employment choices.
Mr. Brown was in the habit of cashing his weekly paycheck and using this cash for his daily expenses. However, he now gets his paycheck direct deposited into his checking account and uses a debit card exclusively instead of cash. This represents an increase in which of the following types of money demand for Mr. Brown?
Answer(s): F
Mr. Brown money demand has not changed. He is still using his weekly paycheck to satisfy normal expenses, or transactions demand. Although he is "storing" his cash in a checking account until it is to be used, this does not represent store-of-wealth demand. Store-of-wealth implies money that is either invested or accumulated for some future need.Note that although Mr. Brown's money spending habits have not changed, the way his money is measured by economists has changed. Previously his money was held entirely in currency, whereas now a portion of his money is held in reserve by his bank. Although effectively there has been no change in the use of money, certain monetary aggregates will change.
Inflation has been about 5% for the last several years. There is widespread fear that oil and natural gas prices are about to spike at the same time there is unusually high unemployment. If inflation were actually 6% next year, and this causes no change in real GDP, what can be said about the general expectation for inflation?
If actual inflation were 6%, and this caused no change in real GDP, we know that inflation expectations were probably higher than 6%. There are two major theories as to how inflation expectations are formed. One is adaptive expectations theory. This states that economic participants will expect inflation to be about what it was in the past. The rational expectations hypothesis states that economic participants will consider all available information and make an estimation based on this knowledge.In this case, we are told that inflation has been about 5% the last several years. Therefore if producers are generally following the adaptive expectations hypothesis, they would have expected 5% inflation. However, we are also told that there may be inflationary pressure from the commodities market.Therefore under the rational expectations hypothesis, market participants would expect inflation to be something higher than 5%. Since we know that expectations must be higher than 6%, we also know that market participants must be forming their expectations rationally.
Which of the following correctly describes how expansionary fiscal policy through tax cuts eventually impacts employment?
Answer(s): B
Consumers react to tax cuts as if it were an increase in income. This causes more demand for goods and services at every price level. The demand curve would therefore shift to the right. This causes movement along the supply curve, expanding output. This expansion in output should reduce slack resources, i.e.unemployment.
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