Country A's workforce consists in large part of seasoned workers, with an average age of around 45. Country B is relatively young, with an average workforce age of just 31. A is also a mature country, having implemented many modern advances in technology. B is a growing country with a dynamic leadership which is bringing about a technological revolution in the country. Given this, country A has ________ structural unemployment and ________ frictional unemployment than country B.
Answer(s): D
Frictional employment arises because of the fact that employers do not known about all the available workers and their qualifications while job-seekers are not fully aware of the available job opportunities matching their interests and skills. This leads to a longer job placement time and also causes a higher employee turnover due to job mismatches. The resulting contribution to the unemployment rate is called "frictional unemployment." Since younger workers tend to have a higher job mobility, a younger workforce will also have a higher frictional unemployment.Changes due to technology, public policy or demands in the market place lead to people with outdated skills or skills which do not match the jobs being offered. The resultant contribution to unemployment is referred to as "structural unemployment." Hence, a rapidly growing economy will tend to generate a higher level of structural unemployment since in such an economy, skills tend to get outdated faster.
Which of the following is not true about monetary policy?
Usually we think of the Central Bank being in control of the money supply, but several factors outside of the baker's control can impact the money supply. Most notably is the currency deposit ratio, which measures how much currency consumers actually hold. If consumers hold more physical currency, this decreases banks' ability to create more money by lending funds.
Rich owns a shoe factory. He believes that a recent monetary policy announcement will cause 5% inflation over the next year, equally effecting the price of shoes, the cost of inputs, and wages. How will Rich change his production plans considering this forecast?
Anticipated inflation is always a wash for both consumers and producers, therefore Rich would not change his production plans. Remember that possible secondary effects, like an increase in consumer confidence, cannot be assumed. How high actual inflation is during the year is irrelevant since planning is based on forecasted inflation. This is an important concept for understanding how policy effects decision making. Note that if the entire economy thought exactly as Rich did, the expansionary monetary policy will have no real impact on the economy.
A shoe manufacturer believes inflation will increase dramatically over the next year. What incentives does this create for this firm?
Answer(s): E
Inflation will cause the manufacturer's costs to increase in terms of raw materials and wages. In addition, the price of shoes should also increase. Therefore the firm has an incentive to produce now, and store these goods in inventory until prices rise.
Which of the following will most likely occur in the short-run if there is an unanticipated increase in aggregate demand?
Answer(s): A
In response to an unanticipated increase in aggregate demand prices will rise and output will temporarily exceed full employment capacity. In the long run, output will return to its long run potential.
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