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Free CFA-Level-I Exam Braindumps (page: 332)

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When the output of an economy exceeds the economy's full-employment capacity, then

  1. aggregate supply will increase until the economy can produce the output at the existing price level.
  2. aggregate demand will decline until full-employment equilibrium is restored at a lower price level.
  3. unemployment will exceed the economy's natural unemployment.
  4. wages and prices will rise until full employment is restored at a higher price level.

Answer(s): D

Explanation:

Higher than full employment output will cause resource prices to rise (i.e. the price of labor and other prices in the economy) which will result in decreased demand for labor and a contraction of aggregate supply. The economy will toward its long run equilibrium output.



Under adaptive expectations, a shift to a more expansionary macroeconomic policy will

  1. reduce unemployment in both the short and long run.
  2. fail to systematically reduce unemployment in either the short run or long run.
  3. reduce unemployment in the short run but not in the long run.
  4. reduce unemployment in the long run but not in the short run.

Answer(s): C

Explanation:

The effects of a more expansionary macroeconomic policy under adaptive expectations are to reduce unemployment only in the short run. This is because the inflationary effects of the demand-stimulus policy will be underestimated and thus the real wage would be eroded. The consequence of this erosion is an increase in employment. However, in the long run, unemployment is unchanged since the higher rate of inflation is anticipated.



Which of the following is true?

  1. During a recession, cyclical unemployment will be low.
  2. Frictional unemployment implies a lack of available jobs.
  3. When an economy is at full employment, actual unemployment will be less than the natural unemployment.
  4. When actual GDP equals potential GDP, the actual unemployment will equal the economy's natural unemployment.

Answer(s): D

Explanation:

Under full employment, the rate of unemployment will be equal to the natural rate of unemployment given the economy's frictional and structural characteristics. Potential GDP is defined as the amount of output that could be expected at full employment. Therefore, at potential GDP, the rate of unemployment is equal to the natural rate of unemployment.



The unemployment rate equals the number of persons

  1. unemployed divided by the population age 16 and over.
  2. unemployed divided by the number in the labor force.
  3. not working divided by the population age 16 and over.
  4. unemployed divided by the number employed.

Answer(s): B

Explanation:

The rate of unemployment is the percent of persons in the labor force who are unemployed. It is calculated as:
number of persons unemployed divided by the number of persons in the labor force.






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