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Free CFA-Level-I Exam Braindumps (page: 340)

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Full employment means that which of the following is zero?

  1. frictional unemployment
  2. aggregate unemployment
  3. cyclical unemployment
  4. structural unemployment
  5. total unemployment

Answer(s): C

Explanation:

Full employment is the level of employment that results from the efficient use of the labor force after allowance is made for the normal rate of unemployment due to information cost, dynamic changes and the structural conditions of the economy. Cyclical unemployment is short run and therefore must be zero in order to attain full employment.



Keynesian analysis implies that

  1. flexible wages and prices will quickly direct a market economy to full employment.
  2. the federal budget should be balanced annually.
  3. fluctuations in aggregate demand are an important source of economic instability.
  4. fluctuations in the money supply are the major source of economic instability.

Answer(s): C

Explanation:

According to Keynes, the major source of business instability is fluctuations in aggregate demand.
Thus, policies that effectively stabilize aggregate demand substantially reduce economic instability.



An economy is currently in equilibrium at full employment. If there is an anticipated governmental demand- stimulus policy and people correctly anticipate the effects, which of the following effects can be seen in the short run?

  1. The demand curve moves to the right.
    II. Real GDP increases.
    III. Prices increase.
    IV. The supply curve shifts to the left.
  2. I, II, III & IV
  3. I, III & IV
  4. I & III
  5. III & IV

Answer(s): B

Explanation:

If the buyers and sellers in the resource market completely anticipate the effects of an increase in demand, then they will correctly forecast the higher future inflation. This will prompt buyers to try and buy the goods today, at lower prices. On the other hand, suppliers would prefer to sell in the future, at higher prices. Thence, the demand curve will quickly move to the right and the supply curve will move tothe left. An equilibrium will be reached at a higher price which leaves the real quantities unaffected, changing only the nominal variables.



Which of the following factors would reduce aggregate demand in the goods and services market?

  1. a decrease in the real interest rate
  2. an increase in the expected inflation rate
  3. increased pessimism concerning the expected strength of future business conditions
  4. an increase in stock prices

Answer(s): C

Explanation:

What people think will happen in the future influences current purchasing decisions. Pessimism about the future state of the economy causes consumers and investors to cut back on their current spending for fear of becoming over extended. This pessimism leads to a decline in aggregate demand.






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