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Free CFA-Level-I Exam Braindumps (page: 363)

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An economy is currently operating at full employment. If the Fed unexpectedly decreases the reserve requirement, in the short run, the aggregate output will ________. The unemployment will ________ the natural rate.

  1. fall, rise above
  2. rise, fall below
  3. rise, rise above
  4. fall, fall below

Answer(s): B

Explanation:

The unexpected decrease in the reserve requirement causes an unexpected expansion in money supply. In the short run, this leads to lower real interest rates. The increased availability of credit coupled with the rise in demand leads to an increase in real output and employment. Temporarily, the unemployment rate falls below the natural rate.



The population of Tunisia is 100 million; 5 million are unemployed and 90 million hold jobs. The employment rate in Tunisia is

  1. 90 percent.
  2. 5 percent.
  3. 95 percent.
  4. 85 percent.

Answer(s): A

Explanation:

The employment rate is equal to the number employed/total population or 90 million/100 million = 90%.



When individuals are unemployed because they lack the qualifications to fill available jobs, we call this a form of

  1. natural unemployment.
  2. frictional unemployment.
  3. structural unemployment.
  4. cyclical unemployment.

Answer(s): C

Explanation:

Structural unemployment implies that changes in the basic characteristics of the economy prevent the "matching up" of available jobs with available workers. Thus, workers possess skills which are not demanded by employers and employers demand skills that unemployed workers do not have.



An expansionary fiscal policy causes which of the following effects?

  1. The domestic currency depreciates.
    II. Exports decrease.
    III. Real interest rates increase.
    IV. Capital flows in from abroad.
  2. II, III & IV
  3. I, II & III
  4. I, II, III & IV
  5. I & III

Answer(s): B

Explanation:

When the government adopts an expansionary fiscal policy, the aggregate demand increases, causing an increase in prices. Since the demand for loanable funds increases due to the governmental presence in the market, the real interest rate increases. This attracts foreign investment, raising the demand for domestic currency, which appreciates in response. The appreciation of the domestic currency makes imports cheaper and exports costlier. As a result, exports decline and imports increase over time.






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