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ABSE 204
Exercises
1. Structural unemployment is frequently caused by:
a) the impact of recession on employment;
b) shifts in the economy that make certain job skills obsolete;
c) temporary layoffs in industries such as construction;
d) none of the above.
2. Cyclical unemployment is frequently caused by:
a) shifts in the economy that make certain job skills obsolete;
b) temporary layoffs in industries such as agriculture;
c) the impact of recession on employment;
d) none of the above.
3. The natural rate of unemployment tends to fall with the:
a) increase in the minimum wage;
b) increase in income taxes;
c) increase in labor mobility;
d) none of the above.
4. Assuming AD grows faster than the potential GDP, the economy can:
a) avoid inflation only if real output falls.
b) produce less at any given price level;
c) produce more but only if the price level is allowed to fall;
d) increase output but always at the expense of the increased inflation;
5. A vertical AS curve would suggest that:
a) input prices adjust gradually to changes in the price level;
b) input prices adjust in full proportion to the prices of final goods;
c) input prices are completely rigid as output prices rise;
d) input prices adjust more than proportionally to changes in the price level.
6. The AD-AS model suggests that IN THE LONG RUN:
a) unemployment can be reduced by increasing AD;
b) increases in AD will cause unemployment to rise above its natural rate;
c) unemployment will not be affected by changes in AD;
d) none of the above.
7. If AS curve is horizontal, shifts in AD
a) lead to changes in output, because there is excess capacity in the economy and prices and wages
are assumed fixed;
b) lead to changes in both output and the price level because there is excess capacity in the economy
and prices and wages are assumed flexible;
c) lead to changes in the price level because economy is at full capacity and prices and wages are
assumed flexible;
d) have no effect on either output or the price level because economy is at full capacity and prices
and wages are assumed fixed.
8. A movement down along the Phillips curve is equivalent to:
a) a rightward shift in the AD curve;
b) a rightward shift in the short run AS curve;
c) a rightward shift in the long run AS curve;
d) a leftward shift in the short run AD curve.
9. A rightward shift in the long run Phillips curve is equivalent to:
a) a movement downward along the short run Phillips curve;
b) a rightward shift in the long run AD curve;
c) a rightward shift in the long run AS curve;
d) none of the above.
10. In an economy with huge excess capacity and rigid prices, a fiscal stimulus:
a) shifts both AE and AD curves.
b) shifts both the AE curve and the short run AS curve;
c) shifts both the AE curve and the long run AS curve;
11.
a)
b)
c)
d)
e)
f)
g)
h)
Present graphically and explain each of the following:
the reduction in the rate of inflation is accompanied by a decrease in output;
real GDP rises at a constant price level;
the economy is experiencing a huge increase in labor productivity;
real GDP reduction is accompanied by a severe increase in the price level;
price level begins to rise before full employment is reached.
an increase in the price of electricity, used as an input in most industries and its impact on GDP;
a significant increase in labor productivity and its impact on potential GDP;
an increase in the rate of unemployment accompanied with a reduction in the rate of inflation.