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Principles of Economics Exam Questions and Answers What is frictional unemployment? - ANSWER-Between jobs, moving towards a better job. (Module 7) What is structural unempoyment? - ANSWER-Job eliminated, accumulated experience is no longer valued in the labor market. What is cyclical unemploy...

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  • November 11, 2024
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Principles of Economics Exam Questions

and Answers


What is frictional unemployment? - ANSWER✔✔-Between jobs, moving towards a better job. (Module

7)


What is structural unempoyment? - ANSWER✔✔-Job eliminated, accumulated experience is no longer

valued in the labor market.


What is cyclical unemployment? - ANSWER✔✔-Laid off due to a recession


How do you calculate the unemployment rate? - ANSWER✔✔-(# of unemployed/labor force) x 100


How do you calculate the labor force participation rate? - ANSWER✔✔-(labor force / population) x 100


Who is in the labor force? - ANSWER✔✔-Those who are employed and those who are actively looking

for work.


Another term for having no cyclical unemployment. - ANSWER✔✔-Full employment


How are the terms "full employment" and "natural rate of unemployment" related? - ANSWER✔✔-Both

are used to describe the situation where there is zero cyclical unemployment.


Does full employment mean that there is no unemployment? - ANSWER✔✔-No. There will always be

frictional and structural unemployment.


What do households do in the factors market? - ANSWER✔✔-Households sell land, labor, capital and

entrepreneurship in the factors market.

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Which groups provide inflows to the financial market? - ANSWER✔✔-Financial market inflows are made

up of private savings from households and foreign lending from the rest of the world.


What is investment? - ANSWER✔✔-business spending on physical capital (tools), new homes, and

inventories (products)


Which is the most volatile component of GDP? - ANSWER✔✔-Investment spending


Which component of GDP is the largest? - ANSWER✔✔-Consumption spending


How do you calculate GDP? - ANSWER✔✔-GDP = C + I + G + (X-M)


How do you compare living standards between countries or over time? - ANSWER✔✔-Real GDP per

Capita


Will a change in spending shift AD or AS? - ANSWER✔✔-AD


Will a change in resources shift AD or AS? - ANSWER✔✔-AS


Why are only final goods counted in GDP? - ANSWER✔✔-Intermediate goods are not included in the

GDP to avoid over-counting.


Identify three things that contribute to quality of life but are not counted in GDP. - ANSWER✔✔-1.

Environmental quality


2. Political freedom


3. Leisure time


What two groups are hurt by unexpected inflation? - ANSWER✔✔-Lenders and those on fixed incomes


Identify three costs of inflation - ANSWER✔✔-1. Menu costs


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2. Shoe leather costs


3. Loss of purchasing power


What is the most cited measurement of inflation in the US? - ANSWER✔✔-Consumer Price Index


What is the difference between nominal and real GDP? - ANSWER✔✔-Real GDP is calculated using prices

from a selected base year. Nominal GDP is calculated using existing prices. Real GDP is nominal GDP

adjusted to remove the influence of inflation.


Sticky prices and wages mean AS has what kind of slope? - ANSWER✔✔-Positive, upward sloping


Rapidly adjusting prices and wages mean LRAS has what kind of slope? - ANSWER✔✔-Vertical


What kind of policy should the government use to fight a recession? - ANSWER✔✔-Expansionary fiscal

policy


What kind of policy should the government use to fight inflation? - ANSWER✔✔-Contractionary fiscal

policy


What happens to AS/AD when government increases spending? - ANSWER✔✔-AD shifts right


What happens to AS/AD when government cuts taxes? - ANSWER✔✔-AD shifts right


What happens to AS/AD when government decreases spending? - ANSWER✔✔-AD shifts left


What happens to AS/AD when government increases taxes? - ANSWER✔✔-AD shifts left


How do you calculate the expenditure multiplier? - ANSWER✔✔-1 / (1-MPC)


What is MPC? - ANSWER✔✔-Marginal propensity to consume


What is MPS? - ANSWER✔✔-Marginal propensity to save

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