Question 2

Question 1
1. Suppose the natural rate of unemployment is 5 percent. If the actual unemployment rate is 7 percent, then the cyclical unemployment rate

is 2 percent.

is -2 percent.

is 12 percent.

cannot be determined given the information.
5 points
Question 2
1. Cyclical unemployment is positive when

the inflation rate is positive.

the economy is at the peak of a business expansion.

the natural rate of unemployment exceeds the actual rate.

the actual unemployment rate exceeds the natural rate.
5 points
Question 3
1. Suppose the natural rate of unemployment is 5 percent. If the actual unemployment rate is 4 percent, then the cyclical unemployment rate is

9 percent.

1 percent.

-1 percent.

0 percent as cyclical unemployment cannot be less than zero.
5 points
Question 4
1. Cyclical unemployment is

the difference between the unemployment rate when the economy is in a recession and the unemployment rate when the economy is at the peak of an expansion.

the difference between the actual unemployment rate and the natural rate of unemployment.

the unemployment due to union activities and government-imposed restrictions to entry into specific occupations.

the unemployment due to the unemployment benefits and welfare programs of the government.
5 points
Question 5
1. The natural rate of unemployment is

zero.

the unemployment rate when there is no structural unemployment.

the unemployment rate when there is no structural or cyclical unemployment.

the unemployment rate that exists in long-run equilibrium, after adjustments to all changes have occurred.
5 points
Question 6
1. Which of the following is the rate of unemployment that occurs after all adjustments in the labor market have occurred?

the frictional rate of unemployment.

the natural rate of unemployment.

the cyclical rate of unemployment.

the structural rate of unemployment.
5 points
Question 7
1. An unexpected decrease in aggregate demand

causes the price level to fall and the unemployment rate to rise.

causes the price level to fall and the unemployment rate to fall.

causes the price level to rise and the unemployment rate to rise.

causes the price level to rise and the unemployment rate to fall.
5 points
Question 8
1. An unexpected increase in aggregate demand typically causes

frictional unemployment to increase but structural unemployment to decrease.

the price level to increase but has no effect on the unemployment rate.

the price level to increase and the unemployment rate to fall.

the price level to increase and the unemployment rate to increase.
5 points
Question 9
1. When a person bases her future expectations for the economy on all available current data and her own judgment about future policy effects, this is known as

the policy irrelevance proposition.

rational expectations.

irrational expectations.

the new classical theory.
5 points
Question 10
1. From the late 1980s to 2000, the natural rate of unemployment

climbed sharply.

held constant.

fluctuated up and down, following the path of the actual rate of unemployment.

gradually declined.
5 points (Extra Credit)
Question 11
1. When the economy is at its natural rate of unemployment,

it is still experiencing frictional and cyclical unemployment.

it is still experiencing structural and cyclical unemployment.

it is still experiencing frictional, seasonal, and structural unemployment.

it is still experiencing frictional, structural, and cyclical unemployment.
5 points
Question 12
1. Suppose there was an unexpected increase in aggregate demand. We would expect to observe

frictional unemployment to increase.

the duration of unemployment and the amount of unemployment to decrease.

higher wages, with the duration of unemployment and the amount of unemployment unchanged.

a decrease in aggregate demand.
5 points
Question 13
1. Policy making that is carried out in response to a rule is

active policy making.

passive policy making.

restrictive policy making.

determined policy making.
5 points
Question 14
1. What best defines active policy making?

taking action to offset a change in economic performance

taking action to increase long-term economic growth

taking action to make markets more competitive so as to improve efficiency

taking action to make markets less competitive so as to improve equity
5 points
Question 15
1. Suppose the government abolished the minimum wage law and the law that requires union wage rates to be paid on all government contract jobs. We would expect to see

a decline in the natural rate of unemployment.

an increase in claims for unemployment benefits.

the duration of unemployment to increase.

a recession.
5 points
Question 16
1. Expansionary fiscal policy can be used to reduce unemployment by

increasing long-run aggregate supply so as to raise real GDP.

increasing aggregate demand so as to raise real GDP.

reducing nominal wages so as to encourage firms to hire more workers.

eliminating inefficiencies from labor markets.
5 points
Question 17
1. If the rate of growth in the money supply is predetermined on the basis of a monetary rule, this is known as

direct policy making.

active policy making.

passive policy making.

fiscal policy making.
5 points
Question 18
1. If the Fed engages in open market sales in direct response to an increase in the rate of inflation, this is known as

direct policy making.

active policy making.

passive policy making.

fiscal policy making.
5 points
Question 19
1. Which type of unemployment is associated with the slump in aggregate demand that accompanies a recession?

Expansionary unemployment

Cyclical unemployment

Frictional unemployment

Structural unemployment
5 points
Question 20
1. During a recession, the overall unemployment rate

falls rapidly.

exceeds the natural rate of unemployment.

falls below the natural rate of unemployment.

equals the inflation rate.
5 points
Question 21
1. Suppose that the inflation rate has been 3 percent per year for several years, and the unemployment rate has been stable at 5 percent. Unanticipated changes in government policy cause the inflation rate to increase to 6 percent. In the short run, we would expect the unemployment rate to

remain constant.

increase to 10 percent.

increase, but the exact amount cannot be known for sure.

decrease.