Which of the following people would be classified as fictionally unemployed?
a. Computer programmers who lost their jobs because of a recession.
b. Construction workers who are on temporary layoff.
c. Elementary school teachers who do not have summer jobs.
d. Textile workers who lost their jobs because of new foreign competition.
QUESTION 2Assume that we want to drive our economy out of recession by generating a 400 billion change in real GDP. The MPC is 0.80 . Which of the following policy prescriptions would generate the targeted 400 billion change in income?
a. 120 billion increase in government spending and 50 billion increase in tax revenue.
b. 140 billion increase in government spending and 70 billion increase in tax revenue.
c. 160 billion increase in government spending and 120 billion increase in tax revenue.
d. 220 billion increase in government spending and 100 billion increase in tax revenue.
e. 400 billion increase in government spending and 300 billion increase in tax revenue.
QUESTION 3Monetarists reject using discretionary monetary policy as an effective stabilization tool because they believe:
a. if the money supply grows at a rate equal to the economy's long-run rate of economic growth, then the economy will be unstable.
b. that changes in the money stock do not affect output or prices.
c. the Fed will miss its money supply targets and make the economy worse.
d. monetary policy can stimulate aggregate demand, but it cannot affect inflation.
QUESTION 4An example of frictional unemployment is a(n):
a. textile worker permanently laid off due to jobs lost to imports.
b. engineer permanently laid off due to advances in technology.
c. fast-food restaurant worker who quits work and attends college.
d. computer programmer who leaves one job and accepts a new job.
QUESTION 5Assume the economy is in recession and real GDP is below full employment. The marginal propensity to consume (MPC) is 0.90, and the government follows Keynesian economics by using expansionary fiscal policy to increase aggregate demand (total spending). If an increase of 1,000 billion aggregate demand can restore full employment, the government should:
a. increase spending by 100 billion.
b. decrease spending by 790 billion.
c. increase spending by 1,000 billion.
d. increase spending by 250 billion.
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