ECON 201: PRINCIPLES OF ECONOMICS I: Exam II Answer all the following 5 Question
ID: 1127819 • Letter: E
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ECON 201: PRINCIPLES OF ECONOMICS I: Exam II Answer all the following 5 Questions. Time 50 minutes (Use a minimum of 50 words to answer each descriptive question. Draw graphs where needed to explain the answer) Q1 a) What factors in the economy lead to structural and frictional unemployment among the labor force? b) Provide an example of either structural or frictional unemployment and using that example explain why it can't be 0% in the economy. 02. List the three microeconomic and the four Macro consequences of inflation in the economy Describe in detail one of the four Macro consequences of inflation in the economy using an example and explain why it may be a concern for the economy? a) b) Q3. Draw the AD curve and explain what does a downward sloping AD curve tell us about how price level changes may change Real GDP? Discuss how either the Real Balance Effect or the Foreign Trade Effect can explain why the AD curve is downward sloping. a) b) 04. a) Draw the AD-AS curves marking the axes and showing the short term equilibrium. b) In that graph describe when it may lead to a macro failure that gives rise to a recessionary GDP gap. 05. a) What are the three ways government implements fiscal policy? b) Using changes in the AD-AS graph, explain how a decrease in government expenditure changes the equilibrium in the economy?Explanation / Answer
1) a) frictional and structural unemployment are caused due to information mismatch. There is no effective platform for sharing information about what employers want from workers and what skills workers possess. This results in delay in hiring and being hired.
Sudden downfall in the industry also results in higher frictional and structural Unemployment.
b) transitioning is an example of frictional unemployment. A worker who is holding a position of manager but he feels he has developed enough skills and decides to quit job. This leads to increase in frictional unemployment.
This can never be 0 because for growth opportunities workers switch jobs.
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