Cyclical unemployment is: A. the additional unemployment not captured in official statistics resulting from discouraged workers and involuntary part-time workers B. the changes in unemployment that occurs due to expansions and contractions of the economy C. the unemployment that results when people retire or leave the labour force D. short-term unemployment that is associated with the process of matching workers with jobs E. the unemployment experienced by cyclists 12. Assume that the minimum wage already exceeds the market-clearing wage. If the minimum wage is increased then, holding other factors constant, the number of unemployed _____ and the number of employed _____. A. increases; decreases B. does not change; increases C. increases; does not change D. decreases; increases E. decreases; does not change 13. If an hour of labour produces less output this year than last year: A. firms are willing to pay this labour lower wage rates B. the demand for labour decreases C. labour productivity decreases D. All of the above E. None of the above 14. To reduce an expansionary output gap, the central bank will : A. tighten monetary policy by raising the interest rate B. ease monetary policy lowering the interest rate C. tighten monetary policy by lowering the interest rate D. ease monetary raising the interest rate E. tighten fiscal policy 15. If inflation does not adjust rapidly in the short run, then when the Reserve Bank decreases the nominal interest rate, the real interest rate will in the short run: A. not change B. increase C. decrease D. equal the nominal interest rate E. be greater than the nominal interest rate 4 16. Based on the Reserve Bank’s policy reaction function, when inflation is low compared to its target, the Reserve Bank ____ interest rates, thereby _____ short-run equilibrium output. A. increases; increasing B. decreases; increasing C. increases; decreasing D. does not change; increasing E. decreases; decreasing 17. Starting from long-run equilibrium, an decrease in tax revenue by the government will most likely result in a(n) _____ output gap and ____ inflation in the short run. A. contractionary; lower B. contractionary; unchanged C. expansionary; lower D. expansionary; higher E. contractionary; higher 18. An example of an inflation shock is a(n): A. income tax cut B. significant increases in oil prices C. increase in the short-term interest rates D. increase in government purchases E. fall in unemployment 19. A central bank that attempts to achieve a zero rate of inflation: A. cannot achieve price level stability in the long run B. makes it easier for real wages to be reduced without cutting nominal wages C. runs a high risk of deflation D. reduces the risk of deflation E. can consistently achieve negative real interest rates 20. Fiscal policy can shift: A. both aggregate demand and short-run aggregate supply, but not long-run aggregate supply B. aggregate demand and possibly potential output C. only short-run functions D. aggregate demand only E. aggregate supply only
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