Economics Level N Weekly Exam Material

Week: 5
Exam Timetable:

Sunday Monday Tuesday Wednesday Thursday

CA

CA Code: 2122-NNH14 Level N Economics Continuous Assessment T1 W5

Book Material:
Ch 3 Problem solving: Refer to TYK and CYK
Ch 4.1 – Ch 4.3 (LP1 Apps: 1-2)

Course Revision Material:

Chapter 4 Basic Qs 1-13, Grid Qs 1-16, top Qs 1,2.

Static Sample Question is attached.

Unit Quiz: Level N Economics Unit Quiz NN3-PQ-O Ch3

Book Material:
Chapter 3

Date 20-09-21 | Level N | 1

CA NNH14 Sample Questions

1. Who is considered as unemployed?

2. What does the labor force represent?

3. What does the labor force participation rate represent?

4. Calculate the labor force participation rate.

5. What does the unemployment rate measure?

6. Calculate the unemployment rate.

7. Why does the official unemployment rate understate the actual unemployment
situation in an economy?

8. What is cyclical unemployment and how can it be corrected?

9. When does frictional unemployment occur?

10. When does an economy reach the natural rate of unemployment?

11. When does the natural rate of unemployment change?

12. Why is unemployment an economic problem?

13. In a population of 60 million, 20m are employed and 5m unemployed. How many are in
the Labor force?

14.

Identify phase 1 in the business cycle?

15. At full employment, zero unemployment does not exist because there will be what type of
unemployment?

16. When does frictional unemployment occur?

Date 20-09-21 | Level N | 2

17. Which of the following is an example of an unemployed worker?
A. Sam is a baker, who sells bread at his own bakery.
B. Joe is in high school and does not have time to hold down a job.
C. Carmen quit her job at the local restaurant and has since applied for an opening position at
the local library.
D. Carole is working part-time but needs a full-time job.
E. Maria is a housewife who prefers to stay home to take care of her kids.

18. A nation has a working-age population of 60 million, with 30 million working and 10
million unemployed and seeking work. Calculate the labor force participation rate.

19. what are the costs of unemployment?

20. Identify individuals who are not counted in the labor force.

21. If the labour force is 10 million out of which 7 million are unemployed. Then the rate of
unemployment will be equal to?

22. Identify the types of unemployment?

23. What is cyclical unemployment?

24. What is structural unemployment?

25. What is the unemployment rate equal to when the economy is operating at full
employment?

26. Explain the natural rate of unemployment.

27. What are the limitations to the nominal GDP?

28. How is the nominal GDP calculated?

29. Where would the production of a foreign company operating in another country be
recorded?

30. Which transactions must be recorded when calculating a country’s GDP and which
ones mustbe excluded?

31. What does the circular flow of income represent?

Date 20-09-21 | Level N | 3

Answers:
1. Who is considered as unemployed?
Sample question answer:
An individual becomes unemployed when he/she is jobless, within the working-age
range (above the school-leaving age and below the retirement age — usually between 16
and 65), actively seeking a job, and readily available to work.

2. What does the labor force represent?

Sample question answer:
The labor force refers to the working-age population above 16 and below 65 who is
willing and able to work or is seeking employment. It excludes people in the military,
housewives, or institution civilians.

3. What does the labor force participation rate represent?

Sample question answer:
The labor force participation rate is the percentage of the working age population
(between 16 and 65) that is part of the labor force. It increases when more people enter
the labor force and reflects the percentage of people who are economically active. It
decreases when the number of discouraged workers increases.

4. Calculate the labor force participation rate.

Sample question answer:
The labor force participation rate measures the active workforce. It is the sum of those
employed and unemployed divided by the total non-institutionalized or civilian
working-age population. For example, if the total population is 100,000 with 10,000
being unemployed, 50,000 being employed, 7,000 being children and 8,000 above the age
of 65, the total labor force participation rate would be ((50,000 + 10,000)/85,000) =
70.5%.

5. What does the unemployment rate measure?

Sample question answer:
The unemployment rate is the percentage of the unemployed in the labor force. It is
calculated by dividing the number of the unemployed by the labor force x 100.

6. Calculate the unemployment rate.

Sample question answer:
The unemployment rate is a percentage of those unemployed to the labor force. For
example, if the employed are 30 million and the unemployed are 10 million, the
unemployment rate would be equal to (10/(30 + 10)) = 25%

7. Why does the official unemployment rate understate the actual unemployment
situation in an economy?
Sample question answer:
The unemployment rate understates the actual unemployment situation because it
counts part-time workers as full-time employees, it does not count the discouraged
workers and the underemployed in the labor force, and it does not count the
underemployed as unemployed.

Date 20-09-21 | Level N | 4

8. What is cyclical unemployment and how can it be corrected?
Sample question answer:
Cyclical unemployment occurs when the aggregate demand in the economy decreases.
Consequently, output decreases and employees are laid off as the economy faces a
downturn.Cyclical unemployment can be corrected through macroeconomic policies,
such as fiscal policy and monetary policy to increase aggregate demand.

9. When does frictional unemployment occur?

Sample question answer:
Some of the individuals who are not working may be in a transitional stage between two
jobs.Individuals who are frictionally unemployed are subject to a time lag between
leaving their current job and joining a new one.

10. When does an economy reach the natural rate of unemployment?

Sample question answer:
 The natural rate of unemployment (NRU) is the unemployment
rate that is consistentwith full employment.
 At the NRU, the economy is said to be producing its potential output.
 The NRU is the sum of frictional and structural unemployment
and it occurs when cyclical unemployment is zero.
 The NRU or full employment can never be zero, because
frictional and structural unemployment are unavoidable.

11. When does the natural rate of unemployment change?

Sample question answer:
The NRU mainly composed of frictional and structural unemployment.
Therefore factors that affect these types of unemployment will alter the
natural rate. These factors include changes in:
 Characteristics of the labor force
 Labor unions and institutions
 Government policies

12. Why is unemployment an economic problem?

Sample question answer:
Because it lowers output and the standard of living. It increases crime rates, vandalism,
stress and other social problems. In addition, it is a burden to governments and tax
payers.

13. In a population of 60 million, 20m are employed and 5m unemployed. How many are in
the Labor force?
Sample question answer:
People who are employed and those who are unemployed are both counted in the labor force.
The Labor force is equal to 20 + 5 = 25m.

Date 20-09-21 | Level N | 5

14.

Identify phase 1 in the business cycle?

Sample question answer:
Peak/boom

15. At full employment, zero unemployment does not exist because there will be what type of
unemployment?
Sample question answer:
Frictional unemployment and structural

16. When does frictional unemployment occur?

Sample question answer:
Some of the individuals who are not working may be in a transitional stage between two jobs.
Individuals who are frictionally unemployed are subject to a time lag between leaving their
current job and joining a new one.

17. Which of the following is an example of an unemployed worker?

A. Sam is a baker, who sells bread at his own bakery.
B. Joe is in high school and does not have time to hold down a job.
C. Carmen quit her job at the local restaurant and has since applied for an opening position at
the local library.
D. Carole is working part-time but needs a full-time job.
E. Maria is a housewife who prefers to stay home to take care of her kids.
Sample question answer:
C

18. A nation has a working-age population of 60 million, with 30 million working and 10
million unemployed and seeking work. Calculate the labor force participation rate.
Sample question answer:
𝐿𝑎𝑏𝑜𝑟 𝑓𝑜𝑟𝑐𝑒 30+10
Labor force participation rate = 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑜𝑓 𝑎𝑔𝑒 𝑏𝑒𝑡𝑤𝑒𝑒𝑛 16 𝑎𝑛𝑑 65 X 100 = X 100 =
60
66.66%

Date 20-09-21 | Level N | 6

19. what are the costs of unemployment?
Sample question answer:
 Lost output.
 The unskilled take longer time than the skilled, to find a job and are more prone to
structural unemployment.
 The employed has to pay higher taxes to cover for the unemployed.
 The unemployed will suffer from low incomes, which will reduce the spending level
and the standard of living.
 An increase in the rate of suicide, crime and vandalism.
 The cost of unemployment is not equally distributed, for example, unemployment is
higher among younger workers.
 A decrease in morale and an increase in poverty and society unrest.

20. Identify individuals who are not counted in the labor force.
Sample question answer:
Housewives, full time students, retired people and people who have given up the search for a
job.

21. If the labour force is 10 million out of which 7 million are unemployed. Then the rate of
unemployment will be equal to?
Sample question answer:
(7/10)X 100 = 70%

22. Identify the types of unemployment?

Sample question answer:
Regional, cyclical, structural, frictional and seasonal.

23. What is cyclical unemployment?

Sample question answer:
Cyclical unemployment occurs when the aggregate demand in the economy decreases.
Consequently, output decreases and employees are laid off as the economy faces a downturn.
Cyclical unemployment is hence attributed to changes in the business cycle, namely the
recession phase.

24. What is structural unemployment?

Sample question answer:
Structural unemployment occurs due to a mismatch between the skills required for a job and
the available job vacancies. This means that the skills offered by workers will be
incompatible with the structure of the job.

25. What is the unemployment rate equal to when the economy is operating at full
employment?
Sample question answer:
The unemployment rate will be equal to the rate of frictional and structural unemployment.

Date 20-09-21 | Level N | 7

26. Explain the natural rate of unemployment.
Sample question answer:
 The natural rate of unemployment (NRU) is the unemployment rate that is consistent
with full employment.
 At the NRU, the economy is said to be producing its potential output.
 The NRU or full employment can never be zero, because frictional and structural
unemployment are unavoidable.
 Therefore the NRU is the sum of frictional and structural unemployment and it occurs
when cyclical unemployment is zero.

27. What are the limitations to the nominal GDP?

Sample question answer:
Despite being a good indicator about the economic performance of a
country, the nominalGDP has the following limitations:
- It does not include black market or hidden economy’s transactions.
- It does not count non-market activities.
- It fails to reflect the quality of life and the standard of living.
- It ignores the negative externalities.
- It does not show how output is distributed.

28. How is the nominal GDP calculated?

Sample question answer:
There are three approaches including the income, expenditure and added
value. They all yieldthe same results. Nominal GDP = C + I + G + Xn using
the expenditure method with Xn being the difference between exports and
imports. Nominal GDP = rent + wages + profit + interest under the income
approach, and it is equal to the sum of all added values (the difference
between the selling price and cost of units purchased) under the added-value
approach.

29. Where would the production of a foreign company operating in another country be
recorded?
Sample question answer:
Production will be added to the GDP of the country where this factory is located.

30. Which transactions must be recorded when calculating a country’s GDP and which
ones mustbe excluded?
Sample question answer:
In calculating GDP, we can sum up the value added at each stage of
production or we can take the the monetary value of all goods and services
produced within the borders of the country during a specific period of time.
We do not use the value of total sales in an economyto measure how much
output has been produced. GDP does not count transactions in which money
or goods changes hands but in which no new goods and services are
produced.

Date 20-09-21 | Level N | 8

31. What does the circular flow of income represent?
Sample question answer:
The circular flow of income or circular flow is a model of the economy in
which the major exchanges are represented as flows of money, goods, and
services between economic agents.

Date 20-09-21 | Level N | 9