Net Jrf Mock Test #2: Macroeconomics

The correct answer is structural unemployment. Structural unemployment occurs when there is a mismatch between the skills of job seekers and the requirements of available jobs. In this case, the individual is unable to find a job because their job skills have become obsolete, indicating a structural issue in the labor market.

When economists refer to "tight" monetary policy, they mean that the RBI is taking actions that will contract the supply of money. This means that the central bank is implementing measures to reduce the amount of money available in the economy, such as increasing interest rates or reducing the money supply through selling government securities. By doing so, the RBI aims to control inflation and prevent excessive borrowing and spending, which can lead to economic instability.

The correct answer is multiplier. The multiplier refers to the ratio of the change in the equilibrium level of income to a change in some autonomous increase in spending. It measures the impact of an initial change in spending on the overall level of income in an economy. When there is an increase in autonomous spending, the multiplier effect ensures that this initial increase leads to a larger increase in income through subsequent rounds of spending. Therefore, the multiplier is a key concept in understanding the relationship between changes in spending and the overall level of economic activity.

If the quantity of money demanded is less than the quantity of money supplied, there will be excess supply in the money market. This excess supply will cause lenders to compete for borrowers, leading to a decrease in the interest rate. A decrease in the interest rate incentivizes borrowing and spending, which helps to increase the quantity of money demanded and restore equilibrium in the money market. Therefore, the correct answer is decrease.

When the interest rate falls, bond prices will rise. This is because when the interest rate decreases, the fixed interest payments that bonds provide become more attractive compared to new bonds issued at lower interest rates. As a result, investors are willing to pay a higher price for existing bonds with higher interest rates, driving up their prices. Conversely, when the interest rate rises, existing bonds with lower interest rates become less desirable, causing their prices to fall.

Expansionary monetary policy refers to the actions taken by a central bank to stimulate the economy by increasing the money supply and reducing interest rates. When a nation implements expansionary monetary policy, it typically leads to a depreciation of its currency. This is because the increased money supply and lower interest rates make the currency less attractive to foreign investors, resulting in a decrease in demand for the currency and a decrease in its exchange value. As a result, the currency's value decreases relative to other currencies, leading to a depreciation.

The natural rate of unemployment is the rate of unemployment that exists when the economy is at full employment, meaning that all available resources are being utilized. It is made up of two components: frictional unemployment, which is the temporary unemployment that occurs when workers are transitioning between jobs, and structural unemployment, which is the unemployment that occurs due to a mismatch between the skills of workers and the requirements of available jobs. Therefore, the natural rate of unemployment is the sum of frictional unemployment and structural unemployment.

An increase in total production (real GDP) causes the demand for money to increase because as the economy expands, more money is needed for transactions and investment. This increased demand for money leads to an increase in the interest rate because borrowers are willing to pay higher rates to obtain the funds they need. Additionally, lenders can charge higher interest rates as they have more opportunities to invest their money in a growing economy.

When firms experience unplanned increases in inventories, it means that they have more products in stock than they anticipated. This can occur due to lower than expected demand or production errors. In order to align their inventory levels with the demand, firms typically reduce their output. By producing less, they can prevent further accumulation of inventory and avoid potential losses associated with holding excess stock. Therefore, reducing output is the appropriate reaction for firms in such situations.

A decrease in the corporate profits tax rates is an example of expansionary fiscal policy because it involves reducing the tax burden on businesses. This action is likely to stimulate economic growth by encouraging businesses to invest, expand, and hire more workers. By reducing corporate taxes, businesses have more funds available to invest in their operations, which can lead to increased production, job creation, and overall economic activity. This policy is expansionary because it aims to boost aggregate demand and stimulate economic growth.