Economics Junior College 2

Name : Jessica Chen Date : Nov. 13, 2023

1. What identifies net injections into a country’s circular flow of income? B

2. A country has a population of 100 million. There are 5 million people unemployed and the country has
an unemployment rate of 10%.
What is the size of the labour force?
a. 10 million c. 90 million
b. 50 million d. 95 million
3. Which type of unemployment is correctly linked to the description of its cause? B

4. In a closed economy with no government sector, consumption is increased by $100 million and real
income increases by $500 million.
What is the marginal propensity to consume?
a. 0.2 c. 0.8
b. 0.4 d. 5.0
5. Which is not injection into a country’s circular flow of national income?
A. Inward direct investment by multinational corporations
B. Private gross domestic fixed capital formation
C. The sale of government bonds to members of the public
D. Wages paid to civil servants
6. In a closed economy with no government, the value of the investment multiplier is 4.
By how much will consumption increase, if investment increases by $200?
a. $50 c. $600
b. $350 d. $800
7. What could raise the level of employment in an industry producing good X?
a. A decline in the marginal physical productivity of workers in industry X
b. The imposition of a tariff on an imported good which is a complement to good X
c. The introduction of an employer’s contribution to a state welfare scheme for each employee
d. The removal of a sales tax on good X
8. In an economy with no government sector
C = consumption
I = investment
X = exports
M = imports
Y = national income
If C = 20 + 0.75Y, I = 60, X = 120 and M = 120, what will be the equilibrium level of Y?
Y=20+0.75 y +60+120-120
Y=0.75y+80
y-0.75y=80
0.25y=80
y=320
a. 80 c. 320
b. 280 d. 400
9. What will be most likely to rise if unemployment is increasing in an economy?
a. The human capital of unemployed workers
b. The living standards of all workers
c. The nominal money wage rate of employed workers
d. The tax burden on employed workers
10. What will increase the multiplier effect of an increase in government spending on national income?
a. An increase in direct taxation
b. An increase in interest rates
c. An increase in the marginal propensity to consume
d. An increase in the marginal propensity to import
11. What is a cause of seasonal unemployment?
a. A general decrease in the demand for goods and services
b. A lack of necessary skills in the workforce
c. A temporary change in the pattern of consumers’ expenditure
d. An unwillingness of workers to move to other parts of the country where there is work
12. What is a possible combination of a cost and a benefit of rising levels of unemployment? D
 a. It falls and then rises c. It rises and then falls
b. It falls continuously d. It rises continuously
14. Which represents a leakage from an economy’s circular flow of income?
a. A government budget surplus
b. Bank loans to private companies
c. Foreign direct investment in the economy
d. The sale of assets by the country’s households
15. In a closed economy with no government sector, the multiplier shows the impact of a change in …
a. Consumption on investment c. National income on consumption
b. Investment on national income d. National income on investment
13. The table shows the levels of consumption and savings for given family incomes.

Essays
1. Explain the causes of unemployment and consider which is most likely to occur in a developing country.
[8]
Structural unemployment and frictional unemployment are two types of unemployment.

In structural unemployment, unemployment happens because of a change of structure in the economic

activity. Some examples of structural unemployment are technological unemployment, regional
unemployment, and international unemployment. In technological unemployment, workers are
Over the range
replaced of disposable
by machines, income
and are shown, asIn
unemployed. income risesunemployment,
regional what happens to
an the marginal
industry propensity
declines in a
to save?part of the country and causes unemployment in the industry. In international unemployment,
certain
demand switches to more internationally competitive countries, or a company decides to relocate to
another country because of its cheaper costs, which causes unemployment in the original country.

In frictional unemployment, unemployment is temporary because people are in-between jobs. In casual
unemployment, workers are out of work because they are looking for new jobs. In seasonal
unemployment, demand for workers fluctuates in different seasons of the year.

In developing countries, technological unemployment is the most likely reason for unemployment. This
is because unskilled workers will be replaced by machines. This can cause mass unemployment
because it can be difficult for unskilled workers to get qualifications.

2. Evaluate the policies available to a government to reduce the level of structural unemployment. [12]
Structural unemployment is unemployment caused by the changing structure of the economy. It is
divided into three types: Technical unemployment, regional unemployment, and international
unemployment.

Technical unemployment is when workers are unemployed because of the introduction of machines.
These machines are more efficient and do not need to rest, while also doing the same job as workers.
This can cause workers to be unemployed.
Regional unemployment is when demand for a certain product declines in a certain part of the country.
For example, if a city has no rain, then the demand for umbrellas will drop. This can cause umbrella
manufacturers to lay off their workers in order to cut costs, causing unemployment.

International unemployment is when firms decide to move to another country so that costs are
cheaper. An example is manufacturing firms moving from the USA to China. This can happen because
raw materials in China are cheaper and the labor cost in China is cheaper.

To solve this problem, governments can use supply side policy. These policies ensure that people are
able to get jobs after being unemployed. To increase the incentive of working, governments can reduce
unemployment benefits and reduce income tax rates with the aim of encouraging people to work.
Education and training can also be improved and given to unemployed workers so that they have a skill
and can be employed in the tertiary sector. Lastly, trade unions can be reformed so that they are not
as powerful and firms are more willing to hire workers who belong in the trade union.