Econ_102_Test_3_Review_Questions_S09_-_A -...

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f65fb32ceaffb69e3f6bee2ea9f78d2e0f8e3470.doc 1 1. Explain why the demand for loanable funds slopes downward and the supply of loanable  funds slopes upward. When the interest rate rises investment spending becomes more expensive, so people  invest less. As the interest rate rises saving becomes more rewarding, so people want to  save more. The inverse relation between interest and borrowing is reflected in the downward  slope of the demand for loanable funds curve. The positive relation between interest and  saving is reflected in the upward slope of the supply of loanable funds curve. 2. Identify each of the following acts as representing either saving or investment. Fred uses some of his income to buy government bonds. Julie takes some of her income and buys mutual funds. Alex purchases a new truck for his delivery business using borrowed funds. Elaine uses some of her income to buy stock in a major corporation. Henrietta hires a builder to construct a new home using borrowed funds. Fred is saving. Julie is saving. Alex is investing. Elaine is saving. Henrietta is investing. 3.   Table 1 uses data for the year 2000 provided by Statistics Canada and adjusted to be  comparable to U.S. data. All values are in millions. Fill in the blank entries in the table.  Table 1 Country Adult Population Labor Force Employed Unemploye d Unemployment Rate Labor-Force Participation Rate Japan 108.12 66.99 63.79 3.20 4.78 percent 61.96 percent France 46.06 25.98 23.53 2.45 9.43 percent 56.4 percent Germany 69.17 39.75 36.54 3.21 8.08 percent 57.47 percent 4. What the four types of unemployment and how do they change over the business cycle? The four types of unemployment are: Frictional Structural
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f65fb32ceaffb69e3f6bee2ea9f78d2e0f8e3470.doc 2 Seasonal Cyclical The first three types of unemployment (frictional, structural, seasonal) have no strong relationship with the business cycle.  The fourth type, cyclical unemployment however is the result of the business cycle.   When the economy is in a recession and people lose their jobs as a the unemployed workers are cyclically unemployed.  Therefore, cyclical unemployment rises when the economy is in a recession.  Conversely, when the economy is in an expansion unemployed workers become  re-employed and the cyclical unemployment rate decreases. 5. Why is there unemployment even when the economy is at full-employment? Unemployment exists even when the economy is at full-employment
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This note was uploaded on 02/11/2010 for the course ART AFM101 taught by Professor Mr.lushman during the Spring '10 term at University of Toronto.

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Econ_102_Test_3_Review_Questions_S09_-_A -...

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