The unemployment rate never becomes equal to zero, even as an economy approaches the natural rate level of real GDP (YNR), due to certain, specific imperfections in labor markets

Question: The unemployment rate never becomes equal to zero, even as an economy approaches the natural rate level of real GDP (YNR), due to certain, specific imperfections in labor markets 

Answer: The unemployment rate never becomes equal to zero, even as an economy approaches the natural rate level of real GDP (YNR), due to certain, specific imperfections in labor markets (eg. Efficiency wages; eg. Labor unions). The wage/salary paid by firms in a given labor market may be less than the equilibrium wage, for a given set of labor demand (by firms) and labor supply (by households). Thus the quantity of labor that households want to supply at the lower wage will be less than the quantity demanded of labor by firms, resulting in unemployment. The wage/salary paid by firms in a given labor market may be less than the B) equilibrium wage, for a given set of labor demand (by firms) and labor supply (by households). Thus the quantity of labor that households want to supply at the lower wage will exceed the quantity demanded of labor by firms, resulting in unemployment. The wage/salary paid by firms in a given labor market may be higher than the C) equilibrium wage, for a given set of labor demand (by firms) and labor supply (by households). 

Thus the quantity of labor that households want to supply at the higher wage will exceed the quantity demanded of labor by firms, resulting in unemployment. D) No unemployment results from a wage level that is above the equilibrium wage, for a given set of supply and demand functions for labor. E) The wage/salary paid by firms in a given labor market may be higher than the equilibrium wage, for a given set of labor demand (by firms) and labor supply (by households). Thus the quantity of labor that households want to supply at the higher wage will be less than the quantity demanded of labor by firms, discouraged workers , unemployed workers 12 Employed workers 48 Working-age population 100 A) 48 percent B) 60 percent. C) 12 percent. D) 95 percent. E) 65 percent. Q3 If the unemployment rate is less than the natural unemployment rate, then A) real GDP is greater than potential GDP. B) frictional unemployment is negative. C) cyclical unemployment is greater than zero. D) real GDP is less than potential GDP. E) there is no frictional unemployment. Q4 The discount rate is A) equal to the nominal interest rate minus the inflation rate. B) the interest rate that commercial banks have to pay for any reserves that they borrow from the non-bank public C) the interest rate that commercial banks have to pay to the owners of bank deposits. D) the interest rate that commercial banks receive for the reserves that they keep at the central bank E) the interest rate that commercial banks pay for reserves that they borrow from the central bank. Q5 According to the AS-AD model, A) the aggregate quantity supplied is typically greater than the aggregate quantity demanded, thereby leading to unemployment. B) changes in the amount of natural rate of output (potential GDP) is the only factor that shifts both the aggregate supply curve and the aggregate demand curve. C) the equilibrium is where the AS curve crosses the AD curve but the amount of real GDP at this point is not always equal to the natural rate of output (potential GDP). D) the AS curve is always equal to the natural rate of output (potential GDP). E) the aggregate quantity demanded is typically greater than the aggregate quantity supplied, thereby leading to inflation. Q6 An increase in the investment demand curve shifts the business cycle. aggregate demand, the aggregate, and the economy is in the phase of A) increases; rightward; expansion B) increases; rightward; recession C) increases; leftward; recession D) decreases; rightward; expansion E) decreases; leftward; recession Q7 If the price of oil rises, the A) AD curve and the AS curve shift leftward, real GDP decreases, and the price level rises. B) AD curve and the AS curve shift rightward, the price level rises, and real GDP decreases C) AS curve shifts leftward, the price level rises, and real GDP decreases. D) AD curve shifts rightward, real GDP increases, and the price level rises. E) AS curve shifts leftward, the price level rises, and real GDP increases Q8 When we speak of the demand for we are concerned with how much of your investment in the form of which does not earn bonus or interest, versus the interest-bearing shares, such as A) bonds; money: bonds B) money; currency; checking accounts C) money, money; bonds D) bonds; bonds; money Q9 All of the following shift the demand for money curve EXCEPT A) an increase in real GDP. B) a decrease in real GDP. C) an increase in the price level. D) a rise in the nominal interest rate. E) an improvement in financial technology.?

The correct option is c. Even at full employment level, the natural level of unemployment exists because laborers often switch between workplace in search of work, they are fired sometimes, workers unsatisfied with wages leave the job, etc. This frictional unemployment is always there. As shown in the figure, at a wage rate higher than the equilibrium level, the supply of labor is greater than the demand for labor, causing wage rate to fall to equilibrate the supply and demand of labor.2) The correct option is B.Labour force participation rate(LPR) = [(Labour force/working-age population)]*100Therefore, LPR= [(Employed+ unemployed) /working-age population]*100.Putting the values we getLPR= [(48+12) million /100 million]*100 = 60%.Discouraged workers are those who not actively seek employment or those who have been unemployed over a long period of time and thus given up looking for jobs. They are not counted in the labor force so we neglect discouraged workers.3) The correct option is D. At the natural level of unemployment, the inflation rate is equal to the expected inflation rate and output in the economy is its potential level ie utilizing all the factors of production maximum(full capacity utilization). Thus unemployment below the natural rate depicts real GDP is less than the potential level of GDP.4) The correct option is E. Discount rate is the rate of interest at which the federal reserve gives loans to the commercial banks. The discount rate in India is called the repo rate.5) The correct option is C. According to the AD-AS model, the equilibrium output is found at the point where AD curve intersects AS curve but this equilibrium output needs not be the potential level of output because the potential level of output is found at the trisection of LRAS curve, AD curve, and SRAS curve.6) The correct option is A. An increase in the investment shifts the AD curve rightwards thus expanding output and price level. The high investment brings profit to companies, resulting in a higher level of income. An increase in income increases the demand for goods in the economy. This shifts the AD curve rightwards expanding both prices and output. Higher price level provides incentives to produce more thus expanding GDP.7) The correct option is C. Oil is a crucial input for producers. So an increase in the prices of oil increases the cost of production. Thus, producers raise prices to cover the costs. AS supply curve shifts leftward. Hike in the prices reduces demand for goods and thus consumption will reduce. So overall prices will rise and output shrinks.8) The correct option is C. Demand for money depends on how much of total assets an individual wants to hold in the form of money which gives no interest versus how much to invest in interest-bearing securities like bonds. Higher interest rate less will be the demand for money because at the higher interest rate the cost of holding money increases so individuals hold bonds that give interest rate.9) The correct option is E. Demand for money depends on the interest rate and income. If income raises, the more the demand for money. Higher interest rate, lower demand for money.