Which one among the following statements is not correct?
- A.When the economy grows slowly than its potential, the unemployment rate rises.
- B.Structural unemployment occurs when jobs are eliminated by changes in demand for particular goods or due to automation.
- C.Recession in the economy leads to cyclical unemployment.
- D.At full employment, the measured unemployment rate is negative.
Correct answer
Explanation
The correct answer is D. At full employment the measured unemployment rate is not negative; it stays at a small positive level called the natural rate of unemployment.
An unemployment rate is the share of the labour force without work, so it can never fall below zero. Even when an economy is at full employment, some people are between jobs (frictional unemployment) and some lack the skills that new jobs need (structural unemployment). Full employment therefore means only that cyclical unemployment, caused by a slump in demand, has disappeared.
A is wrong as a choice: when output grows below its potential, firms hire fewer workers and unemployment rises, as Okun's law describes.
B is wrong as a choice: structural unemployment does arise when demand for some goods falls for good or machines replace workers.
C is wrong as a choice: a recession cuts demand and output, and the job losses it causes are what economists call cyclical unemployment.
Exam tip: full employment = zero cyclical unemployment, but frictional plus structural unemployment remain (the natural rate).
Practice Questions
View allConsider the following statements : Human capital formation as a concept is better explained in terms of a process which enables
1. individuals of a country to accumulate more capital.
2. increasing the knowledge, skill levels and capacities of the people of the country.
3. accumulation of tangible wealth.
4. accumulation of intangible wealth.
Which of the statements given above is/are correct ?
- A.1 and 2
- B.2 only
- C.2 and 4
- D.1, 3 and 4
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Human capital formation means raising people's knowledge, skills and abilities, which is a form of intangible wealth. Human capital is the stock of education, skill, health and experience that makes people productive.
Read the full explanation →Consider the following statements :
1. In the case of all cereals, pulses and oil-seeds, the procurement at Minimum Support Price (MSP) is unlimited in any State/UT of India.
2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will never rise.
Which of the statements given above is/are correct?
- A.1 only
- B.2 only
- C.Both 1 and 2
- D.Neither 1 nor 2
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Procurement at MSP is limited, and MSP is a floor price that market prices often exceed. The Government announces MSPs for 22 mandated crops on the recommendation of the Commission for Agricultural Costs and Prices (CACP).
Read the full explanation →Increase in absolute and per capita real GNP do not connote a higher level of economic development, if
- A.industrial output fails to keep pace with agricultural output.
- B.agricultural output fails to keep pace with industrial output.
- C.poverty and unemployment increase.
- D.imports grow faster than exports.
Show answer
Economic development means better lives for people, so rising income alone is not development if poverty and joblessness are growing.
Read the full explanation →Consider the following statements :
1. Coal sector was nationalized by the Government of India under Indira Gandhi.
2. Now, coal blocks are allocated on lottery basis.
3. Till recently, India imported coal to meet the shortages of domestic supply, but now India is self-sufficient in coal production.
Which of the statements given above is/are correct?
- A.1 only
- B.2 and 3 only
- C.3 only
- D.1, 2 and 3
Show answer
The coal industry was nationalised under Indira Gandhi, but coal blocks are not given by lottery and India still imports coal.
Read the full explanation →Consider the following statements in respect of the International Bank for Reconstruction and Development (IBRD) :
I. It provides loans and guarantees to middle income countries.
II. It works single-handedly to help developing countries to reduce poverty.
III. It was established to help Europe rebuild after the World War II.
Which of the statements given above are correct?
- A.I and II only
- B.II and III only
- C.I and III only
- D.I, II and III
Show answer
Statement II is wrong because the IBRD works alongside other World Bank Group institutions and partners, not single-handedly. The IBRD was set up at the Bretton Woods Conference in 1944, together with the IMF.
Read the full explanation →