Statement I: as the Unemployment Rate Declines from 7% to 5%,we

question 308

Multiple Choice

Statement I: As the unemployment rate declines from 7% to 5%,we are reducing cyclical unemployment,but not structural or frictional unemployment.
Statement II: If the unemployment were 8%,then cyclical unemployment would be 3%.

• A)Statement I is true and statement II is false.
• B)Statement II is true and statement I is false.
• C)Both statements are true.
• D)Both statements are false.

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Definitions:

Default Risk Premium

The additional amount a borrower must pay to compensate the lender for assuming the risk of default.

Pure Interest Rate

The earning power of money. An interest rate without an inflation component or premiums for risk.

Inverted Yield Curve

A rare financial situation where long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality.

Short-Term Interest Rates

Interest rates applicable on loans or financial instruments that are due for payment within a short timeframe, typically less than one year.