Use the graph to answer the question that follows. Based on the accompanying graph, assuming that the velocity of money is constant, between year 1 and year 2, which of the following statements must be true?

The money supply decreased between years 1 and 2. Potential real GDP increased by 110 percent The money supply increased by 10 percent from year 1 to year 2 Neither nominal GDP nor real GDP changed between years 1 and 2 This economy has more cyclical unemployment in year 1 than in year 2

Question 2(Multiple Choice Worth 1 points)

(05.05 MC) Crowding out is usually associated with which of the following?

Higher wages, lower household income, less savings, less investment Fiscal budget deficit, higher interest rates, and reduced private investment Selling bonds, lower money supply, higher interest rates, less consumer spending Higher interest rate, appreciated currency, less net exports Higher unemployment, lower household income, less consumer spending

Question 3(Multiple Choice Worth 1 points)

(02.06 LC) Which of the following concerning nominal and real GDP is true?

The sum of all transactions at the current prices will equal real expenditure. The nominal value of all transactions uses past or constant prices to calculate their value. Nominal values better capture the changes in living standards since inflation is excluded. The real value of a sum of transactions will use current quantities but a constant set of prices. Nominal values exclude price level changes, while real values include price level changes.

Question 4(Multiple Choice Worth 1 points)

(06.01 MC) Which of the following represents a credit in the current account of Mexico?

Mexican citizens traveling in the United States The United States selling accounting services to Mexican firms Mexican citizen buying a business in the United States A Mexican worker in the United States sending a remittance to family in Mexico Mexican banks selling United States government bonds that they hold

Question 5(Multiple Choice Worth 1 points)

(06.02 MC) Assume that the dollar price of a euro increases from $1.10 to $1.20. Which of the following statements could explain this change?

The demand for euros decreased, and the dollar appreciated. The supply of dollars increased, and the dollar depreciated. The supply of euros increased, and the dollar depreciated. The demand for dollars increased, and the dollar appreciated. The demand for dollars increased, the supply of euros increased, and the dollar depreciated.

Question 6(Multiple Choice Worth 1 points)

(06.03 HC) Assume that there is an excess demand for euros at the current dollar price per euro. Which of the following is true?

The euro will appreciate as the euro market moves to equilibrium. The dollar price per euro will fall as the euro market moves to equilibrium. At the current price per euro, compared to the equilibrium price, European goods are relatively cheaper for U.S. citizens. At the current dollar price per euro, Europeans will find travel to the United States relatively cheaper, compared to the equilibrium exchange rate. The supply of euros will increase over time to equilibrate the quantity demanded and quantity supplied of euros.

Question 7(Multiple Choice Worth 1 points)

(05.04 MC) Under which of these circumstances will the outstanding debt of Country X increase?

Part of the outstanding debt of Country X is sold to citizens of other countries. Interest rates increase and the price of bonds falls. Country X has current expenditures that exceed current tax revenues. The unemployment rate is falling, while the inflation rate is rising. The economy has moved from a recession to a full-employment equilibrium.

Question 8(Multiple Choice Worth 1 points)

(04.06 MC) Use the graph to answer the question that follows. Which of the following explains the move from A to B on this graph of the money market?

The central bank decreases the required reserve rate for commercial banks. The average income of households decreases. The central bank sells bonds. The central bank decreases the discount rate. The commercial banks reduce their excess reserves and increase their loans.

Question 9(Multiple Choice Worth 1 points)

(04.07 HC) Use the graph to answer the question that follows. Which of the following combinations of economic changes is shown on the accompanying graph?

Households save more for their retirement, and the federal government has a growing budget deficit. Business investment increases, and the federal government has a growing budget deficit. Central bank buys government bonds, and the federal government increases government spending. Consumer spending increases, and the government reduces its budget deficit. Business investment decreases, and the government spending decreases.

Question 10(Multiple Choice Worth 1 points)

(02.07 LC) Which of the following sequences is normal for the business cycle?

Trough, expansion, peak, recession Expansion, recession, trough, peak Peak, recession, expansion, trough Recession, peak, expansion, trough Expansion, peak, trough, recession

Question 11(Multiple Choice Worth 1 points)

(05.02 LC) Which of the following statements about the short-run Phillips curve is true?

Outward shifts in aggregate demand lead to a Phillips curve that has an inverse relationship between unemployment and inflation. The short-run Phillips curve is vertical at the natural rate of unemployment. Inward shifts in aggregate supply lead to a Phillips curve that has an inverse relationship between unemployment and inflation. Along the short-run Phillips curve, inflationary expectations increase as unemployment increases. The long-run and short-run Phillips curves intersect where the unemployment rate is zero.

Question 12(Multiple Choice Worth 1 points)

(05.07 LC) Which of the following policies is considered an expansionary "supply-side" initiative?

Increased transfer payments Increased military spending Open-market purchase of government bonds Reduced regulation of business Higher income taxes

Question 13(Multiple Choice Worth 1 points)

(05.01 MC) Use the graph to answer the question that follows. In the accompanying graph, the short-run equilibrium of the economy changes from E₀to E₁. Which of the following fiscal policy initiatives can explain this change?

A decrease in government spending The purchase of government bonds by the central bank A reduction in income tax rates A decrease in transfer payments An increase in the national debt

Question 14(Multiple Choice Worth 1 points)

(03.05 LC) Which of the following statements relating to equilibrium in the AD-AS model is true?

In the short run, AD must equal SRAS at equilibrium; in the long run, AD need not equal SRAS at equilibrium. In long-run equilibrium, AD equals SRAS equals LRAS. In long-run equilibrium, there will be cyclical unemployment if AD is less than SRAS. Long-run equilibrium never occurs, since the rate of unemployment must equal zero at that equilibrium. In long-run equilibrium, if there is significant cyclical unemployment, wages and prices will rise.

Question 15(Multiple Choice Worth 1 points)

(06.04 MC) Use the graph to answer the question that follows. The accompanying graph of the market for the euro shows a change in the equilibrium from E₀to E₁, with a change in the equilibrium dollar price of a euro. Which of the following statements is consistent with this change?

Europeans are importing more goods from the United States, and the euro has depreciated. Higher real interest rates in the United States have led to an appreciation of the dollar. U.S. citizens are traveling more to Europe, appreciating the euro. Higher average incomes in Europe are leading to more exports from Europe and an appreciated euro. Americans are consuming fewer goods from Europe, depreciating the euro.

Question 16(Multiple Choice Worth 1 points)

(04.04 MC) Assume that a commercial bank has demand deposits of $1,000,000 and cash reserves of $150,000. If the required reserve ratio is 10%, which of the following is true?

This bank has inadequate reserves, given its demand deposits. This bank must keep demand deposits of at least $150,000. This bank has excess reserves of $100,000. This bank's required reserves equal $100,000. This bank must reduce its demand deposits to comply with the reserve requirement.

Question 17(Multiple Choice Worth 1 points)

(03.08 MC) Which is the most expansionary combination of fiscal policies?

Central bank buying government bonds and Congress lowering taxes Increasing government spending and increasing transfer payments Increasing tax and increasing government spending by the same amount Lowering taxes and lowering transfer payments by equal amounts Lowering the required reserve ratio for commercial banks and lowering taxes

Question 18(Multiple Choice Worth 1 points)

(04.04 MC) Assume that the required reserve ratio is 1/5 (or 20%) and that Bank Z has no excess reserve. If an individual deposits $1,000 cash into her bank account at Bank Z, what is value of each of the following? Maximum amount of new loans from Bank Z; Maximum amount of new deposits in the system

$200; $800 $200; $1,000 $800; $3,200 $800; $5,000 $1,000; $5,000

Question 19(Multiple Choice Worth 1 points)

(01.06 HC) Assume good Z is an inferior good sold in a perfectly competitive market. If the average income of consumers increases and the number of sellers increases, which of the following should occur?

The equilibrium price and equilibrium quantity will decrease. The equilibrium price will fall, and the impact on quantity is indeterminate. The equilibrium quantity will decrease, and the impact on price is indeterminate. The equilibrium price will fall, and the equilibrium quantity will increase. The impact on both price and quantity must be indeterminate.

Question 20(Multiple Choice Worth 1 points)

(05.01 MC) Which combination of fiscal policies would be most effective in addressing an inflationary gap?

Decrease government spending and the central bank sells government bonds Decrease government spending and increase income taxes Increase government spending and decrease transfer payments Central bank buys government bonds and decrease taxes Increase government spending and increase taxes by the same amount

Question 21(Multiple Choice Worth 1 points)

(04.05 MC) Within the money market, if the quantity demanded of money exceeds the quantity supplied of money, which of the following is true?

The real interest rate should decrease. The price level in the economy should increase. The nominal interest rate should increase. The money supply will decrease. The monetary authorities will lower all interest rates.

Question 22(Multiple Choice Worth 1 points)

(05.05 MC) Which of the following statements relating to deficit financing is most accurate?

When government outlays (or expenditures) are less than tax revenues, a fiscal deficit is the result. A fiscal surplus tends increases the real interest rate in the loanable funds market. A fiscal deficit funded by borrowing can reduce the availability of funds for the private sector, crowding out private investment. A fiscal deficit increases the demand for government bonds raising the price of bonds, and lowering nominal interest rates. A fiscal surplus tends to reduce the availability of funds available for consumer lending and household mortgages.

Question 23(Multiple Choice Worth 1 points)

(02.06 MC) In year 5, the nominal GDP is $11,000. Using the base year prices and same quantities of goods and services, the real GDP is $10,000. What is the value of the GDP price deflator?

.909 $11,000 1.1 90.0 110

Question 24(Multiple Choice Worth 1 points)

(05.07 MC) Which of the following policies should increase aggregate demand, short-run aggregate supply, and long-run aggregate supply?

Reduction in the corporate profits tax Higher transfer payments for retirees Central bank sells government bonds Reduced taxes on low-income households Reduced government spending on infrastructure

Question 25(Multiple Choice Worth 1 points)

(02.01 LC) Within the circular flow of the economy, which of the following statements is true?

Firms are suppliers of goods and suppliers of inputs. Individuals are suppliers of goods and suppliers of inputs. Firms are demanders of goods and suppliers of inputs. Individuals are demanders of goods and suppliers of inputs. Individuals are suppliers of goods and demanders of inputs.

Question 26(Multiple Choice Worth 1 points)

(04.02 MC) During the prior year, the nominal interest rate was 10% while borrowers received a real return of 3%. What must have been the rate of inflation during that time period?

3% 7% 10% 13% Cannot determine

Question 27(Multiple Choice Worth 1 points)

(04.07 MC) Assume that the government has a balanced budget. For political purposes, the government now increases defense spending. Which of the following is likely to happen?

Since the economy has been at full employment, the increase in spending will now create a inflationary gap. The financing of this additional spending will lower both the nominal interest rate and the real interest rate. Unless the wage rate decreases, this additional spending will generate cyclical unemployment. To fund this spending there will be an increase in the demand for funds, a higher real interest rate, and crowding out of private investment. To fund this spending, the central bank will sell government bonds, reduce the money supply, and reduce real GDP.

Question 28(Multiple Choice Worth 1 points)

(01.06 MC) At the equilibrium price and quantity in a competitive market, all of the following are true except which statement?

The quantity demanded equals the quantity supplied at the equilibrium price. There is no excess demand. There may be excess supply or a surplus. All the output produced by sellers is purchased by buyers. Unless there is a shift in demand or in supply, the equilibrium price will prevail.

Question 29(Multiple Choice Worth 1 points)

(04.03 LC) Which of the following statements is true concerning the "monetary base"?

The monetary base equals the sum of the value of circulating cash and demand deposits. The monetary base represents the estimate of liquidity available for consumers to spend. The monetary base is the sum of the value of currency in circulation and bank reserves. The monetary base in the United States represents the amount of liquidity issued by the Congress. The monetary base plus time deposits equals M2.

Question 30(Multiple Choice Worth 1 points)

(02.03 MC) Which of the following contributes to the unemployment rate understating the impact of labor market deficiency in the society?

Part-time workers who desperately need full-time employment are not signaled as a problem Unemployed people seeking work are counted as fully unemployed Those without previous employment experience but without work are not counted as unemployed The unemployment rate counts the very hard to employ, often called structurally unemployed Those who retired with pensions are not counted as unemployed

Question 31(Multiple Choice Worth 1 points)

(04.07 HC) Assume that the loanable funds market is in equilibrium with a real interest rate of r0. If households increase their savings, which of the following will happen?

There will be a decrease in the supply of funds, excess demand for funds, and an increase in the real interest rate. There will be a decrease in the demand for funds, excess supply of funds, and an increase in the real interest rate. There will be an increase in the supply of funds, excess supply of funds, and a decrease in the real interest rate. There will be an increase in the demand for funds and a decrease in the supply of funds with an increase in the real interest rate. There will be a decease in the demand for funds and an increase in the supply of funds with an indeterminate effect on the real interest rate.

Question 32(Multiple Choice Worth 1 points)

(03.03 MC) Use the graph to answer the question that follows. On the accompanying graph, the short-run aggregate supply moves from point A to point B. Which of the following could explain this change?

A reduction in the price level in the economy A reduction in labor force participation A reduction in the wage rate An increase in the nominal interest rate A higher rate of unemployment

Question 33(Multiple Choice Worth 1 points)

(04.03 MC) Assume an economy has the following data:

Demand deposits	$5,000
Time deposits	$9,000
Circulating cash	$3,000
Cash held by banks	$1,000

What is the value of M1 in this economy?

$3,000 $6,000 $8,000 $17,000 $18,000

Question 34(Multiple Choice Worth 1 points)

(05.04 MC) Which of the following statements concerning the national debt of Country X is most true?

Economists worry about an increased debt burden when they see foreign investors buying previously issued government debt. Economists worry that deficit financing and an increased national debt will increase the rate of unemployment. Economists worry that a growing national debt could increase future interest payments, reducing the government's ability to fund needed infrastructure and educational initiatives. Economists worry that when the central bank owns previously existing government bonds that they cannot initiate open-market operations. Economists worry that any trade surplus for Country X will lead to foreigners owning more of Country X's debt.

Question 35(Multiple Choice Worth 1 points)

(05.06 LC) Economic growth would best be described as which of the following?

With international trade, being able to consume beyond the production possibilities frontier Stimulating the economy so that production occurs on the production possibilities frontier instead of inside the frontier Technological progress that shifts the long-run aggregate supply curve to the right Fiscal policy that reduces cyclical unemployment to zero A reduced budget deficit, a lower real interest rate, and increased private investment

Question 36(Multiple Choice Worth 1 points)

(03.07 HC) Assume that there is significant cyclical unemployment, in the absence of any government intervention, which of the following should occur in the long run to the wage rate, short-run aggregate supply, and real GDP?

Wage Rate	Short-Run Aggregate Supply	Real GDP
Decrease	No change	Increase

Wage Rate	Short-Run Aggregate Supply	Real GDP
Decrease	Increase	Increase

Wage Rate	Short-Run Aggregate Supply	Real GDP
Decrease	Increase	Indeterminate

Wage Rate	Short-Run Aggregate Supply	Real GDP
Increase	Increase	Indeterminate

Wage Rate	Short-Run Aggregate Supply	Real GDP
Increase	Increase	Increase

Question 37(Multiple Choice Worth 1 points)

(04.01 LC) Which of the following statements about financial assets is true?

The basic money supply, M1, includes only demand deposits and time deposits. The basic money supply includes cash issued by the central bank, demand deposits, and time deposits. The most liquid financial assets are cash and government bonds. As nominal interest rates increase, the price of previously issued bonds falls. As interest rates increase, the opportunity cost of holding cash decreases.

Question 38(Multiple Choice Worth 1 points)

(03.02 MC) Assume that marginal propensity to consume is 4/5 or 80%, what is the value of the spending multiplier and the tax multiplier?

Spending Multiplier	Tax Multiplier
4	4

Spending Multiplier	Tax Multiplier
4	5

Spending Multiplier	Tax Multiplier
5	4

Spending Multiplier	Tax Multiplier
5	5

Spending Multiplier	Tax Multiplier
Indeterminate	5

Question 39(Multiple Choice Worth 1 points)

(06.03 MC) Which of the following is true relating to the demand for the euro in the foreign exchange market?

At a higher dollar price per euro, travel for U.S. citizens in Europe will be cheaper. A greater desire by U.S. citizens to buy European assets will increase the demand for euros. As the dollar price per euro falls, imports from Europe become more expensive for U.S. citizens. As Europeans try to buy more U.S. goods, the demand for euros will decrease. If the euro depreciates as the dollar price per euro falls, then the demand for euros is upward sloping.

Question 40(Multiple Choice Worth 1 points)

(03.02 MC) Which of the following statements about the multiplier is true?

The tax multiplier is less than the expenditure multiplier since there is initially some savings with a tax change. The tax multiplier equals 10 when the marginal propensity to consume is 9/10 (or 90%). Given the values of the multipliers, an equal increase in government spending and taxation will not change aggregate demand. The tax multiplier is greater than the expenditure multiplier, since the private sector spends the funds when taxes are reduced. Given the values of the multipliers, an equal increase in government spending and taxation will reduce aggregate demand.

Question 41(Multiple Choice Worth 1 points)

(03.03 LC) Which of the following best describes moving along the short-run aggregate supply curve (SRAS)?

Moving up the SRAS curve is associated with a higher real wage rate and greater real output. At each point on the SRAS supply curve, there is a different nominal wage rate. The SRAS curve is downward sloping, since a higher price level will attract more firms to produce output. The SRAS curve is upward sloping; a higher price level is needed to get firms to produce more real GDP. Moving up the SRAS, the nominal wage increases, and the rate of unemployment also increases.

Question 42(Multiple Choice Worth 1 points)

(01.02 MC) Use the graph to answer the question that follows. The accompanying graph of the production possibilities frontier shows which of the following?

A constant opportunity cost for producing each good Resources are not equally suitable to produce each good The society is operating inefficiently, not using all its resources For this society, scarcity is not a problem Equal amounts of good X must be given up for every extra unit of good Y

Question 43(Multiple Choice Worth 1 points)

(03.01 MC) Use the graph to answer the question that follows. On the accompanying graph, aggregate demand changes from AD to AD. Which of the following is a likely explanation?

An increase in personal income taxes A decrease in the price level increases the value of real wealth or real balances A decrease in government spending on the military An increase in transfer payments to support low-income retirees An increase in the price level raises the real interest rate

Question 44(Multiple Choice Worth 1 points)

(05.06 LC) Which of the following tends to increase productivity per worker?

Higher inflation Education and training Reduced unemployment Increased government spending Higher labor force participation rate

Question 45(Multiple Choice Worth 1 points)

(06.05 HC) Under which of the following circumstances should the net exports of Country Z increase?

Country Z's trading partners are in a recession, and they produce less output. Cyclical unemployment in Country Z increases, and Country Z produces less output. The real interest rate in Country Z increases, and their currency appreciates. A fiscal deficit in Country Z leads to deficit financing in Country Z, and the demand for loanable funds increases. Investment opportunities in other countries increase, and the supply of Country Z's currency increases.

Question 46(Multiple Choice Worth 1 points)

(04.05 LC) Which of the following will lead to a decrease in the demand for money?

A higher nominal interest rate A reduction in the money supply A higher price level in the economy A higher real GDP A reduction in average household income

Question 47(Multiple Choice Worth 1 points)

(01.06 MC) Assume a binding price floor on an agricultural product is removed, which of the following should happen?

The product price should fall, and the quantity supplied should increase. The product price should rise, and the quantity demanded should decrease. The product price should fall, and the quantity sold in the market should increase. There will no longer be a shortage in the market, as quantity supplied increase. The product price will remain the same, but the quantity demanded will now equal the quantity supplied.

Question 48(Multiple Choice Worth 1 points)

(03.08 HC) If the marginal propensity to consume is 9/10 (or 90%), what is the maximum combined change in aggregate demand that a $500 increase in government spending and a $300 decrease in taxes could cause?

$800 $2,300 $2,700 $7,700 $8,000

Question 49(Multiple Choice Worth 1 points)

(05.02 MC) Use the graph to answer the question that follows. Which of the following explains the move from A to B on the accompanying graph of the short-run and long-run Phillips curves?

Contractionary fiscal policy decreases aggregate demand in the AD-AS model. Expansionary monetary policy decreases short-run aggregate supply in the AD-AS model. Workers negotiate for a higher wage rate. Inflationary expectations fall. The natural rate of unemployment increases.

Question 50(Multiple Choice Worth 1 points)

(02.02 MC) Which of the following activity generates new production but is not counted in the GDP of country X?

The value of second-hand goods sold at a garage sale Mr. Jones and his sons build a new deck at their house A firm in country X produces automobiles that are sold to foreign citizens, not from country X Ms. Smith sends $100 to each of her grandchildren as a holiday present Interest on the government debt of country X is paid to citizens

Question 51(Multiple Choice Worth 1 points)

(01.03 MC) Assume country Orta can produce either 100 Y or 200 X, at what "term of trade" would Orta find it profitable to produce and export Y to gain good X?

1 Y trades for .25 X 1 Y trades for .5X 1 Y trades for 1 X 1 Y trades for 1.5 X 1 Y trades for 2.5 X

Question 52(Multiple Choice Worth 1 points)

(03.09 MC) Assume that the economy is operating above full employment with an inflationary gap. Which of the following is an automatic stabilizer that will help the economy adjust to full employment?

Congress decides to lower government spending. Transfer payments automatically increase to help those unemployed. With a progressive tax system, taxes increase immediately. The central bank reduces the money supply. Upward pressure on wages will lead to their increase without any government intervention.

Question 53(Multiple Choice Worth 1 points)

(06.06 HC) Assume that the United States stimulates its economy with expansionary monetary policy. Which of the following statements describes the effect of this decision in the market for euros?

An increased supply of euros to acquire dollars. A decreased demand for euros as U.S. investors increase their bond holdings in the United States. An increased demand for euros as investors seek higher relative real returns in Europe. The euro will depreciate, the dollar will appreciate, and the net exports of the United States will fall. A decreased demand for euros and decreased supply of dollars as investment funds seek higher real returns in the United States.

Question 54(Multiple Choice Worth 1 points)

(02.04 MC) Assume in year 1, a basket of goods costs $200, and in year 2, the same basket of goods costs $210. Which of the following is true?

Without knowing if the consumer purchased the basket of goods, we cannot determine if there has been any change in prices. If the goods in year 2 are better than the goods from year 1, the inflation rate exceeds 5 percent. The simple rate of inflation is 5 percent from year 1 to year 2. There has been deflation of 5 percent from year1 to year 2. The price index will be lower in year 2 than in year 1.

Question 55(Multiple Choice Worth 1 points)

(03.09 MC) Which of the following effects would be associated with a law requiring an annually balanced budget for the central government?

There would be no inflation. The money supply could not change. Automatic stabilizers with spending and taxation changes would no longer be effective. The economy would be at full employment with no cyclical unemployment. Any existing government debt would automatically be eliminated.

Question 56(Multiple Choice Worth 1 points)

(03.06 HC) Following an increase in government spending within the AD-AS framework, which of the following will occur in the short-run to the price level, employment, and real GDP?

Price Level	Employment	Real GDP
Increase	Increase	Indeterminate

Price Level	Employment	Real GDP
Decrease	Increase	Increase

Price Level	Employment	Real GDP
Increase	Indeterminate	Indeterminate

Price Level	Employment	Real GDP
Decrease	Decrease	Decrease

Price Level	Employment	Real GDP
Increase	Increase	Increase

Question 57(Multiple Choice Worth 1 points)

(02.05 MC) Which of the following individuals benefits from unexpected inflation?

A worker whose hourly wage is exactly indexed to the change in the price level An individual who loaned his co-worker money to buy a car An individual who has a fixed rate mortgage on her new house A holder of a government bond who receives a fixed dollar interest payment every year A retiree who has a fixed monthly pension from the government

Question 58(Multiple Choice Worth 1 points)

(05.03 MC) Assume that the economy is always at full employment with a constant velocity of money. If the money supply increases by 5 percent and potential real GDP grows by 2 percent, which of the following is true?

The price level should increase by 5 percent. Nominal GDP will increase by 7 percent. The increase in the price level should be 3 percent. Nominal GDP will increase by 3 percent. Real GDP must increase by more than 2 percent.

Question 59(Multiple Choice Worth 1 points)

(03.04 LC) Which of the following statements relating to aggregate supply is true?

With flexible wages and prices in the long run, aggregate supply is vertical at full-employment real GDP. The long-run aggregate supply curve is upward sloping, a higher price level is needed to increase real GDP. With wages downwardly rigid in the long run, unemployment increases as the quantity of long-run aggregate supply decreases. An increase in the wage rate will tend to reduce the price level in the long run, but not change the quantity of real GDP supplied. Along the long-run aggregate supply curve, cyclical unemployment varies directly with the price level.

Question 60(Multiple Choice Worth 1 points)

(02.03 LC) Which of the following statements about the natural rate of unemployment is true?

The natural rate of unemployment is equal to the rate of cyclical unemployment. When aggregate demand increases and employment increases, the natural rate of unemployment falls. A major component of the natural rate of unemployment are those frictionally unemployed. The natural rate of unemployment captures the unemployment that occurs when the economy is at full employment. The natural rate of unemployment, unlike the actual rate of unemployment, counts discouraged workers as unemployed.