Deck 6: Search and Unemployment

Question 1

Which of the following best describes mismatch that can increase the unemployment rate?

A) a decrease in the availability of information for firms about the skills of workers
B) firms move production to Mexico
C) an increase in the availability of information for firms about the skills of workers
D) an overall decrease in the available skills of the labour force
E) production moves from Mexico to Canada

Answer 1

A

Question 2

Since World War II, the participation rate

A) has remained constant.
B) has declined.
C) has increased.
D) has been quite variable.
E) has declined since 1980.

Answer 2

C

Question 3

In the one-sided search model, the welfare of an unemployed worker

A) is independent of employment insurance benefits.
B) increases with the size of the employment insurance benefit.
C) decreases as market wages increase.
D) depends only on government intervention in labour markets.
E) is irrelevant.

Answer 3

B

Question 4

Government-sponsored Employment Insurance programs typically

A) reduce the unemployment rate because they boost worker morale.
B) reduce the unemployment rate because they increase the net marginal product of labour.
C) increase the unemployment rate by increasing the number of spells of unemployment.
D) increase the unemployment rate by increasing the average duration of unemployment.
E) increase the unemployment rate by increasing the net marginal product of labour.

Question 5

A good example of a sectoral shift would be the

A) loss of total Canadian employment to Mexico.
B) decrease in the size of manufacturing employment relative to service sector employment in Canada.
C) recent influx of immigrants to Canada.
D) expansion in the fraction of employees covered by Employment Insurance in Canada.
E) outsourcing of Canada's jobs to India.

Question 6

The participation rate is defined as

A)
B)
C)
D)
E)

Question 7

Sectoral shifts influences the unemployment rate through

A) a shift away from services industries and toward manufacturing industries.
B) a shift away from manufacturing industries and toward services industries.
C) a shift away from blue collar jobs and toward services industries.
D) a shift way from white collar jobs and toward blue collar jobs.
E) a shift away from agriculture and toward oil and gas production.

Question 8

In the one-sided search model, an increase in the separation rate

A) reduces the welfare of an employed worker.
B) increases the welfare of an unemployed worker.
C) reduces wages.
D) increases the employment insurance benefit.
E) results in fewer marriages.

Question 9

In the one-sided search model, the welfare of an employed worker

A) is convex in the real wage.
B) decreases with the real wage.
C) in a concave function of the real wage.
D) increases with employment insurance benefits.
E) is lower than the welfare of an unemployed workers.

Question 10

Government intervention influences the unemployment rate through

A) its monetary policies.
B) its tax policies.
C) its regulations.
D) employment insurance.
E) its stabilization policies.

Question 11

Percentage deviations from trend in unemployment are

A) procyclical and have been larger than the percentage deviations from trend in real GDP.
B) procyclical and have been smaller than the percentage deviations from trend in real GDP.
C) countercyclical and have been larger than the percentage deviations from trend in real GDP.
D) countercyclical and have been smaller than the percentage deviations from trend in real GDP.
E) procyclical and have been smaller than the percentage deviations from trend in labour force participation.

Question 12

Since World War II, the participation rates

A) of both men and women have increased.
B) of men has increased and the participation rate of women has decreased.
C) of women has increased and the participation rate of men has decreased.
D) of both men and women have decreased.
E) of both men and women have remained constant.

Question 13

A key determinant of the unemployment rate is

A) labour market unrest.
B) nominal interest rates.
C) aggregate consumption.
D) aggregate economic activity.
E) the participation rate.

Question 14

In the one-sided search model, a decrease in the fraction of the unemployed receiving job offers

A) increases the welfare of the employed.
B) reduces the welfare of the employed.
C) reduces the welfare of the unemployed.
D) increases the welfare of the unemployed.
E) is irrelevant.

Question 15

In the one-sided search model, if an unemployed worker turns down a job offer,

A) he or she continues to search.
B) he or she is not behaving optimally.
C) he or she foregoes employment insurance.
D) he or she quits searching and drops out of the labour force.
E) he or she would be deemed marginally attached to the labour force.

Question 16

In the one-sided search model, if the employment insurance benefit goes down,

A) the reservation wage goes down.
B) the reservation wage goes up.
C) the welfare of the unemployed goes up.
D) the government sector shrinks.
E) the labour theory of value comes into play.

Question 17

The participation rate tends to be procyclical because

A) the size of the labour force is procyclical.
B) the sizes of both the labour force and the total population are procyclical.
C) the size of the labour force is procyclical and the size of the total population is countercyclical.
D) the unemployment rate is countercyclical.
E) employment is procyclical.

Question 18

The reservation wage

A) is the wage paid to the reserve army of the unemployed.
B) cannot be higher than the employment insurance benefit.
C) should be the same as the employment insurance benefit, if employment insurance is to be efficient.
D) is the wage at which an unemployed worker is just indifferent to accepting a job and turning it down.
E) is the wage paid in the government sector.

Question 19

Which of the following statements is the most accurate about the behaviour of the unemployment rate in Canada?

A) Both the cyclical behaviour of the unemployment rate and the trend behaviour of the unemployment rate are well explained by changes in the level of aggregate economic activity.
B) The cyclical behaviour of the unemployment rate is well explained by changes in the level of aggregate economic activity, and the trend behaviour of the unemployment rate is well explained by demographic factors.
C) the cyclical behaviour of the unemployment rate is well explained by demographic factors, and the trend behaviour of the unemployment rate is well explained by changes in the level of aggregate economic activity.
D) Both the cyclical behaviour of the unemployment rate and the trend behaviour of the unemployment rate are well explained by demographic factors.
E) Both the cyclical behaviour of the unemployment rate and the trend behaviour of the unemployment rate are not well explained by demographic factors.

Question 20

The unemployment rate is defined as

A)
B)
C)
D)
E)

Question 21

According to the two-sided search model, in equilibrium labour market tightness tends to be high when

A) the cost of a vacancy is high relative to the firm's share of the surplus.
B) employment insurance benefits are high relative to the productivity of a match.
C) profits are close to zero.
D) the firm's share of the surplus is high relative to the cost of a vacancy.
E) the firm's share of the surplus is increasing in market tightness.

Question 22

In the two-sided search model, the number of firms is

A) endogenous.
B) neither endogenous nor exogenous.
C) fixed.
D) exogenous.
E) irrelevant.

Question 23

In the two-sided search model, an increase in matching efficiency, e, could help high unemployment when there is

A) demographic changes.
B) a large degree of mismatch.
C) high labour force participation.
D) an increase in aggregate economic activity.
E) low labour force participation.

Question 24

In the two-sided search model, Nash Bargaining implies

A) the firm receives the total surplus from a match.
B) the worker receives the total surplus from a match.
C) the firm and the worker receive a constant share of the surplus from a match.
D) the firm receives an increasing share of the surplus and the worker a decreasing share.
E) the firm and the worker reduce the total surplus to zero.

Question 25

In the two-sided search model, an increase in productivity causes

A) the vacancy rate and the unemployment rate to fall.
B) output to fall and the vacancy rate to fall.
C) labour market tightness to fall and output to fall.
D) labour market tightness to rise and output to fall.
E) the vacancy rate to rise and the unemployment rate to fall.

Question 26

According to the two-sided search model, in equilibrium the number of firms is

A) negatively related to the cost of posting a vacancy.
B) negatively related to the productivity of a match.
C) positively related to the level of employment insurance benefits.
D) positively related to the cost of posting a vacancy.
E) the firm's share of the total surplus from a match.

Question 27

The probability of finding a job in the two-sided search model is

A) decreasing in the efficiency of the matching function.
B) increasing in market tightness.
C) increasing in the ratio of consumers searching to firms.
D) decreasing in market tightness.
E) constant across all levels of market tightness.

Question 28

In the two-sided search model, the expected payoff to searching for work

A) depends on the reservation wage.
B) increases with the employment insurance benefit and decreases with the market wage.
C) decreases with the employment insurance benefit and increases with the market wage.
D) increases with the employment insurance benefit and increases with the market wage.
E) decreases with labour market tightness.

Question 29

Which of the following is an assumption in the two-sided search model about the matching function?

A) The increase in matches from an increase in Q is increasing in Q.
B) The number of matches increases if Q increases but A decreases.
C) The number of matches increases if Q or A decrease.
D) The increase in matches from an increase in A is increasing in A.
E) The increase in matches from an increase in Q is decreasing in Q.

Question 30

In the two-sided search model, an unemployed worker's chances of finding a job depend on

A) his or her search effort.
B) employment insurance benefits.
C) opportunities in other countries.
D) labour market tightness.
E) the reservation wage.

Question 31

In the one-sided search model, if the employment insurance benefit goes down,

A) the reservation wage goes up and long-run unemployment goes down.
B) the reservation wage goes down and long-run unemployment goes down.
C) the reservation wage and long-run unemployment are unchanged.
D) the reservation wage goes up and long-run unemployment goes up.
E) the reservation wage goes down and long-run unemployment goes up.

Question 32

Constant returns to scale in the matching function means that, given any constant x > 0,

A) m(xQ, xA) = xm(Q,A).
B) m(xQ, xA) > xm(Q,A).
C) m(xQ, xA) < xm(Q,A).
D) m(xQ, xA) = e???Q,??.
E)m(xQ, xA) = m(Q,A).

Question 33

Labour market tightness in the two-sided search model is defined by

A) the number of firms divided by the number of consumers searching for work.
B) the number of firms multiplied by the number of consumers searching for work.
C) the number of consumers searching for work divided by the number of firms.
D) the number of employed consumers divided by the number of firms.
E) the number of firms divided by the number of employed consumers.

Question 34

In the two-sided search model, the choice that responds to economic conditions is

A) an unemployed worker's choice of the reservation wage.
B) the government's choice of the employment insurance benefit.
C) a firm's choice of how many vacancies to post.
D) an unemployed worker's choice of search effort.
E) the Beveridge curve.

Question 35

In the two-sided search model, there

A) is a single representative agent.
B) is an exogenously fixed number of firms.
C) are N total consumers and N total firms.
D) are N total consumers.
E) are only employed and unemployed consumers.

Question 36

In the two-sided search model, the size of the labour force is positively related to

A) the expected payoff to searching for work.
B) the population growth rate.
C) the ratio of males to females in the labour force.
D) the expected cost to searching for work.
E) the benefits of non-participation.

Question 37

The matching function captures the difficulties in

A) matching heterogeneous firms with heterogeneous workers.
B) matching capital with labour.
C) matching heterogeneous firms with homogeneous workers.
D) matching homogeneous firms with heterogeneous workers.
E) matching homogeneous firms with homogeneous workers.

Question 38

In the two-sided search model, firms continue posting vacancies until the probability of matching with a worker is equal to

A) the ratio of the cost of posting a vacancy to the profits from a match.
B) the marginal product of labour.
C) the real wage rate.
D) the ratio of the profits from a match to the number of matches.
E) the unemployment rate.

Question 39

In the two-sided search model, labour market tightness

A) is eliminated by employment insurance.
B) affects the chances of finding a job.
C) is irrelevant for the labour force participation decision.
D) reduces the reservation wage.
E) is irrelevant for firms' decisions.

Question 40

In the one-sided search model, if the job offer rate goes down,

A) the reservation wage goes down and the effect on long-run unemployment is ambiguous.
B) the reservation wage goes up and long-run unemployment goes down.
C) the reservation wage and long-run unemployment are unchanged.
D) the reservation wage goes up and long-run unemployment goes up.
E) unemployed workers stop searching.

Question 41

In the two-sided search model, the equilibrium effects of an increase in productivity are to

A) increase market tightness, decrease unemployment, and increase aggregate output.
B) decrease market tightness, decrease unemployment, and increase aggregate output.
C) decrease market tightness, decrease unemployment, and decrease aggregate output.
D) increase market tightness, increase unemployment, and decrease aggregate output.
E) increase market tightness, increases unemployment, and increases aggregate output.

Question 42

In equilibrium, an increase in Employment Insurance benefits

A) increases the unemployment rate and decreases the vacancy rate.
B) increases the unemployment rate and increases the vacancy rate.
C) decreases the unemployment rate and decreases the vacancy rate.
D) decreases the unemployment rate and increases the vacancy rate.
E) increases the unemployment rate, but does not affect the vacancy rate.

Question 43

In the two-sided search model, an increase in productivity

A) shifts v(Q) down, increasing Q and j.
B) shifts v(Q) up, increasing Q and decreasing j.
C) shifts v(Q) up, decreasing Q and j.
D) shifts v(Q) down, decreasing Q and increasing j.
E) shifts v(Q) up, increasing Q and j.

Question 44

In equilibrium, an increase in Employment Insurance benefits

A) decreases labour market tightness, but has ambiguous effects on Q and Y.
B) increases labour market tightness, but has ambiguous effects on Q and Y.
C) decreases labour market tightness and Q, but increases Y.
D) decreases unemployment, but has ambiguous effects on Q and Y.
E) increases labour market tightness, Q, and Y.

Question 45

In equilibrium in the two-sided search model, labour force participation is

A) the ratio of market tightness to the cost of a vacancy.
B) increasing in market tightness.
C) decreasing with increases in the benefits from searching.
D) decreasing in market tightness.
E) not dependent on market tightness.

Question 46

In the two-sided search model, an increase in Employment Insurance benefits makes labour search

A) more attractive.
B) equivalent to working.
C) more difficult to monitor.
D) unambiguously decrease.
E) unambiguously increase.

Question 47

Based on the predictions of the two-sided search model, the Beveridge curve

A) could be explained by changes to Employment Insurance, but this is not plausible in reality.
B) could be explained by changes to Employment Insurance that are plausible in reality.
C) is a feature the model fails to explain.
D) is plausible in reality but is not consistent with the model.
E) is neither plausible in reality or consistent with the model.

Question 48

The Beveridge Curve is the

A) negative relationship between the unemployment and vacancy rate.
B) negative relationship between the employment and labour force participation rate.
C) positive relationship between the unemployment and vacancy rate.
D) negative relationship between the employment and vacancy rate.
E) positive relationship between unemployment and the labour force participation rate.

Question 49

In equilibrium, an decrease in matching efficiency

A) increases the unemployment rate and vacancies are constant.
B) increases the unemployment rate and vacancies increase.
C) decreases the unemployment rate and vacancies are constant.
D) decreases the unemployment rate and vacancies increase.
E) increases the unemployment rate and vacancies decrease.

Question 50

There has been considerable debate as to the appropriate level of Employment Insurance benefits paid out to unemployed workers. What do models of labour market search tell us about the effects of employment insurance benefits and their effects on the economy. Explain what conclusions we can draw concerning the optimal generosity of the employment insurance program.

Question 51

In equilibrium in the two-sided search model, aggregate output is given by

A) Y = Qem(j,1).
B) Y = zF(Q,N).
C) Y = Qem(1,j).
D) Y = Qem(Q,A).
E)Y =z

Question 52

The two-sided search model is consistent with which of the following business cycle facts?

A) The unemployment rate is procyclical and the vacancy rate is procyclical.
B) The unemployment rate is countercyclical and the vacancy rate is acyclical.
C) The unemployment rate is countercyclical and the vacancy rate is countercyclical.
D) The unemployment rate is countercyclical and the vacancy rate is procyclical.
E) The unemployment rate is acyclical and the vacancy rate is procyclical.