Deck 7: Economic Growth I: Capital Accumulation and Population Growth

Question 1

The macroeconomic problem that affects individuals most directly and severely is:

A)inflation.
B)unemployment.
C)low savings.
D)low investment.

Answer 1

B

Question 2

When there is structural unemployment, the real wage is:

A)rigid at a level below the market-clearing level.
B)rigid at the market-clearing level.
C)rigid at a level above the market-clearing level.
D)flexible.

Answer 2

C

Question 3

The natural rate of unemployment is:

A)the average rate of unemployment around which the economy fluctuates.
B)about 10 percent of the labor force.
C)a rate that never changes.
D)the transition of individuals between employment and unemployment.

Answer 3

A

Question 4

Economists call the changes in the composition of demand among industries and regions:

A)insider-outsider conflicts.
B)sectoral shifts.
C)moral hazard.
D)adverse selection.

Question 5

Government policies directed at reducing frictional unemployment include:

A)abolishing minimum-wage laws.
B)making unemployment insurance 100 percent experience rated.
C)increasing the earned income credit.
D)making government part of the union-firm wage bargaining process.

Question 6

All of the following are reasons for frictional unemployment except:

A)workers have different preferences and abilities.
B)unemployed workers accept the first job offer that they receive.
C)the flow of information is imperfect.
D)geographic mobility takes time.

Question 7

Frictional unemployment is unemployment caused by:

A)wage rigidity.
B)minimum-wage legislation.
C)the time it takes workers to search for a job.
D)clashes between the motives of insiders and outsiders.

Question 8

When the real wage is above the level that equilibrates supply and demand:

A)the quantity of labor supplied exceeds the quantity demanded.
B)the quantity of labor demanded exceeds the
C)quantity supplied. there is no unemployment.
D)the labor market clears.

Question 9

Sectoral shifts:

A)lead to wage rigidity.
B)explain the payment of efficiency wages.
C)depend on the level of the minimum wage.
D)make frictional employment inevitable.

Question 10

Wage rigidity:

A)forces labor demand to equal labor supply.
B)is caused by sectoral shifts.
C)prevents labor demand and labor supply from reaching the equilibrium level.
D) increases the rate of job finding.

Question 11

Which of the following is an example of frictional unemployment?

A)Dave searches for a new job after voluntarily moving to San Diego.
B)Elaine is willing to work for less than the minimum wage, but employers cannot hire her.
C)Bill is qualified and would like to be an airline pilot, but airlines do not find it profitable to hire him at the wage established by the airline pilot's union.
D)Joan is willing to work at the going wage, but there are no jobs available.

Question 12

In a steady state:

A)no hiring or firings are occurring.
B)the number of people finding jobs equals the number of people losing jobs.
C)the number of people finding jobs exceeds the number of people losing jobs.
D)the number of people losing jobs exceeds the number of people finding jobs.

Question 13

All of the following policies were adopted by the government in an attempt to reduce the natural rate of unemployment except:

A)unemployment insurance.
B)government employment agencies.
C)public retraining programs.
D)the Illinois bonus program for unemployment insurance claimants who found jobs quickly.

Question 14

The natural rate of unemployment in the United States since 1950 has averaged between and percent.

A)0; 1.
B)1; 3.
C)5; 6.
D)10; 15.

Question 15

If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals percent (rounded to the nearest percent).

A)0
B)9
C)10
D)20

Question 16

One reason for unemployment is that:

A)it takes time to match workers and jobs.
B)all jobs are identical.
C)the labor market is always in equilibrium.
D)a laid-off worker can immediately find a new job at the market wage.

Question 17

Which of the following is the best example of structural unemployment?

A)Tim is looking for a job with flexible hours but has not been offered one yet.
B)Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer- generated animation.
C)Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available.
D)Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has 2 months of unemployment insurance benefits left.

Question 18

Workers unemployed as a result of wage rigidity are:

A)actively searching for a job to match their skills.
B)not eligible to receive unemployment insurance benefits.
C)waiting for a job to become available.
D)relocating to another part of the country as a result of sectoral shifts.

Question 19

According to studies of individual unemployed workers, these workers are most likely to find a job:

A)about three months before their unemployment insurance runs out.
B)within a few weeks of their unemployment insurance running out.
C)about three months after their unemployment insurance runs out.
D)at a time not influenced by the remaining number of weeks of unemployment insurance.
Structural; frictional

Question 20

If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the unemployment rate is approximately:

A)f/(f + s).
B)(f + s)/f.
C)s/(s + f).
D)(s + f)/s.

Question 21

The percentage of workers who belong to unions in the United States is approximately:

A)13 percent.
B)23 percent.
C)33 percent.
D)53 percent.

Question 22

Policies to substantially reduce the natural rate of unemployment should be targeted at:

A)the short-term unemployed.
B)the long-term unemployed
C)discouraged workers.
D)insiders and outsiders.

Question 23

Transitions into and out of the labor force:

A)rarely occur.
B)do not affect unemployment statistics.
C)make unemployment statistics difficult to interpret.
D)reduce the amount of frictional unemployment.

Question 24

One efficiency-wage theory implies that firms pay high wages because:

A)this practice increases the problem of moral hazard.
B)in wealthy countries, it is important to pay workers high wages to improve their health.
C)the more a firm pays its workers, the greater their incentive to stay with the firm.
D)paying high wages promotes adverse selection.

Question 25

Spells of unemployment end when the unemployed person finds a job or:

A)withdraws from the labor force.
B)enters the labor force.
C)runs out of unemployment insurance compensation.
D)refuses to answer unemployment survey questions.

Question 26

A spell of unemployment begins when a person leaves his or her job or:

A)withdraws from the labor force.
B)enters the labor force.
C)takes a vacation.
D)has been without a job for at least four weeks.

Question 27

The minimum wage:

A)is usually about 75 percent of the average wage earned in
B)manufacturing. raises the wages of highly skilled workers.
C)encourages master workers to take on apprentices.
D)

Question 28

The recent reduced demand for unskilled workers relative to skilled workers has led to for unskilled workers in Europe compared to for unskilled workers in the United States.

A)unemployment; lower wages .B.lower wages; unemployment.
C) unionization; efficiency wages.
D)efficiency wages; more unionization.

Question 29

Many economists attribute part of the recent increase in European unemployment to:

A)high birthrates.
B)slow rates of technological change.
C)generous benefits for unemployed workers.
D)increased demand for unskilled workers.

Question 30

During the period from 1990 to 2006, in the United States, most spells of unemployment lasted:

A)less than one month, yet most of the weeks of unemployment occurred in spells lasting two or more months.
B)more than one month, and most weeks of unemployment occurred in spells of two or more months.
C)less than one month, and most weeks of unemployment occurred in spells of one month or less.
D)more than one month, but most weeks of unemployment occurred in spells of one month or less.

Question 31

According to efficiency-wage theories, firms benefit by paying higher-than-equilibrium wages because worker increases.

A)productivity
B)turnover c.unionization d.shirking

Question 32

Efficiency-wage theories suggest that a firm may pay workers more than the market-clearing wage for all of the following reasons except to:

A)reduce labor turnover.
B)improve the quality of the firm's labor force.
C)increase worker effort.
D)reduce the firm's wage bill.

Question 33

Entry into and exit from the labor force are important to the determination of the unemployment rate because:

A)more than one-half of the unemployed have only recently entered the labor force.
B)most of the unemployed are young workers still looking for their first job.
C)discouraged workers are counted as part of the labor force.
D)almost one-half of all spells of unemployment end in the unemployed person's withdrawal from the labor market.

Question 34

Data on unemployment in the United States show that:

A)most spells of unemployment are long.
B)most weeks of unemployment are attributable to the long-term unemployed.
C)members of the labor force over age 55 have the highest unemployment rates.D.the duration of unemployment falls during recessions.

Question 35

As the relative demand for unskilled workers falls, wages for unskilled workers and unemployment compensation becomes a attractive option.

A)fall; more.
B)fall; less.
C)rise; more.
D)rise; less.

Question 36

All of the following are causes of structural unemployment except:

A)minimum-wage laws.
B)the monopoly power of unions.
C)unemployment insurance.
D)efficiency wages.

Question 37

If wage rigidity holds the real wage above the equilibrium level, an increase in the supply of labor will the number unemployed.

A)increas.B.decreas.C.not change.
D)possibly increase, decrease, or leave unchanged.

Question 38

European unemployment rates are positively correlated with each of the following except:

A)the percentage of the previous wage replaced by unemployment insurance.
B)the percentage of the labor force that is unionized.
C)the length of the period during which unemployment benefits can be collected.
D)the amount of coordination among employers in bargaining with unions.

Question 39

Differences in unemployment rates across demographic groups are most closely correlated with differences in:

A)job-finding rates.
B)job-separation rates.
C)unionization rates.
D)efficiency wage rates.

Question 40

Economists who have studied minimum-wage laws in the United States find that a 10 percent increase in the minimum wage increases teenage unemployment by about:

A)10 to 30 percent.
B)5 percent.
C)1 to 3 percent.
D)0 percent.

Question 41

Explain how paying efficiency wages can help employers overcome both moral hazard and adverse selection problems in employment.

Question 42

More frequent holidays for workers in Europe than in the United States contribute to:

A)higher employment-to-population ratios in Europe than in the United States.
B)lower employment-to-population ratios in Europe than in the United States.
C)more hours worked per year by the average employed person in Europe than the average employed person in the United States.
D)fewer hours worked per year by the average employed person in Europe than the average employed person in the United States.

Question 43

Explain how technological changes that have reduced the demand for low-skilled workers can change the natural rate of unemployment.

Question 44

Which of the following statements most closely describes the variation in unemployment rates across countries in Europe?

A)Countries with higher rates of unionization tend to have higher unemployment rates, but this is partially mitigated if wage negotiations are coordinated among employers.
B)Countries with higher rates of unionization tend to have higher unemployment rates and this tendency is exacerbated if wage negotiations are coordinated among employers.
C)Countries with more generous unemployment insurance benefits tend to have higher unemployment rates, but this is partially mitigated if the benefits are offered for a longer period of time.
D)Countries with more generous unemployment insurance tend to have lower unemployment rates, but this effect is completely offset if benefits are offered for a longer period of time.

Question 45

Assume that the real wage in an economy is held above equilibrium.
a. Graphically illustrate how an increase in the supply of labor will change the number of unemployed workers. Be sure to label the axes and the quantities of labor hired before and after the technological progress.
b. Explain in words what happens to the number of unemployed as a result of this change.

Question 46

Which of the following is not a proposed explanation for that fact that Americans on average work 20 percent more hours than the typical resident of western Europe?

A)Europeans have more taste for leisure than Americans.
B)Americans have a lower unionization rate than Europeans.
C)Europeans face higher tax rates than Americans.
D)The underground economy is larger in America than in Europe.

Question 47

Consider two countries: Flexiland and Stuckland. The labor force in each country consists of 100,000 workers. In Flexiland a different 500 workers are unemployed each month. In Stuckland the same 500 workers are unemployed for the entire year. Compare and contrast the unemployment situation in the two countries by explaining:
a. the unemployment rate,
b. the number of spells of unemployment,
c. the average duration of each unemployment spell, and
d. whether the unemployment is more likely to be frictional or structural.

Question 48

Which of the following hypotheses is consistent with fewer hours worked per year in Europe than in the United States?

A)fewer mandated holidays in Europe than in the United States
B)higher employment-to-population ratios in Europe than in the United States
C)higher tax rates in Europe than in the United States
D)a smaller underground economy in Europe than in the United States

Question 49

Which of the following statements correctly describes European labor markets?

A)In recent years, the unemployment rate in every European country has been higher than the unemployment rate in the United States.
B)In recent years, the average unemployment rate in Europe has been higher than the unemployment rate in the United States.
C)Within Europe the short-term unemployment rate shows greater variability across countries than does the long-term unemployment rate.
D)European countries with more generous unemployment insurance tend to have lower unemployment rates.

Question 50

Much of the difference in unemployment rates across Europe is attributable to differences in:

A)short-term unemployment.
B)long-term unemployment.
C)frictional unemployment.
D)the natural rate of unemployment.

Question 51

The average unemployment rate in western Europe is higher than in the United States.
a. Explain one difference between the European and U.S. economies that is consistent with more
structural unemployment in Europe.
b. Explain one difference between the European and U.S. economies that is consistent with more frictional
unemployment in Europe.

Question 52

Explain what type of wage rigidity is most likely to affect the unemployment rates of the following types of workers:
a. workers with low marginal labor productivity,
b. workers in the construction trades, such as plumbers and electricians,
c. workers engaged in creative work that is not easily monitored.

Question 53

Changes in economic policies will frequently have an impact on the unemployment rate. Explain whether each of the policy changes described is likely to: (1) affect frictional or structural unemployment and (2) increase or decrease the measured unemployment rate.
a. The government reduces the number of weeks of unemployment insurance that unemployed workers can receive.
b. The government raises the minimum wage.
c. The government increases spending on job-training programs.

Question 54

Assume that the real wage in an economy is held above equilibrium.
a. Graphically illustrate how an increase in technology that raises the demand for labor will change the number of unemployed workers. Be sure to label the axes and the quantities of labor hired before and after the technological progress.
b. Explain in words what happens to the number of unemployed as a result of this change.

Question 55

Assume that a society consists of two types of workers. For type A, 3 million workers lose their jobs each year, and each one takes a year to find a new one. For type B, 36 million workers lose their jobs each year (3 million per month), and each takes one month to find a new job. Thus, at any given time, 6 million are unemployed in this economy.
a. How many "spells" of unemployment occur each year in this economy?
b. What percentage of the "spells" are only one month long?
c. If you take all the workers unemployed each year and multiply each by the length of his or her unemployment "spell," how many "months" of unemployment would there be in this economy each year?
d. Of all the "months" of unemployment, how many are accounted for by the workers unemployed a year at a time?