Deck 6: Search and Unemployment

Question 1

Since World War II, the participation rates

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

Answer 1

E

Question 2

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

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

Answer 2

D

Question 3

In the two-sided search model, if the cost of posting a vacancy rises for firms, then

A)labour market participation rises, unemployment rises, and vacancies fall.
B)unemployment falls, vacancies fall, and output falls.
C)labour market participation falls, unemployment rises, and output falls.
D)labour market participation rises, vacancies fall, and unemployment rises.
E)unemployment rises, vacancies rise, and output falls.

Answer 3

C

Question 4

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

Question 5

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

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

Question 6

In the two-sided search model, if aggregate output output increases, vacancies rise, unemployment falls, and the labour force increases, this could be caused by

A)a decrease in matching efficiency.
B)an increase in employment insurance benefits.
C)an increase the cost of posting a vacancy.
D)a decline in aggregate productivity.
E)an increase in matching efficiency.

Question 7

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

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

Question 8

In equilibrium, a decrease in matching efficiency

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

Question 9

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

Question 10

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

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

Question 11

Question 12

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

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

Question 13

In equilibrium, an increase in Employment Insurance benefits

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

Question 14

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

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

Question 15

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

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

Question 16

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

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

Question 17

The reservation wage

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

Question 18

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

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

Question 19

In the two-sided search model, labour market tightness

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

Question 20

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

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

Question 21

Question 22

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)the Beveridge curve.
D)an unemployed worker's choice of search effort.
E)a firm's choice of how many vacancies to post.

Question 23

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

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

Question 24

Since World War II, the participation rate

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

Question 25

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

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

Question 26

Which of the following statements is the most accurate concerning 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 demographic factors.
B)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.
C)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.
D)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.
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 27

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

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

Question 28

In the two-sided search model, there

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

Question 29

In the two-sided search model, Nash Bargaining implies

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

Question 30

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

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

Question 31

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

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

Question 32

Question 33

Question 34

Government-sponsored Employment Insurance programs typically

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

Question 35

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

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

Question 36

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

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

Question 37

Percentage deviations from trend in unemployment are

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

Question 38

The matching function captures the difficulties in

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

Question 39

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

Question 40

A good example of a sectoral shift would be the

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

Question 41

Government intervention influences the unemployment rate through

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

Question 42

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

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

Question 43

A key determinant of the unemployment rate is

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

Question 44

Question 45

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

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

Question 46

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 47

Question 48

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

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

Question 49

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

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

Question 50

The participation rate tends to be procyclical because

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

Question 51

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

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

Question 52

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

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