Deck 6: Supply, Demand, and Government Policies

Question 1

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 1

A

Question 2

In the model of the steady-state unemployment rate with a fixed labor force, the rate of job finding equals the percentage of the who find a job each month, while the rate of job separation equals the percentage of the who lose their job each month.

A)labor force; labor force
B)labor force; unemployed
C)employed; labor force
D)unemployed; employed

Answer 2

D

Question 3

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.

Answer 3

B

Question 4

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 5

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 6

If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be:

A)0.08.
B)0.125.
C)0.22.
D)0.435.

Question 7

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 8

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

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

Question 9

Unemployment caused by the time it takes workers to search for a job is called
Unemployment.

A)frictional
B)structural
C)efficiency
D)insider

Question 10

If the fraction of employed workers who lose their jobs each month (the rate of job
Separation) is 0.01 and the fraction of the unemployed who find a job each month is 0.09 (the rate of job findings), then the natural rate of unemployment is:

A)1 percent.
B)9 percent.
C)10 percent.
D)about 11 percent.

Question 11

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 12

A typical worker in the United States who is covered by unemployment insurance receives
Percent of his or her former wages for weeks.

A)50; 26
B)50; 52
C)67; 26
D)67; 52

Question 13

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 14

Frictional unemployment is inevitable because:

A)different sectors do not shift.
B)the economy needs to be lubricated.
C)workers never quit their jobs to change careers.
D)the demand for different goods always fluctuates.

Question 15

If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separation) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be:

A)0.02.
B)0.08.
C)0.10.
D)0.18.

Question 16

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 17

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 18

Any policy aimed at lowering the natural rate of unemployment must either the rate of job separation or the rate of job finding.

A)reduce; reduce
B)increase; increase
C)reduce; increase
D)increase; reduce

Question 19

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 20

The unemployment rate in the United States since 1952 has:

A)never been close to zero.
B)gravitated toward a steady-state rate of zero.
C)remained constant from year to year.
D)equaled the natural rate of unemployment in every year.

Question 21

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 22

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 23

Assume that a country experiences a reduction in productivity that shifts the labor demand curve downward and to the left. If the real wage were rigid, this would lead to:

A)no change in the real wage and a rise in unemployment.
B)no change in the real wage and no change in unemployment.
C)no change in the real wage and a fall in unemployment.
D)a decrease in the real wage.

Question 24

Firms currently have incentives to temporarily lay off workers because firms typically are charged for of workers' unemployment benefits.

A)all
B)only a part
C)none
D)twice the cost

Question 25

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 seeking jobs that are typically unionized, such as longshoremen and electricians; and
c.workers engaged in creative work that is not easily monitored.

Question 26

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 27

Assume that a country experiences a reduction in productivity that shifts the labor demand curve downward and to the left. If the labor market were always in equilibrium, this would lead to:

A)a lower real wage and a rise in unemployment.
B)a lower real wage and no change in unemployment.
C)a lower real wage and less unemployment.
D)no change in real wage or in unemployment.

Question 28

Unemployment insurance increases the amount of frictional unemployment by:

A)making workers more frantic in their search for new jobs.
B)inducing workers to accept the first job offer that they receive.
C)making employers more reluctant to lay off workers.
D)softening the economic hardship of unemployment.

Question 29

Most current unemployment-insurance programs are:

A)paid for fully by state governments.
B)paid for fully by the federal government.
C)100 percent experience rated.
D)partially experience rated.

Question 30

The model of the steady-state rate of unemployment assumes that the size of the labor force is fixed. If the size of the labor force is allowed to vary:
a.explain how the job-loss and job-finding processes will differ from the situation when the labor force is fixed.
b.explain how interpretations of changes in the unemployment rate will become less clear.

Question 31

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 32

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?

Question 33

The unemployment insurance system may be desirable because unemployment insurance:

A)raises the natural rate of unemployment.
B)reduces the rate of job finding.
C)increases workers' uncertainty about their incomes.
D)induces workers to reject unattractive job offers.

Question 34

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 35

All of the following policies were adopted by 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.