Deck 21: Unemployment and the Business Cycle

Question 1

How is unemployment depicted on a production possibilities frontier graph?

A) Production is at a low point on the curve, close to the horizontal axis.
B) Production is at a high point on the curve, close to the vertical axis.
C) Production is at a point inside the curve, between the curve and the graph's origin.
D) Production is at a point outside the curve.

Answer 1

C

Question 2

Which of the following is NOT a reason for considering unemployment a problem?

A) National production is lower than it would be if all resources were in use.
B) The households with unemployed people are without the income they are accustomed to having.
C) The skills of the unemployed may become obsolete.
D) Unemployment may prevent people from going to school.

Answer 2

D

Question 3

The labor force consists of:

A) all persons age 16 or older in a country.
B) the entire population of a country.
C) all persons age 16 or older who are classified as employed or unemployed.
D) all persons age 21 or older who desire a job.

Answer 3

C

Question 4

Jonia's population of 500,000 includes 95,000 children below age 16, 80,000 retirees, 20,000 discouraged workers, 228,000 employed persons, and 12,000 unemployed persons. What is the unemployment rate of Jonia?

A) 3.7%
B) 2.4%
C) 2.28%
D) 5.0%

Question 5

Jonia's population of 500,000 includes 95,000 children below age 16, 80,000 retirees, 20,000 discouraged workers, 228,000 employed persons, and 12,000 unemployed persons. What is the labor force participation rate of Jonia?

A) 46%
B) 48%
C) 56%
D) 59%

Question 6

Econland's population of 260,000 includes 60,000 children below age 16, 40,000 retirees, 5,000 discouraged workers, 30,000 full-time homemakers, 110,000 employed persons, and 10,000 unemployed persons. What is the unemployment rate of Econland? Round to the nearest whole percentage.

A) 8%
B) 5%
C) 4%
D) 9%

Question 7

Econland's population of 260,000 includes 60,000 children below age 16, 40,000 retirees, 5,000 discouraged workers, 30,000 full-time homemakers, 110,000 employed persons, and 10,000 unemployed persons. What is the labor force participation rate of Econland? Round to the nearest whole percentage.

A) 46%
B) 50%
C) 55%
D) 60%

Question 8

Which one of the following people would NOT be counted as part of the labor force?

A) a new college graduate looking for her first career job
B) a production line worker
C) a retiree
D) a person who owns and manages his own company

Question 9

In order to be classified as unemployed, a person must meet all the criteria below EXCEPT:

A) not be working for income.
B) be available for and seeking a job.
C) have the skills for job openings.
D) be at least 16 years old.

Question 10

Econia has a population of 1 million. There are 350,000 persons under age 16 and 550,000 persons age 21 or older. There are 400,000 employed persons, 30,000 unemployed persons, 60,000 retired persons, and 30,000 full-time homemakers. What is the U3 unemployment rate in Econia? Round to one decimal place.

A) 4.6%
B) 7.0%
C) 5.5%
D) 6.1%

Question 11

Econia has a population of 1 million. Of the total population, 350,000 persons are under age 16. There are 400,000 employed persons and 30,000 unemployed persons. What is the labor force participation rate in Econia? Round the answer to one decimal place.

A) 78.2%
B) 93.0%
C) 66.2%
D) 82.7%

Question 12

What has happened to the U.S. labor force participation rate since the Great Recession of 2007 to 2009?

A) It has fluctuated with no clear pattern.
B) It has remained essentially the same.
C) It has risen.
D) It has declined.

Question 13

A country has a population of 11 million. There are 3 million persons under age 16 and 7 million persons age 21 or older. There are 6 million employed persons, 1 million unemployed persons, 500,000 retired persons, and 500,000 full-time homemakers. What is the U3 unemployment rate? Round to one decimal place.

A) 7.1%
B) 9.1%
C) 12.5%
D) 14.3%

Question 14

A country has a population of 11 million. There are 3 million persons under age 16 and 7 million persons age 21 or older. There are 6 million employed persons, 1 million unemployed persons, 500,000 retired persons, and 500,000 full-time homemakers. What is the labor force participation rate? Round to one decimal place.

A) 81.3%
B) 87.5%
C) 93.8%
D) 100%

Question 15

A country has a population of 326 million. There are 68 million persons under age 16. There are 156.5 million employed persons and 6.5 million unemployed persons. What is the unemployment rate? Round to the nearest whole percentage.

A) 2%
B) 4%
C) 6%
D) 10%

Question 16

A country has a population of 326 million. There are 68 million persons under age 16. There are 156.5 million employed persons and 6.5 million unemployed persons. What is the labor force participation rate? Round to the nearest whole percentage.

A) 42%
B) 48%
C) 63%
D) 77%

Question 17

Which of the following statements is NOT true regarding recent economic data in the United States?

A) The female unemployment rate is considerably higher than the male unemployment rate.
B) The unemployment rate for bachelor's degree holders is lower than the rate for those with only a high school diploma.
C) Whites have lower rates of unemployment than African Americans and Hispanics.
D) Adults have lower rates of unemployment than teenagers.

Question 18

Which of the following is NOT an example of a way that people become unemployed?

A) A full-time homemaker starts to look for work after staying at home until her youngest child enters school.
B) Raul is fired and immediately begins looking for another job.
C) Jose retires and begins to receive a pension each month.
D) Mary quits her job and starts to look for another job.

Question 19

An unemployed man will no longer be classified as unemployed if either of what two things happens to him?

A) He gets a job or turns age 65.
B) He decides not to look for work anymore or applies for more than six jobs in a month.
C) He exits the labor force or gets a job.
D) He turns age 65 or decides not to look for work anymore.

Question 20

A government program that temporarily provides unemployed persons who have lost a job with transfer payments to replace part of their lost income is called:

A) lost income replacement.
B) unemployment transfers.
C) hardship compensation.
D) unemployment insurance.

Question 21

Discouraged workers are people who:

A) want a job but have quit looking for a job due to a belief that they will not be able to find a job.
B) dislike their current job and want a different job.
C) feel like their current job does not offer them opportunities for promotion and progression.
D) were unemployed, found a job, lost that job, and became unemployed again.

Question 22

Econia has a population of 1 million. In 2017, the population and employment data include 350,000 persons under age 16, 400,000 employed persons, 30,000 unemployed persons, 60,000 retired persons, and 30,000 full-time homemakers. In 2018, the numbers remained the same EXCEPT that there was a 2,000 person increase in the number of discouraged workers that affected some of the counts. How would the 2018 unemployment rate (U3) compare to the 2017 unemployment rate?

A) The 2018 rate would be higher.
B) The 2018 rate would be lower.
C) The 2018 rate would be the same.
D) Any impact is not predictable.

Question 23

Econia has a population of 1 million. In 2017, the population and employment data included 650,000 persons over age 16, 400,000 employed persons, and 30,000 unemployed persons. In 2018, the numbers remained the same EXCEPT that 2,000 people who were previously counted as unemployed are now classified as discouraged workers. Exactly how would the 2018 unemployment rate (U3) compare to the 2017 unemployment rate?

A) The rate rises from 6.5% in 2017 to 7.0% in 2018.
B) The rate rises from 4.6% in 2017 to 7.0% in 2018.
C) The rate remains steady at 4.6% in both years.
D) The rate drops from 7.0% in 2017 to 6.5% in 2018.

Question 24

When the number of discouraged workers increases, the U3 unemployment rate will _____, giving a false impression that the economy is:

A) drop; healthier.
B) rise; weaker.
C) rise; healthier.
D) drop; weaker.

Question 25

Which of the following does NOT lead to an underestimation of the unfulfilled desires to work in the computation of the U3 unemployment rate?

A) discouraged workers
B) part-time workers who desire to work full-time
C) workers who are overeducated for their current jobs
D) people who pretend to be looking for work but who do not really want a job

Question 26

Two results of underemployment are that the U3 unemployment rate _____ the unfulfilled desire to work and that national output is:

A) overestimates; higher than expected.
B) overestimates; lower than it could be.
C) underestimates; lower than it could be.
D) underestimates; higher than it could be.

Question 27

Why does underemployment cause inaccuracies in the U3 unemployment rate?

A) It overestimates the unemployment rate.
B) It is difficult to measure underemployment.
C) It is a constant level of adjustment.
D) It has become an issue only in the past few years.

Question 28

Samantha is 69 years old. She is in good health. She does not work for income and is not looking for a job, yet she fills each day with productive activities, such as growing a garden and cooking meals. Samantha is:

A) an employed member of labor force.
B) not a member of the labor force.
C) an unemployed member of labor force.
D) It is impossible to tell if she is in labor force.

Question 29

Which is true regarding the differences between the U3 and U6 unemployment rates?

A) The U6 calculation has a larger numerator and a larger denominator than the U3 calculation.
B) U3 counts discouraged workers as part of the labor force, and U6 does not.
C) U6 calculation has a larger numerator and a smaller denominator than U3 has.
D) U3 counts teenagers as part of the labor force, and U6 does not.

Question 30

The U6 unemployment rate is designed to adjust for a few issues in the U3 unemployment rate. Which is NOT one of the main adjustments?

A) Marginally attached workers are counted as part of the labor force.
B) Underemployed workers are counted as unemployed persons.
C) The underemployed are subtracted from the numerator.
D) Marginally attached workers are counted as unemployed members of labor force.

Question 31

An increase in the number of discouraged workers has what impact on the U3 and U6 unemployment rates?

A) U3 rate decreases, and U6 rate is unchanged.
B) U6 rate decreases, and U3 rate is unchanged.
C) Both rates increase.
D) Both rates decrease.

Question 32

Jim Clifton of the Gallup polling company has called the U3 unemployment rate a big lie because:

A) the underemployed are not counted as part of the labor force.
B) discouraged workers are counted as part of the employed.
C) discouraged workers are counted as part of the unemployed.
D) it fails to include discouraged workers and underemployed as part of the unemployed.

Question 33

Which of the following is NOT an appropriate way to cope with the imperfections in macroeconomic statistics such as the unemployment rate?

A) Understand how each statistic is calculated to know its limitations.
B) Be aware of supplemental data the government collects that might add insights on an issue.
C) When different versions of a statistic are available, use the version that is most appropriate to the analysis being conducted.
D) Assume that macroeconomic statistics should not be relied on to provide measures of economic issues.

Question 34

What stage of the business cycle immediately follows a recession?

A) trough
B) peak
C) expansion
D) contraction

Question 35

What stage of the business cycle immediately follows an expansion?

A) trough
B) peak
C) inflation
D) recession

Question 36

What stage of the business cycle immediately follows a trough?

A) recession
B) peak
C) expansion
D) inflation

Question 37

What stage of the business cycle has the lowest GDP?

A) peak
B) recession
C) trough
D) expansion

Question 38

What stage of the business cycle has the highest GDP?

A) peak
B) recession
C) trough
D) expansion

Question 39

What stage of the business cycle has a rising unemployment rate?

A) peak
B) recession
C) trough
D) expansion

Question 40

What stage of the business cycle has a falling unemployment rate?

A) peak
B) recession
C) trough
D) expansion

Question 41

A recession is characterized by rising _____ and falling:

A) inflation; unemployment.
B) unemployment; output.
C) output; unemployment.
D) output; inflation.

Question 42

During an economic expansion, _____ rises and _____ falls.

A) inflation; unemployment
B) unemployment; output
C) output; unemployment
D) unemployment; inflation

Question 43

What is the difference between a recession and a depression?

A) They both have rising unemployment and falling output, but a depression is much more severe.
B) They both have rising unemployment and falling output, but a recession is much more severe.
C) A recession has rising unemployment and rising output, but a depression has the reverse.
D) A depression has rising unemployment and rising output, but a recession has the reverse.

Question 44

Seasonal adjustments to GDP occur because:

A) the demand for products varies year by year, which causes fluctuations in expenditures.
B) seasonal variations in temperature affect price levels during each year, which causes GDP to vary.
C) output in many industries varies by season of the year, which makes the quarterly GDP measures fluctuate.
D) the stages of the business cycle are referred to as seasons, which causes year-to-year variations.

Question 45

What term is used for the economic measures that tend to change in advance of the economy, moving from one stage of the business cycle to the next?

A) seasonal adjustments
B) inflation and deflation
C) predictive estimators
D) leading economic indicators

Question 46

Changes that are made to quarterly GDP measures for regular variations in output that occur during certain months each year in order to remove this predictable variation are referred to as _____ adjustments.

A) real
B) seasonal
C) averaging
D) constant

Question 47

Which of the following is NOT a leading economic indicator?

A) average inflation rate
B) manufacturers' orders for durable goods
C) stock prices
D) housing starts

Question 48

What is a lagging economic indicator?

A) an economic statistic that is used to predict movements from one stage of the business cycle to the next
B) a measure that is used to estimate the slowing down or speeding up of inflation
C) a measure of economic activity that is a secondary or less preferred statistic used to make predictions
D) an economic statistic that tends to change after the economy moves into a new stage of the business cycle

Question 49

An example of a lagging economic indicator is the:

A) inflation rate.
B) unemployment rate.
C) new housing starts.
D) producer price index.

Question 50

The trough stage of the business cycle is immediately followed by:

A) an expansion.
B) a recession.
C) a peak.
D) a boom.

Question 51

When a recession ends, what stage of the business cycle is the economy entering?

A) expansion
B) recession
C) peak
D) trough

Question 52

What stage of the business cycle is immediately before a recession?

A) expansion
B) contraction
C) peak
D) boom

Question 53

Economic growth is at its highest level during what stage of the business cycle?

A) expansion
B) recession
C) peak
D) boom

Question 54

(Figure: Business Cycle) In the figure, point A represents a:

A) expansion
B) peak
C) recession
D) trough

Question 55

(Figure: Business Cycle) In the figure, point B represents a:

A) expansion
B) peak
C) recession
D) trough

Question 56

(Figure: Business Cycle) In the figure, point C represents a:

A) expansion
B) peak
C) recession
D) trough

Question 57

(Figure: Business Cycle) In the figure, point D represents a:

A) expansion
B) peak
C) recession
D) trough

Question 58

What type of unemployment exists if the unemployed persons have skills that are different than the skills needed for the job openings that are available?

A) frictional
B) seasonal
C) cyclical
D) structural

Question 59

There are not as many job openings as there are unemployed people. This is called _____ unemployment.

A) frictional
B) seasonal
C) cyclical
D) structural

Question 60

Immediately after Ken's university graduation, he begins looking for employment and finds a job that will begin two months after his graduation. During the time that he is searching for his new job, Ken would be classified as being _______ unemployed.

A) frictionally
B) seasonally
C) cyclically
D) structurally

Question 61

Martin is a highly skilled carpenter who loses his job. There are many job openings for computer programmers, but Martin remains unemployed because he does not have computer programming skills. Martin is _____ unemployed.

A) frictionally
B) seasonally
C) cyclically
D) structurally

Question 62

Maile loses her job and immediately begins searching for a new one. There are many job openings in her field. It is two months before she begins work at a new job because it takes time for her to apply for job openings and for employers to review applications and interview candidates. During this two-month time period, Maile would be classified as part of _____ unemployment.

A) frictional
B) seasonal
C) cyclical
D) structural

Question 63

Consumer spending drops, and then retail stores reduce orders from factories. Factories reduce production and lay off workers. Fewer jobs are available in the economy until factory orders pick up. Joe loses his factory job. Joe is part of what type of unemployment?

A) frictional
B) seasonal
C) cyclical
D) structural

Question 64

Mary is a skilled artist in oil painting but is having a hard time finding work because her computer skills are limited. There are many job openings for graphic artists using electronic media but none for oil painting artists. Mary is part of _____ unemployment.

A) frictional
B) seasonal
C) cyclical
D) structural

Question 65

Jose graduated from college in June 2018. In July 2018, he was surveyed by his country's Bureau of Labor Statistics and was counted as unemployed. Also in July 2018, he applied for a job with Goldman Sachs and started work on August 1, 2018. What type of unemployment does Jose represent?

A) frictional
B) seasonal
C) cyclical
D) structural

Question 66

Which of the following describes a situation in which a country's unemployment rate might fall even though the number of employed persons has not changed?

A) Some unemployed persons quit looking for work because they are convinced they cannot find a job.
B) Some full-time homemakers decide to start looking for work.
C) The number of new entrants into the labor force is exactly equal to the number of retirees leaving the labor force.
D) The rate at which new entrants into the labor force find jobs drops because firms want to hire more experienced workers.

Question 67

The evidence on unemployment insurance indicates that it does what of the following two things?

A) It provides partial income to households with an unemployed person and shortens the length of unemployment.
B) It takes away the stigma of being unemployed and shortens the length of unemployment.
C) It provides partial income to households with an unemployed person and prolongs unemployment.
D) It increases the stigma of being unemployed and prolongs unemployment.

Question 68

Minimum wage laws that require wages of low-skill workers to be above equilibrium contribute to what type of unemployment?

A) frictional
B) cyclical
C) minimum
D) structural

Question 69

Which type of unemployment will increase when minimum wage laws set wages above equilibrium in the low-skill labor market?

A) frictional
B) cyclical
C) minimum
D) structural

Question 70

A firm chooses to pay wages that are above equilibrium for the skills needed in hopes that the workers will work hard. Economists call this wage practice:

A) efficiency wages.
B) structural salaries.
C) minimum wages.
D) incentive salaries.

Question 71

(Figure: Nonequilibrium Wages) In the figure, what is the surplus of labor?

A) Q_s
B) W₂
C) Q_s - Q_d
D) Q_d - Q_s

Question 72

(Figure: Nonequilibrium Wages) In the figure, what would NOT cause wages to be at W₃?

A) efficiency wages
B) minimum wages
C) unions
D) government wages

Question 73

(Figure: Nonequilibrium Wages) In the figure, wage at W₃ will cause:

A) structural unemployment
B) frictional unemployment
C) cyclical unemployment
D) natural unemployment

Question 74

(Figure: Nonequilibrium Wages) In the figure, structural unemployment occurs at which wages?

A) W₁
B) W₂
C) wages lower than W₁
D) W₃

Question 75

The unemployment rate due to only frictional and structural unemployment is referred to as the _____ rate of unemployment.

A) cyclical
B) natural
C) rational
D) stability

Question 76

The full-employment goal of a national government is typically set:

A) at zero unemployment.
B) at the level of cyclical unemployment.
C) to allow for progressively less unemployment in the country.
D) to allow for frictional and structural unemployment.

Question 77

A country is at full-employment when its unemployment rate is at:

A) zero unemployment.
B) the level of cyclical unemployment.
C) the natural rate of unemployment.
D) the level where every able-bodied adult has a job.

Question 78

The natural rate of unemployment:

A) is basically the same across all countries.
B) is lower in developed countries than in low-income countries.
C) is lower in developed countries than in high-income countries.
D) varies across countries, even within the category of developed countries.

Question 79

During a recession, firms that sell luxury items are likely to have _____ sales, and firms that sell budget items might have _____ sales.

A) high; high
B) high; low
C) low; low
D) low; high

Question 80

How has the natural rate of unemployment in Europe compared to the rate in the United States over the past few decades?

A) The rates in the two areas have been basically equal.
B) Europe's natural rate of unemployment has been higher than the U.S. rate.
C) Europe's natural rate of unemployment has been lower than the U.S. rate.
D) Europe's natural rate of unemployment was higher than the U.S. rate until 2005, and since then, it has been lower than the U.S. rate.