Deck 14: The Labor Market in the Macroeconomy

Question 1

Frictional unemployment is the type that arises due to recessions.

Answer 1

False

Question 2

If a person is not employed but is looking for work,she is in the labor force.

Answer 2

True

Question 3

The unemployment rate will never be zero because the economy is dynamic and always changing.

Answer 3

True

Question 4

If you hear a person saying "I lost my job at the GM plant because car manufacturing is slow due to a slowdown in the economy," you should conclude that this person is ________ unemployed.

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

Question 5

Changes in the ________ market affect the shape of the short run aggregate supply curve.

A)money
B)labor
C)goods
D)financial

Question 6

Structural unemployment arises when the economy changes making some jobs obsolete.

Question 7

The unemployment rate is the fraction of the labor force without a job.

Question 8

Cyclical unemployment is that which rises in recessions and shrinks during expansions.

Question 9

The labor force includes those people with a job and

A)those people who are looking for work.
B)those people training for a job.
C)those people who formerly worked and are now retired.
D)homemakers.

Question 10

The unemployment rate is

A)the number unemployed divided by the labor force.
B)the number unemployed divided by the number employed.
C)the number unemployed divided by the population.
D)the difference between the population and the number employed divided by the population.

Question 11

Employment tends to rise when

A)aggregate output falls.
B)unemployment rises.
C)aggregate output rises.
D)labor productivity falls.

Question 12

According to classical economists,excessive unemployment does not persist in the economy because

A)wages will always adjust to ensure equilibrium in the labor market.
B)the labor demand does not change in the economy.
C)the labor supply does not change in the economy.
D)interest rates always change to insure equilibrium in the money market.

Question 13

The type of unemployment that is most likely to arise as a result of technological changes is

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

Question 14

The functioning of the labor market primarily affects the shape of the

A)aggregate demand curve.
B)money demand curve.
C)aggregate supply curve.
D)planned investment curve.

Question 15

If a household member is not in the labor force,it is because he or she has decided his or her time is more valuable in nonmarket activities.

Question 16

If you hear a person saying "I lost my job because I was replaced by a machine," you should conclude that this person is ________ unemployed.

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

Question 17

According to classical economists,the only types of unemployment that exist in an economy are

A)structural and frictional unemployment.
B)cyclical and frictional.
C)seasonal and cyclical.
D)frictional and seasonal.

Question 18

The type of unemployment that is due to changes in the structure of the economy is

A)adjustable unemployment.
B)structural unemployment.
C)frictional unemployment.
D)cyclical unemployment.

Question 19

The type of unemployment that arises during recessions is known as

A)the natural rate of unemployment.
B)cyclical unemployment.
C)structural unemployment.
D)frictional unemployment.

Question 20

If a country has a population of 400 million,160 million people employed and 40 million people looking for work,then its unemployment rate is

A)10%.
B)20%.
C)25%.
D)40%.

Question 21

Lisa is currently not employed.She places a value of $12 an hour on her time in nonmarket activities.If Lisa is offered a job paying $17 an hour,

A)she should supply 0 hours in the labor market and allocate all of her time to nonmarket activities.
B)she should supply a positive number of hours in the labor market and allocate no time to nonmarket activities.
C)she should supply a positive number of hours in the labor market and to nonmarket activities.
D)she is indifferent between supplying hours to the labor market and using her time in nonmarket activities.

Question 22

Doug is currently not employed.He places a value of $16 an hour on his time in nonmarket activities.If Doug is offered a job paying $12 an hour,

A)he should supply 0 hours in the labor market.
B)he should supply a positive number of hours in the labor market and allocate no time to nonmarket activities.
C)he is indifferent between supplying hours to the labor market and using his time in nonmarket activities.
D)he should supply a positive number of hours in the labor market and to nonmarket activities.

Question 23

Refer to the information provided in Figure 14.1 below to answer the questions that follow. Figure 14.1
Refer to Figure 14.1.If the demand for labor falls from D to D' and wages are sticky on the downward side,there will be unemployment of ________ million.

A)200
B)150
C)100
D)50

Question 24

Refer to the information provided in Figure 14.2 below to answer the questions that follow. Figure 14.2
Refer to Figure 14.2.The equilibrium wage rate is $________ and the equilibrium number of people employed is ________ million people.

A)15;270
B)9;210
C)15;150
D)6;180

Question 25

Which of the following may shift the labor supply curve?

A)an increase in the wage rate
B)an increase in the value people place on their time
C)an increase in the price of the output of the firm
D)an increase in the corporate tax rate

Question 26

Martin is not employed.The value Martin places on his leisure time is $30 an hour.Martin looks for a job and all the offers he has are for less than $30 an hour.Martin should supply

A)exactly 40 hours per week in the labor market.
B)between 0 and 20 hours per week in the labor market.
C)between 20 and 40 hours per week in the labor market.
D)0 hours in the labor market.

Question 27

Refer to the information provided in Figure 14.2 below to answer the questions that follow. Figure 14.2
Refer to Figure 14.2.At wage rate $6,there is a ________ of labor equal to ________ million people.

A)shortage;180
B)shortage;60
C)surplus;180
D)surplus;60

Question 28

John is contemplating whether he should take a job offered to him.John should

A)not take the job if the value of his leisure is less than the wage rate the job pays.
B)not take the job if the value of his leisure is greater than the wage rate the job pays.
C)not take the job if taking the job implies he will enjoy less leisure.
D)take the job if taking the job implies he will enjoy more leisure.

Question 29

Refer to the information provided in Figure 14.2 below to answer the questions that follow. Figure 14.2
Refer to Figure 14.2.Which of the following can change the equilibrium wage rate from $9 to $6?

A)The value people put on their leisure time increases.
B)The value of what firms produce increases.
C)The productivity of workers decreases.
D)The productivity of workers increases.

Question 30

Refer to the information provided in Figure 14.1 below to answer the questions that follow. Figure 14.1
Refer to Figure 14.1.Suppose there is a decrease in the fertility rate and this causes some men and women to place a lower value on their time spent in nonmarket activities.This will cause

A)the labor supply curve to shift to the left of S.
B)the labor supply curve to shift to the right of S.
C)the labor demand curve to shift from D to D'.
D)the labor demand curve to shift from D' to D.

Question 31

Firms might pay efficiency wages above the equilibrium wage for all of the following reasons EXCEPT

A)to reduce employee shirking.
B)to improve employee morale.
C)to reduce employee turnover.
D)to reduce taxes.

Question 32

Refer to the information provided in Figure 14.2 below to answer the questions that follow. Figure 14.2
Refer to Figure 14.2.According to classical economists if the wage rate is

A)$15,the wage rate will decline to eliminate the surplus.
B)$15,the wage rate will increase to eliminate the shortage.
C)$6,the wage rate will decline to eliminate the surplus.
D)$15,the wage rate will decline to eliminate the shortage.

Question 33

Refer to the information provided in Figure 14.1 below to answer the questions that follow. Figure 14.1
Refer to Figure 14.1.The demand for labor falls from D to D'.If firms enter into social,or implicit,contracts with workers not to cut wages,then the wage rate will remain at $10 and

A)employment will fall to 150 million.
B)employment will fall to 200 million.
C)employment will remain at 300 million.
D)labor supply will decrease to restore the market to equilibrium.

Question 34

Which of the following may shift the labor demand curve?

A)an increase in the value of leisure
B)a decrease in the value of leisure
C)more people entering the labor force
D)an increase in the value of output that firms produce

Question 35

Which of the following may shift the labor supply curve?

A)an increase in worker productivity
B)a decrease in the value people place on their time
C)an increase in the price of the output of the firm
D)an increase in the corporate tax rate

Question 36

Refer to the information provided in Figure 14.2 below to answer the questions that follow. Figure 14.2
Refer to Figure 14.2.At wage rate $15,there is a ________ of labor equal to ________ million people.

A)surplus;150
B)shortage;150
C)shortage;120
D)surplus;120

Question 37

An increase in the productivity of workers shifts the labor ________ curve to the ________.

A)supply;left
B)supply;right
C)demand;right
D)demand;left

Question 38

A new policy is implemented that guarantees every adult an annual income of $10,000 whether they work or not.This will most likely shift the

A)labor demand curve to the right.
B)labor supply curve to the left.
C)labor supply curve to the right.
D)labor demand curve to the left.

Question 39

Refer to the information provided in Figure 14.2 below to answer the questions that follow. Figure 14.2
Refer to Figure 14.2.Which of the following can change the equilibrium wage rate from $9 to $15?

A)The value people put on their leisure time increases.
B)The value of what firms produce decreases.
C)The productivity of workers decreases.
D)the value of what firms produce increases.

Question 40

A decrease in worker productivity

A)reduces the demand for labor.
B)increases the demand for labor.
C)reduces the supply of labor.
D)increases the supply of labor.

Question 41

Those who believe that wages adjust quickly to clear the labor market also believe that

A)the AS curve is upward sloping.
B)the AD curve is steep.
C)the AD curve is flat.
D)the AS curve is vertical.

Question 42

If firms pay wages higher than the market clearing wage,their profits will be reduced.

Question 43

Suppose the equilibrium wage rate in the labor market is $10 and the demand for labor increases.If wages are sticky,there will be a

A)surplus of labor and the wage rate declines.
B)shortage of labor and the wage rate increases.
C)shortage of labor and the wage rate stays the same.
D)surplus of labor and the wage rate increases.

Question 44

Classical economists believe that economic policies are ineffective because they don't affect aggregate demand in the economy.

Question 45

If the actual unemployment rate is below NAIRU,the change in the inflation rate will be positive.

Question 46

One of the tenets of the classical view of the labor market is that the wage adjustments that are necessary to clear the labor market

A)occur very infrequently.
B)occur quickly.
C)don't occur.
D)occur slowly.

Question 47

The government lowers the marginal income tax rates so that after-tax wages are increased.This most likely will shift the labor

A)supply curve to the right.
B)supply curve to the left.
C)demand curve to the right.
D)demand curve to the left.

Question 48

If a new governmental policy increases unemployment benefits,we would expect the labor ________ curve to shift to the ________.

A)supply;right
B)demand;right
C)supply;left
D)demand;left

Question 49

The classical view of the labor market holds that unemployment in the economy consists of frictional and structural unemployment.

Question 50

The classical view of the labor market is basically consistent with the assumption of ________ aggregate supply curve.

A)a horizontal (or almost horizontal)
B)a downward-sloping
C)an upward-sloping
D)a vertical (or almost vertical)

Question 51

According to the classical economists,those who are not working

A)have chosen not to work at the market wage.
B)are too productive to be hired at the current wage.
C)are unable to find a job at the current wage rate.
D)have given up looking for a job,but would accept a job at the current wage if one were offered to them.

Question 52

Those who believe that the wage rate does not adjust quickly to clear the labor market are likely to believe that the aggregate supply curve is vertical.

Question 53

Classical economists believe that the aggregate supply curve is vertical because

A)wages are flexible and they always change to clear the labor market.
B)the labor market is always in equilibrium.
C)people who are not working are those who have chosen not to work at the prevailing wage rate.
D)all of the above

Question 54

Suppose the wage rate in the labor market is $8 and more people entered the labor force,which of the following statements is CORRECT?

A)If wages are flexible,then wages will increase.
B)If wages are sticky,the unemployment rate increases.
C)If wages are sticky,the unemployment rate stays the same.
D)If wages are flexible,the unemployment rate increases.

Question 55

Suppose the wage rate in the labor market is $15 and the productivity of workers increases,which of the following statements is INCORRECT?

A)The labor demand curve shifts to the right.
B)If wages are flexible,there will be an increase in wages.
C)If wages are sticky,there will be a shortage in the labor market.
D)If wages are sticky,there will be a surplus in the labor market.

Question 56

According to the classical theory,an expansionary monetary policy ________ the price level and ________ output in the long run.

A)decreases;increases
B)increases;doesn't change
C)increases;increases
D)doesn't change;doesn't change

Question 57

If firms start offering more employment benefits,such as more stock options and a better dental plan,we would expect the labor ________ curve to shift to the ________.

A)demand;right
B)demand;left
C)supply;right
D)supply;left

Question 58

If wages are sticky,an increase in labor

A)demand decreases the wage rate.
B)supply increases the wage rate.
C)demand increases the wage rate.
D)demand leaves wage rates intact.

Question 59

Suppose the wage rate in the labor market is $15 and the demand for labor decreases.If wages are sticky,

A)unemployment decreases.
B)unemployment increases.
C)unemployment stays the same.
D)wages decrease to eliminate the surplus.

Question 60

What definition of unemployment would you expect classical economists to use?

A)anyone who is actively seeking work
B)anyone who is willing to work if the market wage increases
C)anyone who is willing to work at the current market wage,but has not yet been able to find employment
D)anyone who is currently not working

Question 61

An unspoken agreement between workers and firms that the firm will not cut wages is known as

A)an implicit or social contract.
B)an explicit contract.
C)a relative-wage contract.
D)employment-at-will.

Question 62

When a firm pays higher wages for its workers to improve workers' productivity,the firm pays

A)sticky wages.
B)flexible wages.
C)efficiency wages.
D)minimum wages.

Question 63

Suppose that air traffic controllers,whose wages have been locked into place by a two-year contract,are laid off during a recession.This example is consistent with the

A)social contract explanation of unemployment.
B)explicit contract explanation of unemployment.
C)efficiency wage explanation of unemployment.
D)relative-wage explanation of unemployment.

Question 64

A firm may benefit by paying workers more than the market clearing wage because the higher wages may lead to all of the following EXCEPT

A)lower worker turnover.
B)improved worker morale.
C)reduced shirking of work.
D)reduced taxes.

Question 65

If,as a result of imperfect information,firms set their wage rates below the market clearing wage rate

A)unemployment increases.
B)there will be a surplus of workers.
C)there will be a shortage of workers.
D)there will be equilibrium in the labor market.

Question 66

The percentage of workers whose wages are set by explicit contracts falls.This should

A)make it more difficult for the labor market to reach an equilibrium after a change in the demand for labor.
B)make it easier for the labor market to reach an equilibrium after a change in the demand for labor.
C)have no impact on the movement of the labor market toward equilibrium after a change in the demand for labor.
D)cause the labor market to always be at an equilibrium,even if there is a change in the demand for labor.

Question 67

Efficiency wage theory suggests that firms may hold wages above the market clearing rate because

A)they believe that the productivity of workers increases with the wage rate.
B)unspoken agreements between workers and firms are in place.
C)it is required by law that they do so.
D)long-term contracts fix wage rates for a period of one to three years.

Question 68

The social contract explanation for the existence of downwardly sticky wages focuses on

A)employment contracts that stipulate workers' wages,usually for a period of one to three years.
B)the contention that workers in one industry may be unwilling to accept a wage cut,unless they know that workers in other industries are receiving similar cuts.
C)unspoken agreements between workers and firms that firms will not cut wages.
D)the incentive that firms have to hold wages above the market clearing rate.

Question 69

According to the relative-wage explanation of unemployment,workers will be willing to accept wage cuts only if

A)they know that unemployment is increasing in other industries.
B)they can be convinced that they are overpaid relative to workers doing similar jobs at other firms.
C)they know that workers in other firms and industries are receiving similar cuts.
D)the economy is in a prolonged recession.

Question 70

Refer to the information provided in Figure 14.3 below to answer the questions that follow. Figure 14.3
Refer to Figure 14.3.Assume that the productivity of workers increases as the wage rate increases.The efficiency wage

A)would be below $10.
B)would equal $10.
C)would be above $10.
D)could either be above or below $10.

Question 71

If productivity increases as wages increase and firms pay a wage above the market clearing wage,then

A)these firms will go out of business in the long run because they will not be able to compete with firms paying lower wages.
B)these firms will face an excess demand for labor and will be able to hire the best workers in the market.
C)these firms will have lower profit levels than their competitors.
D)a potential benefit these firms may receive is a reduction in employee turnover.

Question 72

Workers in the textile industry are laid off during a recession because they are unwilling to accept a wage cut,unless they know that workers in other industries are receiving similar cuts.This example is consistent with the

A)relative-wage explanation of unemployment.
B)explicit contract explanation of unemployment.
C)social contract explanation of unemployment.
D)efficiency wage explanation of unemployment.

Question 73

Suppose that airline workers are laid off during a recession because of an unspoken agreement between airline workers and airline executives that wages will not be reduced.This example is consistent with the

A)relative-wage explanation of unemployment.
B)explicit contract explanation of unemployment.
C)implicit contract explanation of unemployment.
D)efficiency wage explanation of unemployment.

Question 74

Which of the following arguments is NOT offered to explain the existence of "sticky" wages?

A)the social contract explanation
B)the relative-wage explanation
C)the fact that labor contracts don't exist
D)the explicit contract explanation

Question 75

The relative-wage explanation for the existence of downwardly sticky wages emphasizes

A)unspoken agreements between workers and firms that firms will not cut wages.
B)the incentive that firms may have to hold wages above the market clearing rate.
C)employment contracts that stipulate workers' wages,usually for a period of one to three years.
D)the contention that workers in one industry may be unwilling to accept a wage cut,unless they know that workers in other firms and industries are receiving similar cuts.

Question 76

Intel Corporation,a major manufacturer of microchips,saw the demand for its product drop by 25%.Even though the demand for its product decreased,Intel did not cut the wages of its nonunionized workers.This is an example of

A)employment-at-will.
B)an implicit or social contract not to cut wages.
C)an explicit contract not to cut wages.
D)a relative-wage contract.

Question 77

Refer to the information provided in Figure 14.3 below to answer the questions that follow. Figure 14.3
Refer to Figure 14.3.If this firm pays the efficient wage of $11,

A)the firm's demand for labor will increase until $11 is also the equilibrium wage.
B)the supply of labor will decrease until $11 is also the equilibrium wage.
C)there will be an excess supply of labor of 2,000.
D)there will be an excess supply of labor of 3,000.

Question 78

Frito Lay experienced a 20% drop in its sales.Even though the demand for its product decreased,Frito Lay did not cut the wages of its nonunionized workers.This is an example of

A)an explicit contract not to cut wages.
B)employment-at-will.
C)poor management.
D)an implicit or social contract not to cut wages.

Question 79

Which of the following is NOT a reason why firms pay efficiency wages?

A)to reduce turnovers
B)to abide by minimum wage laws
C)to improve morale
D)to reduce shirking of work

Question 80

Even though explicit contracts may lead to layoffs during recessions,explicit contracts may still be efficient because such contracts

A)guarantee that only the least-productive workers will be laid off.
B)reduce unemployment effects.
C)reduce negotiation costs.
D)will equitably spread the layoffs among junior and senior workers.