Deck 6: Search and Unemployment

Question 1

Over the last half of the 20th century in Canada,the participation rate

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

Answer 1

increased sharply.

Question 2

Over the last half of the 20th century,percentage deviations from trend in unemployment have been

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

Answer 2

countercyclical and have been smaller than the percentage deviations from trend in real GDP.

Question 3

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

Answer 3

a shift away from manufacturing industries and toward services industries.

Question 4

A key determinant of the unemployment rate is

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

Question 5

The unemployment rate is defined as

A)
B)
C)
D)
E)

Question 6

According to a study by Richard Rogerson,higher unemployment in Europe relative to the United States is explained by the fact that in Europe

A) taxes are higher.
B) a larger percentage of the work force is unionized.
C) the service sector grew more slowly.
D) there are tougher legal restrictions on the hiring and firing of employees.
E) unemployment benefits are more generous.

Question 7

Government-sponsored Employment Insurance programs typically

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

Question 8

Relative to the United States,labour markets in European countries tend to be characterized by

A) fewer restrictions on hiring and firing.
B) lower taxes.
C) lower minimum wages.
D) more generous unemployment benefits.
E) less labour market rigidities.

Question 9

In the DMP model,the size of the labour force is positively related to

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

Question 10

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

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

Question 11

Over the last half of the 20th century in Canada,the participation rates

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

Question 12

A good example of a sectoral shift would be the

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

Question 13

In the DMP model,the number of firms is

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

Question 14

The participation rate tends to be procyclical because

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

Question 15

Government intervention influences the unemployment rate through

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

Question 16

The peak in Canada's unemployment history occurred in

A) 1960-1961.
B) 1973-1975.
C) 1950-1951.
D) 1984-1985.
E) 2000-2002.

Question 17

The behaviour of the unemployment rate in Canada over the period from 1960 through the 1990s can be characterized as

A) an upward trend over the entire period.
B) an downward trend from 1970 through the mid-1980s followed by a downward trend for the remainder of the period.
C) a upward trend from the late 1960s through the mid-1980s followed by a slight downward trend for the remainder of the period.
D) a downward trend over the entire period.
E) a very volatile period for unemployment rates.

Question 18

In the DMP model,there

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

Question 19

Which of the following statements is the most accurate about the behaviour of the unemployment rate in Canada over the last half of the 20th century?

A) 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.
B) The cyclical behaviour of the unemployment rate is well explained by changes in the level of aggregate economic activity, and the trend behavior of the unemployment rate is well explained by demographic factors.
C) 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.
D) Both the cyclical behaviour of the unemployment rate and the trend behaviour of the unemployment rate are well explained by demographic factors.
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 20

The participation rate is defined as

A)
B)
C)
D)
E)

Question 21

According to the DMP model,in equilibrium the number of firms is

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

Question 22

In equilibrium,an increase in Employment Insurance benefits

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

Question 23

In the DMP model,the equilibrium effects of an increase in productivity are to

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

Question 24

Constant returns to scale in the matching function means that,given any constant x > 0,

A)
B)
C)
D)
E)

Question 25

The probability of finding a job is

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

Question 26

According to the DMP model,in equilibrium labour market tightness tends to be high when

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

Question 27

In the DMP model,an increase in productivity

A) shifts v(Q) down, increasing Q and j.
B) shifts v(Q) up, increasing Q and decreasing j.
C) shifts v(Q) up, decreasing Q and j.
D) shifts v(Q) down, decreasing Q and increasing j.
E) shifts v(Q) up, increasing Q and j.

Question 28

The matching function captures the difficulties in

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

Question 29

In equilibrium,an decrease in matching efficiency

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

Question 30

In the DMP model,firms continue posting vacancies until the probability of matching with a worker is equal to

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

Question 31

Changes in matching efficiency are particulariliy important for Canada because of

A) the relatively low skill levels on average.
B) the stability of energy prices.
C) its proximity to the U.S.
D) the important role the government plays in the economy.
E) the important role the energy sector plays.

Question 32

The DMP model is consistent with which of the following business cycle facts?

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

Question 33

In the DMP model,Nash Bargaining implies

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

Question 34

An increase in matching efficiency,e,could help high unemployment when there is

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

Question 35

In equilibrium,an increase in Employment Insurance benefits

A) decreases labour market tightness, but has ambiguous effects on Q and Y.
B) increases labour market tightness, but has ambiguous effects on Q and Y.
C) decreases labour market tightness and Q, but increases Y.
D) decreases unemployment, but has ambiguous effects on Q and Y.
E) increases labour market tightness, Q, and Y.

Question 36

In equilibrium in the DMP model,aggregate output is given by

A)
B)
C)
D)
E)

Question 37

Which of the following is an assumption in the DMP model about the matching function?

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

Question 38

Labour market tightness is defined by

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

Question 39

In the DMP model,an increase in Employment Insurance benefits makes labour search

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

Question 40

In equilibrium in the DMP model,labour force participation is

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

Question 41

Keynesian ideas can be incorporated into the DMP model by assuming

A) fixed prices for producers of certain goods.
B) shocks to aggregate demand.
C) bargaining power is random.
D) bargaining power is constant.
E) shocks to productivity.

Question 42

According to research by Wang and Williamson,the optimal Employment Insurance program

A) could be implemented with EI accounts, but the welfare gains are relatively small.
B) could be implemented with EI accounts and the welfare gains are large.
C) could not be implemented but the welfare gains are large.
D) is independent of the moral hazard problem.
E) looks very similar to the existing program in Canada.

Question 43

The current Employment Insurance program suffers from

A) too high of Employment Insurance benefits in poorer regions.
B) moral hazard problems.
C) a tradeoff between benefits of insurance and the costs of moral hazard.
D) declining Employment Insurance benefits over time.
E) the unemployed tends to be more selective concerning jobs offered that they will accept.

Question 44

There has been considerable debate as to the appropriate level of Employment Insurance benefits paid out to unemployed workers.Suppose the government increases the level of Employment Insurance benefits.What would happens to the incentive to search,the size of the labour force,and the unemployment rate in the long run?

Question 45

In order for the Keynesian DMP model to be consistent with Keynesian ideas,the high wage equilibrium needs to have

A) high unemployment and low output.
B) low unemployment and high vacancies.
C) high unemployment and high output.
D) low unemployment and high output.
E) low vacancies and high output.

Question 46

Which of the following is puzzling about the recent data on productivity and unemployment in the U.S.and Canada?

A) Productivity growth is higher in the U.S. but the unemployment rate is lower in Canada.
B) Productivity and unemployment are completely unrelated.
C) Productivity growth is higher in Canada. but the unemployment rate is lower in the U.S..
D) Productivity growth is higher in the U.S. but the unemployment rate is lower in the U.S.
E) Productivity growth is higher in Canada. but the unemployment rate is lower in Canada.

Question 47

Based on the predictions of the DMP model,the Beveridge curve

A) could be explained by changes to Employment Insurance, but this is not plausible in reality.
B) could be explained by changes to Employment Insurance which are plausible in reality.
C) is a feature the model fails to explain.
D) is plausible in reality but is not consistent with the model.
E) is neither plausible in reality or consistent with the model.

Question 48

Which of the following represents the key criticism of the Keynesian DMP model?

A) There is good reason to believe bargaining power fluctuates significantly over time.
B) Output is too low relative to unemployment.
C) Output is too high relative to unemployment.
D) Wages should be governed by market forces.
E) Wages are not really sticky.

Question 49

In the Keynesian DMP model,the high wage equilibrium has

A) more unemployment, more vacancies, and higher output relative to the low wage equilibirum.
B) less unemployment, fewer vacancies, and lower output relative to the low wage equilibirum.
C) more unemployment, fewer vacancies, and uncertain output relative to the low wage equilibirum.
D) more unemployment, more vacancies, and uncertain output relative to the low wage equilibirum.
E) less unemployment, more vacancies, and uncertain output relative to the low wage equilibirum.

Question 50

In the Keynesian DMP model,the high wage equilibrium

A) has lower market tightness than the low wage equilibrium.
B) has higher market tightness than the low wage equilibrium.
C) is usually not attainable.
D) represents an increase in bargaining power for firms.
E) has the same market tightness as the low wage equilibrium.

Question 51

According to research by Wang and Williamson,the optimal Employment Insurance program

A) should depend only on the history of unemployment.
B) should depend on the entire history of employment and unemployment
C) should be independent of employment histories but dependent on unemployment histories.
D) should depend only on the most recent employment spell.
E) should depend on the entire employment history, but not unemployment histories.

Question 52

The Beveridge Curve is the

A) negative relationship between the unemployment and vacancy rate.
B) negative relationship between the emploment and labour force participation rate.
C) positive relationship between the unemployment and vacancy rate.
D) negative relationship between the employment and vacancy rate.
E) positive relationship between unemployment and the labour force participation rate.

Question 53

According to Shavell and Weiss,the optimal Employment Insurance program would be one where

A) the number of Employment Insurance recipients is restricted.
B) each province is only allowed so many workers on Employment Insurance at one time.
C) Employment Insurance benefits decrease over time.
D) Employment Insurance benefits increase over time.
E) Employment Insurance benefits in a specific region should be linked to the amount of federal government transfers they receive.