Deck 7: The Labor Market

Question 1

Based on the information above,the non-employment rate is

A)4%.
B)9)1%.
C)10%.
D)60%.
E) 66%.

Answer 1

60%.

Question 2

In the United States,how many workers become unemployed,on average,every day?

A)5,000
B)10,000
C)50,000
D)100,000

Answer 2

50,000

Question 3

The average amount of time people spend unemployed is approximately

A)1 month.
B)6 months .
C)12 months.
D)none of the above

Answer 3

none of the above

Question 4

The participation rate in the United States in 2010 was approximately equal to

A)96%.
B)90%.
C)65%.
D)26%.
E) 5%.

Question 5

Which of the following is considered out of the labor force?

A)the unemployed
B)those temporarily laid off who will soon be recalled
C)those who worked full time, but in a family business
D)those individuals who have started searching for employment for the first time
E) none of the above

Question 6

Based on the information above,the unemployment rate is

A)4%.
B)6)6%.
C)9)1%.
D)10%.
E) 11.1%.

Question 7

What effect does the existence of discouraged workers have on the ability of the official unemployment rate to provide accurate information about the extent to which labor is employed?

Question 8

Which of the following represents the participation rate?

A)the ratio of the number employed to the size of the labor force
B)the ratio of the number employed to the civilian noninstitutional population
C)the ratio of the labor force to the civilian noninstitutional population
D)the ratio of the labor force to the total number of employed and unemployed workers

Question 9

Based on the information above,the labor force participation rate is

A)36%.
B)40%.
C)44%.
D)90.1%.
E) 66%.

Question 10

When the unemployment rate is low,we would expect that

A)the probability of losing a job is high.
B)the probability of losing a job is low.
C)the probability an unemployed individual will find another job is low.
D)the separation rate will increase.

Question 11

Which of the following individuals would be considered unemployed?

A)an individual who works only part-time
B)an individual who works full-time in a family business, but is not paid
C)an individual who is not working and is not looking for work
D)all of the above
E) none of the above

Question 12

Data on labor-force flows show that

A)in any given month, almost none of the unemployed gets jobs.
B)in any given month, almost all of the unemployed gets jobs.
C)the average duration of unemployment is about 2 weeks.
D)the average duration of unemployment is about 2 years.
E) in any given month, about one-fourth of the unemployed get jobs.

Question 13

The participation rate in the U.S.has increased steadily over time.First,explain what the participation rate represents.Second,explain why the participation rate has increased.

Question 14

A reduction in the unemployment rate will tend to cause which of the following?

A)an increase in the separation rate
B)a reduction in the nominal wage
C)a reduction in the duration that one is unemployed
D)none of the above

Question 15

Data on labor-force flows show that

A)almost all separations are due to death.
B)almost all separations are due to serious illness.
C)almost all separations are quits.
D)almost all separations are layoffs.
E) none of the above

Question 16

The Current Population Survey interviews approximately how many households each month?

A)5,000
B)10,000
C)60,000
D)100,000

Question 17

First,provide a brief explanation of what the unemployment rate measures.Second,explain how changes in each of the components of the unemployment rate can cause changes in the unemployment rate.

Question 18

Based on the data provided in the chapter,which of the following represents the largest component of the labor force?

A)discouraged workers
B)retired individuals
C)employed
D)unemployed

Question 19

In the United States,the average length of time people spend unemployed is

A)approximately one month.
B)between two and three months.
C)between ten and eleven months.
D)greater than twelve months.

Question 20

The labor force is defined as

A)the sum of the employed and unemployed.
B)the total number employed.
C)the total number of working age individuals in the population.
D)the sum of the number of employed, unemployed and discouraged individuals.

Question 21

Explain several implications and characteristics of efficiency wage theories.

Question 22

The price setting equation is represented by the following: P = (1 + m)W.When there is perfect competition,we know that m will equal

A)W)
B)P)
C)1)
D)W / P.
E) none of the above

Question 23

Which of the following variables is most directly determined in the labor market?

A)stock prices
B)nominal wages
C)interest rates
D)all of the above
E) none of the above

Question 24

The reservation wage is

A)the wage that an employer must pay workers to reduce turnover to a reasonable level.
B)the wage that ensures a laid-off individual will wait for re-hire, rather than find another job.
C)the lowest wage firms are allowed by law to pay workers.
D)the wage offer that will end a labor-strike.
E) none of the above

Question 25

Explain why nominal wages are a function of the expected price level.

Question 26

Which of the following statements about wage setting is true?

A)most workers in the U.S. have their wages set by formal contracts.
B)formal contracts play a more important role in Japan and Western Europe than in the United States.
C)the minimum wage in the U.S. is about 75% of the average wage.
D)all of the above

Question 27

The natural level of output is the level of output that occurs when

A)the goods market and financial markets are in equilibrium.
B)the economy is operating at the unemployment rate consistent with both the wage-setting and price-setting equations.
C)the markup (m)is zero.
D)the unemployment rate is zero.
E) there are no discouraged workers in the economy.

Question 28

Efficiency wage theory suggests that

A)workers will be paid less than their reservation wage.
B)productivity might drop if the wage rate is too low.
C)the government can only set tax rates so high before people will prefer not to work.
D)unskilled workers will have a lower turnover rate than skilled workers.
E) firms will be more resistant to wage increases as the labor market tightens.

Question 29

In the wage-setting relation,the nominal wage tends to decrease when

A)the price level increases.
B)the unemployment rate decreases.
C)unemployment benefits decrease.
D)the minimum wage increases.
E) all of the above

Question 30

As the unemployment rate falls,

A)the proportion of the unemployed finding a job increases.
B)the separation rate increases.
C)the young and unskilled experience larger-than-average decreases in unemployment.
D)both A and C.
E) all of the above

Question 31

When the Current Population Survey (CPS)was introduced in 1940,it was based on a survey of approximately 8,000 households.The CPS survey is now based on a survey of how many households?

A)8,000
B)10,000
C)12,000
D)20,000
E) 60,000

Question 32

In the wage setting relation W = PᵉF(u,z),the variable z does not include which of the following variables?

A)the minimum wage
B)unemployment benefits
C)the extent to which firms mark up prices over their marginal cost
D)all of the above
E) none of the above

Question 33

Henry Ford's experiment with efficiency wages resulted in

A)a dramatic drop in productivity.
B)a dramatic increase in the turnover rate.
C)a reduction in the layoff rate.
D)new problems with the work force, like drunkenness and reckless driving.
E) no noticeable effects.

Question 34

If efficiency wage theory is valid,we would expect a relatively low premium over the reservation wage when

A)the unemployment rate is low.
B)the job requires very little training.
C)workers can be easily monitored.
D)workers have few other options for employment in the area.
E) all of the above

Question 35

First,explain what the WS relation represents.Second,explain why it has its particular shape.

Question 36

The natural rate of unemployment is the rate of unemployment

A)that occurs when the money market is in equilibrium.
B)that occurs when the markup of prices over costs is zero.
C)where the markup of prices over costs is equal to its historical value.
D)that occurs when both the goods and financial markets are in equilibrium.
E) none of the above

Question 37

Labor productivity is represented by which of the following?

A)the ratio of output to employment
B)workers per unit of capital
C)capital per worker
D)the ratio of output to population
E) the ratio of output to the labor force

Question 38

Explain how an increase in the unemployment rate will affect bargaining power and nominal wages.

Question 39

Today,about ________ of U.S.workers have their wages set by collective bargaining agreements.

A)10%
B)15%
C)20%
D)25%

Question 40

The two labor markets in the "dual labor market" are

A)southern versus northern.
B)western versus eastern.
C)English speaking versus non-English speaking.
D)domestic versus foreign.
E) none of the above

Question 41

Based on wage setting behavior,we know that a reduction in the unemployment rate will cause

A)no change in the real wage.
B)a reduction in the real wage.
C)an increase in the real wage.
D)an upward shift of the WS curve.

Question 42

An increase in the minimum wage will tend to cause which of the following?

A)an upward shift in the WS curve
B)a downward shift in the WS curve
C)an upward shift in the PS curve
D)a downward shift in the PS curve
E) none of the above

Question 43

The natural level of employment (N)will increase when which of the following occurs?

A)an increase in the markup of prices over costs
B)a reduction in unemployment benefits
C)an increase in the actual unemployment rate
D)all of the above
E) none of the above

Question 44

Based on our understanding of the labor market model presented in Chapter 6,we know that an increase in the markup will cause

A)an increase in the equilibrium real wage.
B)a reduction in the equilibrium real wage.
C)a reduction in the natural rate of unemployment.
D)both B and C

Question 45

Based on our understanding of the labor market model presented in Chapter 6,we know that an increase in the minimum wage will cause

A)an increase in the equilibrium real wage.
B)a reduction in the equilibrium real wage.
C)a reduction in the natural rate of unemployment.
D)both B and C

Question 46

Suppose we wish to examine the determinants of the equilibrium real wage and equilibrium level of employment (N).In a graph with the real wage on the vertical axis,and the level of employment on the horizontal axis,the wage-setting relation will now be

A)a vertical line.
B)a horizontal line.
C)an upward sloping line.
D)a downward sloping line.
E) a curve that first slopes upward, then downward.

Question 47

Suppose the aggregate production function is given by the following: Y = N.Given this information,we know that labor productivity is represented by which of the following?

A)1 / N
B)N
C)N / Y
D)1

Question 48

Suppose that increased international trade makes product markets more competitive in the U.S.Given this information,we would expect to observe which of the following?

A)an upward shift in the WS curve
B)a downward shift in the WS curve
C)an upward shift in the PS curve
D)a downward shift in the PS curve
E) none of the above

Question 49

Suppose we wish to examine the determinants of the equilibrium real wage and equilibrium level of employment (N).In a graph with the real wage on the vertical axis,and the level of employment on the horizontal axis,the price-setting relation will now be

A)a vertical line.
B)a horizontal line.
C)an upward sloping line.
D)a downward sloping line.
E) kinked at the natural rate of unemployment.

Question 50

For this question,assume that Y = N.Based on our understanding of the labor market model presented in Chapter 6,we know that an increase in the minimum wage will cause

A)an increase in the natural level of output.
B)a reduction in the natural level of output.
C)no change in the natural level of output.
D)an increase in the natural level of employment.

Question 51

Suppose the aggregate production function is given by the following: Y = AN.Given this information,we know that labor productivity is represented by which of the following?

A)1 / A
B)A
C)1 / N
D)N / Y

Question 52

A reduction in unemployment benefits will tend to cause which of the following?

A)an upward shift in the WS curve
B)a downward shift in the WS curve
C)an upward shift in the PS curve
D)a downward shift in the PS curve
E) none of the above

Question 53

Based on price setting behavior,we know that a reduction in the unemployment rate will cause

A)no change in the real wage.
B)a reduction in the real wage.
C)an increase in the real wage.
D)an upward shift of the PS curve.

Question 54

With the real wage on the vertical axis and the unemployment rate on the horizontal axis,we know that

A)the WS curve is upward sloping.
B)the WS curve is downward sloping.
C)the PS curve is upward sloping.
D)the PS curve is downward sloping.

Question 55

Based on our understanding of the labor market model presented in Chapter 6,we know that a reduction in the markup will cause

A)an increase in the equilibrium real wage.
B)a reduction in the equilibrium real wage.
C)an increase in the natural rate of unemployment.
D)a reduction in the natural rate of unemployment and no change in the real wage.

Question 56

Suppose the actual unemployment rate increases.This will cause

A)an upward shift in the WS curve.
B)a downward shift in the WS curve.
C)an upward shift in the PS curve.
D)a movement along the WS and the PS curves.
E) none of the above

Question 57

Suppose workers and firms expect the overall price level to increase by 5%.Given this information,we would expect that

A)the nominal wage will increase by less than 5%.
B)the nominal wage will increase by exactly 5%.
C)the nominal wage will increase by more than 5%.
D)the real wage will increase by 5%.
E) the real wage will increase by less than 5%.

Question 58

Suppose the actual unemployment rate decreases.This will cause

A)an upward shift in the WS curve.
B)a downward shift in the WS curve.
C)an upward shift in the PS curve.
D)a downward shift in the PS curve.
E) none of the above

Question 59

With the real wage on the vertical axis and employment (N)on the horizontal axis,we know that

A)the WS curve is upward sloping.
B)the WS curve is downward sloping.
C)the PS curve is upward sloping.
D)the PS curve is downward sloping.

Question 60

For this question,assume that Y = N.Based on our understanding of the labor market model presented in Chapter 6,we know that a reduction in the markup will cause

A)an increase in the natural level of output.
B)a reduction in the natural level of output.
C)no change in the natural level of output.
D)a reduction in the natural level of employment.

Question 61

Based on your understanding of the labor market model presented by Blanchard (i.e.,the WS and PS relations),explain what types of policies could be implemented to cause a reduction in the natural rate of unemployment.

Question 62

Explain what effect a reduction in the unemployment rate will have on the real wage based on: (1)the WS relation; and (2)the PS relation.

Question 63

Explain what effect an increase in the unemployment rate will have on the real wage based on: (1)the WS relation; and (2)the PS relation.

Question 64

Based on wage setting behavior,we know that an increase in the unemployment rate will cause

A)no change in the real wage.
B)a reduction in the real wage.
C)an increase in the real wage.
D)an upward shift of the WS curve.

Question 65

Graphically illustrate (using the WS and PS relations)and explain the effects of an increase in the markup on the equilibrium real wage,the natural rate of unemployment,the natural level of employment,and the natural level of output.

Question 66

Based on price setting behavior,we know that an increase in the unemployment rate will cause

A)no change in the real wage.
B)a reduction in the real wage.
C)an increase in the real wage.
D)an upward shift of the PS curve.

Question 67

A reduction in the minimum wage will tend to cause which of the following?

A)an upward shift in the WS curve
B)a downward shift in the WS curve
C)an upward shift in the PS curve
D)a downward shift in the PS curve
E) none of the above

Question 68

Graphically illustrate (using the WS and PS relations)and explain the effects of an increase in the minimum wage on the equilibrium real wage,the natural rate of unemployment,the natural level of employment,and the natural level of output.

Question 69

Graphically illustrate (using the WS and PS relations)and explain the effects of a reduction in the minimum wage on the equilibrium real wage,the natural rate of unemployment,the natural level of employment,and the natural level of output.

Question 70

First,explain what the PS relation represents.Second,explain why it has its particular shape.

Question 71

An increase in unemployment benefits will tend to cause which of the following?

A)a downward shift in the WS curve
B)an upward shift in the PS curve
C)an upward shift in the WS curve
D)a downward shift in the PS curve
E) none of the above

Question 72

Graphically illustrate (using the WS and PS relations)and explain the effects of a reduction in the markup on the equilibrium real wage,the natural rate of unemployment,the natural level of employment,and the natural level of output.

Question 73

Explain how a reduction in the unemployment rate will affect bargaining power and nominal wages.