Question 1

When full employment is present in the United States:

Accepted Answer

Full employment refers to a situation where there is no cyclical unemployment (unemployment due to a lack of aggregate demand) in the economy, which means that the actual rate of unemployment will be equal to the natural rate of unemployment. The natural rate of unemployment is the sum of frictional and structural unemployment, which means that there will still be some level of unemployment due to factors such as workers searching for new jobs and skills mismatch. Therefore, the correct answer is D because the labor force only includes individuals who are either employed or actively seeking employment, so full employment would mean that approximately 95 percent of the labor force will be employed.

Question 2

Eric lost his job because a recession caused his employer's sales to fall. This is an example of:

Accepted Answer

Eric lost his job due to a recession, which is a period of economic downturn and reduced economic activity. Cyclical unemployment refers to job loss due to changes in the business cycle and overall economic conditions.

Question 3

In an economic expansion, people used their charge cards to purchase many goods. Now the economy is in a recession and people must use much of their reduced incomes to pay back debts. If employees manufacturing the goods people used to buy are laid off, they will suffer from:

Accepted Answer

The scenario described is typical of a business cycle, with expansion leading to higher demand for goods and services and therefore an increase in employment, and recession leading to reduced demand, debt, and layoffs. Cyclical unemployment occurs when there is a downturn in the business cycle, leading to decreased demand for labor and a rise in unemployment. Structural unemployment is caused by shifts in the economy that make certain skills or industries obsolete, while permanent unemployment refers to individuals who are unable to find work for an extended period of time. Frictional unemployment occurs when individuals are in between jobs or transitioning to a different job, and is not related to the business cycle.

Question 4

The natural rate of unemployment occurs if there is no:

Accepted Answer

The natural rate of unemployment is a concept that includes both frictional and structural unemployment but excludes cyclical unemployment. Cyclical unemployment is related to the business cycle, where unemployment rises during economic downturns and falls when the economy improves. The natural rate of unemployment occurs when the economy is at full employment, meaning there is no cyclical unemployment.

Question 5

When an economy is operating at its full employment rate of output:

Accepted Answer

When an economy is operating at its full employment rate of output, it means that there is no cyclical unemployment, but there still may be frictional and structural unemployment, which make up the natural rate of unemployment. Therefore, the actual rate of unemployment will equal the natural rate.

Question 6

Sally lost her job when her company went out of business because of a recession. This is an example of:

Accepted Answer

Sally's job loss is due to a recession, which is a macroeconomic event that causes a decrease in demand for goods and services, leading to a decline in business profits and ultimately resulting in layoffs and job losses. This type of unemployment is cyclical unemployment.

Question 7

Full employment is the rate of employment that results when:

Accepted Answer

Full employment is considered to be achieved not when 100% of the labor force is employed, but rather when the only types of unemployment present are frictional (short-term unemployment as people move between jobs or enter the workforce) and structural (unemployment due to mismatches between workers' skills and job requirements or technological changes). Cyclical unemployment, which is related to the business cycle and economic downturns, is absent at full employment.

Question 8

Full employment is the situation in which the economy operates at an unemployment rate equal to the sum of:

Accepted Answer

Full employment occurs when the economy operates at an unemployment rate equal to the sum of structural and frictional unemployment, excluding cyclical unemployment. This reflects the natural rate of unemployment where all unemployment is due to the time it takes for workers to find new jobs (frictional) or due to a mismatch between workers' skills and job requirements (structural), not due to downturns in the business cycle (cyclical).

Question 9

Consider a broom factory that permanently closes because of foreign competition. If the broom factory's workers cannot find new jobs because their skills are no longer marketable, then they are classified as:

Accepted Answer

The workers in the broom factory who cannot find new jobs because their skills are no longer marketable are classified as structurally unemployed. This is because their unemployment stems from a permanent change in the structure of the economy, specifically the shift of broom production to foreign countries.

Question 10

Unemployment that occurs from fundamental technological changes in the production, or from the substitution of new goods for customary ones, is known as:

Accepted Answer

Structural unemployment is caused by fundamental changes in the economy such as technological advancements or changes in consumer preferences. This type of unemployment is not affected by business cycles or seasonal factors.

Question 11

A decrease in aggregate demand and the subsequent cutbacks in production lead to:

Accepted Answer

A decrease in aggregate demand leads to a decrease in production, which in turn leads to a decrease in demand for labor. This leads to cyclical unemployment, which is caused by fluctuations in the business cycle.

Question 12

Susan Greenberg, who works in a typewriter factory, becomes unemployed because people start buying personal computers instead of typewriters. Susan can best be described as:

Accepted Answer

Susan's unemployment is due to changes in the structure of the economy, specifically the shift away from typewriters and towards personal computers. This type of unemployment is known as structural unemployment.

Question 13

Cyclical unemployment is primarily caused by:

Accepted Answer

Cyclical unemployment is caused by fluctuations in aggregate demand, which can create periods of economic recession. During these times, businesses may slow down or shut down altogether, resulting in layoffs or a lack of available positions. As a result, people may become unemployed not because of any personal deficiencies or lack of effort, but because of broader economic conditions.

Question 14

When macroeconomists refers to "full employment," what do they mean?

Accepted Answer

Full employment occurs when there is only frictional unemployment; structural and cyclical unemployment have been eliminated. This means that everyone who is willing and able to work has found employment, and any remaining unemployment is due to people temporarily between jobs (frictional unemployment).

Question 15

Juanita earned a B.S. in engineering and went to work for a large defense contractor in a small town in California. When the government cut spending, Juanita and 99 others were laid off. The only other business in the town is growing grapes to be made into raisins, but the growers refuse to hire laid-off engineers, knowing they will leave at the first opportunity. The unemployment Juanita is experiencing is:

Accepted Answer

Juanita's unemployment is structural because she is unable to find employment in her field due to a lack of available jobs in the area. The fact that the grape growers refuse to hire her due to the likelihood of her leaving as soon as a better opportunity arises further reinforces the structural nature of her unemployment.

Question 16

The type of unemployment that occurs because of a recession is called:

Accepted Answer

Cyclical unemployment is caused by business cycles, specifically during a recession when demand for goods and services decreases, causing companies to lay off workers. This results in a rise in unemployment rates.

Question 17

What is full employment? What are the different kinds of unemployment? What constitutes the natural (normal) rate of unemployment?

Accepted Answer

The answer of What is full employment? What are the...

Question 18

An example of cyclical unemployment is a(n):

Accepted Answer

Cyclical unemployment is caused by fluctuations in the business cycle, such as a decline in demand. B describes a situation where an autoworker is temporarily laid off due to a decline in demand for cars, which is a classic example of cyclical unemployment. A, C, and D describe other types of unemployment (structural, technological, and frictional, respectively).

Question 19

It is difficult for cyclically unemployed individuals to find jobs because:

Accepted Answer

Cyclically unemployed individuals are unemployed due to fluctuations in the business cycle and economic conditions. During a recession or economic downturn, job opportunities are typically limited, making it difficult for them to find employment. Option A may apply to some individuals, but it is not the main reason for their unemployment. Option C may be a factor in some cases, but it is not the primary reason for their difficulties finding a job. Option D is not a valid reason as the duration of job search varies from individual to individual.

Question 20

Full employment means which of the following is zero?

Accepted Answer

Full employment means that there is no cyclical unemployment, which is the unemployment that occurs due to economic downturns or recessions. Structural, frictional, and aggregate unemployment may still exist even with full employment. Structural unemployment occurs when there is a mismatch between the skills that workers have and the skills that employers are looking for. Frictional unemployment occurs when workers are between jobs and are searching for new employment opportunities. Aggregate unemployment is the overall level of unemployment in the economy, including cyclical, structural, and frictional unemployment.

Quiz 12: Business Cycles and Unemployment