Question 1

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 5 percent, then real GDP must be:

Accepted Answer

Okun's law states that each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output. In this case the economy is operating with one percent cyclical unemployment, so it has a −2 percent output gap. Ninety-eight percent of $100 trillion is $98 trillion.

Question 2

According to Okun's law, when cyclical unemployment increases by one percentage point, the recessionary gap ________ by ________ percent of potential output.

Accepted Answer

Okun's law states that each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output.

Question 3

Suppose the actual rate of unemployment is 4 percent. What is the natural rate of unemployment if actual output equals potential output?

Accepted Answer

Since actual output equals its potential, unemployment is equal to its natural rate of 4 percent. There is no cyclical unemployment when actual output equals potential output.

Question 4

The aging of the labor force in the United States is likely to ________ the natural rate of unemployment; an increase in the efficiency of the labor market is likely to ________ the natural rate of unemployment.

Accepted Answer

Older workers are less likely to be unemployed than are younger workers, and more efficient labor markets are better at matching workers to jobs. Both of these tend to reduce the natural rate of unemployment.

Question 5

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 5 percent, then the output gap equals:

Accepted Answer

Okun's law states that each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output. In this case the economy is operating with one percent cyclical unemployment, so it has a −2 percent output gap.

Question 6

Suppose the natural rate of unemployment is 4 percent. What is the actual rate of unemployment if actual output is 2 percent below potential output?

Accepted Answer

This problem applies Okun's law. If output is 2 percent below its potential, then unemployment is one percent higher than its full-employment level of 4 percent.

Question 7

Compared to older workers, younger workers change jobs more frequently, so they are more prone to ________ unemployment; also, younger workers have fewer skills, so they are more prone to ________ unemployment.

Accepted Answer

Changing jobs frequently creates frictional unemployment while having fewer skills leads to structural unemployment.

Question 8

The changing age structure of the U.S. population and more efficient labor markets are both possible explanations for:

Accepted Answer

The natural rate of unemployment in the United States fell steadily from 6.3 percent in 1979 to about 5 percent in 1999. It was estimated to have risen some after the financial crisis from 2009 to 2013, but has since declined again to 4.8 percent in 2016. The average age of U.S. workers is rising, reflecting the aging of the baby boom generation. Since young workers are more prone to unemployment than older workers, the aging of the labor force may help explain the decline. Labor markets may have become more efficient with matching workers with jobs.

Question 9

Suppose the natural rate of unemployment is 6 percent. What is the actual rate of unemployment if actual output is 2 percent below potential output?

Accepted Answer

This problem applies Okun's law. If output is 2 percent below its potential, then actual unemployment is one percent above its natural rate of 6 percent.

Question 10

The decline in the natural rate of unemployment between the 1979 and the 2000s might be the result of:

Accepted Answer

The natural rate of unemployment in the United States fell steadily from 6.3 percent in 1979 to about 5 percent in 1999. It was estimated to have risen some after the financial crisis from 2009 to 2013, but has since declined again to 4.8 percent in 2016. The average age of U.S. workers is rising, reflecting the aging of the baby boom generation. Since young workers are more prone to unemployment than older workers, the aging of the labor force may help explain the decline. Labor markets may have become more efficient with matching workers with jobs.

Question 11

The unemployment rate for younger workers is usually ________ the unemployment rate for older workers.

Accepted Answer

Younger workers tend to hold short-term jobs and are more prone than others to frictional unemployment. They also have fewer skills, on average, than older workers, so they may experience more structural unemployment.

Question 12

The increasing availability of temporary job placement agencies and online job services has ________ the efficiency of matching workers and jobs, and has therefore ________ the natural rate of unemployment in the United States.

Accepted Answer

Better information about job availability has improved job placement which has reduced the natural rate of unemployment in the United States.

Question 13

According to Okun's law, when cyclical unemployment increases from 2 to 3 percent, the recessionary gap widens from ________.

Accepted Answer

According to Okun's law, each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap. In this case, the original recessionary gap must have been −4 percent. When cyclical unemployment rises 1 percent, the recessionary gap widens by 2 percent to −6 percent.

Question 14

According to Okun's law, each extra percentage point of ________ unemployment is associated with a ________ widening of a negative output gap, measured in relation to potential output.

Accepted Answer

Okun's law describes the relationship between cyclical unemployment and the output gap: each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output.

Question 15

Suppose the natural rate of unemployment is 4 percent. What is the actual rate of unemployment if actual output is 2 percent above potential output?

Accepted Answer

This problem applies Okun's law. If output is 2 percent above its potential, then unemployment is one percent below its full-employment level of 4 percent.

Question 16

Okun's law expresses the relationship between:

Accepted Answer

Okun's law describes the relationship between cyclical unemployment and the output gap: each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output.

Question 17

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 3 percent, then real GDP equals:

Accepted Answer

Okun's law states that each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output. In this case the economy is operating with −1 percent cyclical unemployment, so it has a +2 percent output gap. One hundred two percent of $100 trillion is $102 trillion.

Question 18

According to Okun's law, when cyclical unemployment increases from 1 percent to 2 percent, the recessionary gap increases from ________.

Accepted Answer

According to Okun's law, each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap. In this case, the original recessionary gap must have been −2 percent. When cyclical unemployment rises 1 percent, the recessionary gap widens by 2 percent to −4 percent.

Question 19

The proposition each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output, is known as:

Accepted Answer

Okun's law describes the relationship between cyclical unemployment and the output gap: each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output.

Question 20

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 3 percent, then the output gap equals:

Accepted Answer

Okun's law states that each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output. In this case the economy is operating with −1 percent cyclical unemployment, so it has a +2 percent output gap.

Quiz 24: Short-Term Economic Fluctuations: An Introduction

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 5 percent, then real GDP must be:

According to Okun's law, when cyclical unemployment increases by one percentage point, the recessionary gap by percent of potential output.

Suppose the actual rate of unemployment is 4 percent. What is the natural rate of unemployment if actual output equals potential output?

The aging of the labor force in the United States is likely to the natural rate of unemployment; an increase in the efficiency of the labor market is likely to the natural rate of unemployment.

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 5 percent, then the output gap equals:

Suppose the natural rate of unemployment is 4 percent. What is the actual rate of unemployment if actual output is 2 percent below potential output?

Compared to older workers, younger workers change jobs more frequently, so they are more prone to unemployment; also, younger workers have fewer skills, so they are more prone to unemployment.

The changing age structure of the U.S. population and more efficient labor markets are both possible explanations for:

Suppose the natural rate of unemployment is 6 percent. What is the actual rate of unemployment if actual output is 2 percent below potential output?

The decline in the natural rate of unemployment between the 1979 and the 2000s might be the result of:

The unemployment rate for younger workers is usually ________ the unemployment rate for older workers.

The increasing availability of temporary job placement agencies and online job services has the efficiency of matching workers and jobs, and has therefore the natural rate of unemployment in the United States.

According to Okun's law, when cyclical unemployment increases from 2 to 3 percent, the recessionary gap widens from ________.

According to Okun's law, each extra percentage point of unemployment is associated with a widening of a negative output gap, measured in relation to potential output.

Suppose the natural rate of unemployment is 4 percent. What is the actual rate of unemployment if actual output is 2 percent above potential output?

Okun's law expresses the relationship between:

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 3 percent, then real GDP equals:

According to Okun's law, when cyclical unemployment increases from 1 percent to 2 percent, the recessionary gap increases from ________.

The proposition each extra percentage point of cyclical unemployment is associated with about a 2 percent widening of a negative output gap, measured in relation to potential output, is known as:

In Macroland, potential output equals $100 trillion and the natural rate of unemployment is 4 percent. If the actual unemployment rate is 3 percent, then the output gap equals: