Deck 3: Employment, Job Creation, and Job Destruction

Question 1

The Current Population Survey counts you as unemployed if you

A) are over 16 years old.
B) are looking for work.
C) did not work at all during the past week.
D) b and c.
E) a, b, and c.

Answer 1

a, b, and c.

Question 2

The primary flows into and out of unemployment consist of

A) new job seekers entering the labor force and existing workers losing their jobs.
B) discouraged workers leaving the labor force and existing workers losing their jobs.
C) unemployed workers finding new jobs and existing workers losing their jobs.
D) discouraged workers leaving the labor force and unemployed workers finding new jobs.
E) new job seekers entering the labor force and unemployed workers finding new jobs.

Answer 2

unemployed workers finding new jobs and existing workers losing their jobs.

Question 3

Flows into unemployment derive from several sources, one of which is not

A) job destruction.
B) job loss without destruction.
C) entry into the labor force.
D) personal transitions.
E) any of the above.

Answer 3

any of the above.

Question 4

The natural rate of unemployment for the 2000s is considered by many to be

A) 6.5 percent.
B) 6.0 percent.
C) 5.5 percent.
D) 5.0 percent.
E) impossible to calculate.

Question 5

Unemployment exceeds the natural rate of unemployment whenever

A) actual GDP is growing more slowly than potential GDP.
B) GDP is falling.
C) actual GDP exceeds potential GDP.
D) potential GDP exceeds actual GDP.
E) none of the above.

Question 6

The natural rate of unemployment includes all of the following except

A) those not working while moving between jobs.
B) those not working as a result of skill or location mismatches.
C) substantial flows into and out of employment.
D) between 5 and 6 percent of the labor force.
E) discouraged workers no longer looking for work.

Question 7

The natural rate of unemployment in the United States has

A) held remarkably constant over the past two decades.
B) fallen slowly over the past 10 years after climbing throughout the 1960s and early 1970s.
C) increased gradually during the 1960s, 1970s, and 1980s, but appears to now lie somewhere between 5 and 6 percent.
D) been so muddled by the large influx of women into the labor market in the 1970s that it is no longer computed.
E) been unaffected by the oil shocks of the 1970s.

Question 8

If employment in the United States were to reach its level of potential employment, then the United States would be

A) maintaining the natural rate of unemployment of 5-6 percent and supporting the full-employment level of GDP.
B) maintaining the natural rate of unemployment of 3-4 percent and supporting the full-employment level of GDP.
C) falling short of the full-employment level of GDP because the natural rate of unemployment is 5-6 percent.
D) falling short of the natural rate of unemployment of 5-6 percent, but maintaining, nonetheless, a long-term position of stable prices.
E) none of the above.

Question 9

The amount of unemployment in an economy can

A) change rapidly over time in response to changing demands on firms.
B) determine the natural rate of unemployment.
C) limit the amount of labor available as an input to production.
D) explain the cause and duration of recessions.
E) not be determined due to measurement problems.

Question 10

Job destruction generally does not occur

A) when recessions begin.
B) in normal times.
C) when the economy is doing well.
D) all of the above.
E) none of the above.

Question 11

Which of the following equations accurately describes the relationship between l, the job-losing rate, f, the job-finding rate, and u, the unemployment rate?

A) f = lu.
B) u = lf.
C) u = l/f.
D) f = u/l.
E) l = u/f.

Question 12

While useful in a broad sense, the Current Population Survey fails to give details about whether unemployed people

A) lost their jobs.
B) quit voluntarily.
C) just entered the labor force.
D) all of the above.
E) none of the above.

Question 13

In a typical year the percentage of people having lost their jobs accounts for what percentage of the unemployed?

A) 10 percent
B) 30 percent
C) 50 percent
D) 70 percent
E) 90 percent

Question 14

Contributing factors to the rate at which people become unemployed include all but

A) students looking for summer jobs.
B) workers losing their jobs.
C) workers being laid off.
D) workers quitting their jobs.
E) none of the above.

Question 15

The majority of unemployed people have

A) been unemployed for many months.
B) will not stay unemployed very long.
C) quit their jobs voluntarily.
D) lost their jobs to illegal immigrants.
E) found new jobs quickly.

Question 16

The Current Population Survey will not count you as unemployed if you

A) have been laid off from your job.
B) lose your job due to a cyclical downturn in the economy.
C) lose your job due to corporate downsizing.
D) have quit looking for a job due to weak labor market conditions.
E) have neither the right qualifications nor experience for the available jobs.

Question 17

The unemployment rate is higher for an economy with a

A) large job-losing rate and a large job-finding rate.
B) small job-losing rate and a large job-finding rate.
C) small job-losing rate and a small job-finding rate.
D) large job-losing rate and a small job-finding rate.
E) larger number of unemployed people.

Question 18

Contributing factors to the rate at which people leave unemployment include all but

A) students finding summer jobs.
B) unemployed workers finding full-time jobs.
C) unemployed workers finding part-time jobs.
D) workers quitting their jobs.
E) workers leaving the labor force.

Question 19

Which of the following equations accurately describes the relationship between l, the job-losing rate, f, the job-finding rate, and u, the unemployment rate?

A) f = lu.
B) u = lf.
C) u = f/l.
D) l = uf.
E) l = u/f.

Question 20

Even though they are not employed, millions of people, well over a third of the population, are not counted as unemployed because they are

A) not looking for work.
B) too sick to work.
C) staying home to care for children.
D) attending school full time.
E) any of the above.

Question 21

Defining short-, medium-, and long-term unemployment as less than 5, 5 to 26, and greater than 26 weeks, respectively, the differences between good years and bad years are

A) largest between short- and medium-term unemployment.
B) largest between medium- and long-term unemployment.
C) smallest between short- and long-term unemployment.
D) largest between short- and long-term unemployment.
E) smallest between short- and medium-term unemployment.

Question 22

The natural rate of unemployment is unlikely to change in an economy where

A) significant restructuring is taking place.
B) rates of job destruction and creation are growing.
C) younger workers enter the labor force at a slightly slower rate than older workers leave.
D) industries are expanding rather than contracting.
E) unionization is declining.

Question 23

Younger workers typically figure more prominently in the natural rate of unemployment because they are

A) still searching for what they want to do in life.
B) lower skilled than most workers and less valuable to firms.
C) more likely to quit since they have lower opportunity costs.
D) new entrants into the labor force.
E) all of the above.

Question 24

In a growing body of literature among economists known as search theory,

A) during a recession workers should take the first job they find.
B) during an expansion workers should take the first job they find.
C) there will be problems with any job.
D) wages and working conditions vary across jobs.
E) workers should always be leery of an employer's first wage offer.

Question 25

The natural rate of unemployment tends to be higher except when

A) a greater portion of the labor force consists of younger workers.
B) legislation increasing the minimum wage is passed.
C) large cutbacks are made in defense spending.
D) a greater portion of the labor force becomes unionized.
E) none of the above.

Question 26

Possible ways for flows of new hires to occur without job creation include all of the following except

A) those who quit work to return to school.
B) those who quit work to take another form of employment.
C) those who move up in the company through promotion.
D) those leaving jobs that ended normally, such as temporary employment.
E) those filling a position created to assist the manager of a new division.

Question 27

In 1994, a year of strong economic growth, job destruction exceeded job creation in all but which of the following sectors of the economy?

A) Mining
B) Nondurables manufacturing
C) Federal government
D) Services
E) None of the above

Question 28

Compared to the job market for chief financial officers in large multinational corporations, job-finding rates for graduating college students are

A) about the same.
B) higher.
C) lower.
D) close to zero.
E) much lower.

Question 29

Government intervention in labor markets through the institution of a minimum wage has most likely

A) made entry-level jobs more difficult to find.
B) increased the well-being of the nation's least-skilled workers.
C) had an unquestionable effect on the natural rate of unemployment.
D) led to a small wage differential between less- and more-skilled workers.
E) led employers to alter other terms of employment.

Question 30

Even though the evidence suggests that there are insufficient jobs available at any given time for all job seekers, in normal times

A) job vacancies usually last several weeks on average.
B) employers consider applicants and make hires slowly.
C) most of the unemployed find jobs in a month or two.
D) the flow of new vacancies is small.
E) job seekers take the first or second job they find.

Question 31

According to search theory, rational workers search significantly longer before taking a job if

A) wages and working conditions do not vary significantly between jobs.
B) there is a large chance a better job will come along quickly.
C) there is a small but significant chance a better than average job will come along.
D) a and c.
E) b and c.

Question 32

The natural rate of unemployment is higher in an economy with

A) high rates of job destruction.
B) high rates of personal turnover.
C) low rates of job creation.
D) all of the above.
E) none of the above.

Question 33

Economists' work on search theory helps explain why

A) people who qualify for housing subsidies have lower job-finding rates.
B) people without help from the government have lower job-finding rates.
C) people without unemployment benefits have higher job-finding rates.
D) people without dependents have higher job-finding rates.
E) a and c.

Question 34

Unemployment insurance benefits have

A) enable workers to adopt lengthier search strategies.
B) allow workers to focus job searches more directly and increase job- finding rates.
C) cause the natural rate of unemployment to increase.
D) have no effect on unemployment factors beyond the sudden losses of income.
E) a and c.

Question 35

The flow out of unemployment consists of

A) one-third of those who successfully find a job and two-thirds of those who decide to leave the labor force.
B) two-thirds of those who successfully find a job and one-third of those who decide to leave the labor force.
C) only those who know someone.
D) a and c.
E) b and c.

Question 36

Personal transitions that contribute to the unemployment rate include

A) new entrants into the labor force.
B) reentrants into the labor force.
C) switching from household to market production.
D) workers who have quit their jobs.
E) all of the above.

Question 37

Job loss without destruction occurs when

A) students return to school in distant cities.
B) discharged workers are not replaced.
C) workers quit their job voluntarily.
D) all of the above.
E) none of the above.

Question 38

In normal times, when the economy is doing well, job destruction rates

A) tend to approach zero given little structural change in the economy.
B) tend to increase if the government does not intervene.
C) tend to remain positive due to changing economic conditions.
D) are difficult to observe given current data collection procedures.
E) are of little importance since so few people are affected.

Question 39

Flows out of unemployment have several characteristics, one of which is not

A) being more stable over the business cycle than job destruction.
B) that the flow of job creation is almost equal to that of job destruction in normal times.
C) many firms in the same industries demand more labor even as others demand less.
D) that they consist primarily of discouraged workers.
E) all of the above.

Question 40

In a market where firms operate according to efficiency wage theory,

A) the natural rate of unemployment is higher.
B) job-finding rates are lower.
C) the number of job seekers is higher.
D) all of the above.
E) a and b.

Question 41

Economic theory suggests that, during a recession, when unemployment is above the natural rate,

A) employers should be able to negotiate wage concessions and keep marginal plants in operation.
B) job seekers should lower their wage demands a little since jobs are hard to find.
C) firms should hire aggressively when job seekers are numerous and jobs easy to fill.
D) both workers and firms have strong incentives to reduce excess unemployment.
E) all of the above.

Question 42

Even though recessions cause hardships for the unemployed and the
Economy in general, economists find at least two benefits arising from them.
One of these benefits is that

A) higher unemployment provides politicians a reason for prolonging deficit reduction measures.
B) firms have greater incentive to produce output since people have less than they want.
C) workers have less necessity to increase productivity since demand has fallen off.
D) firms have greater incentive to increase job creation since fewer people have jobs.
E) the opportunity costs of restructuring, both for firms and workers, are less.

Question 43

The incentive to increase employment when the economy is in recession is given by

A) the vertical gap between labor demand and labor supply at the point of employment.
B) the excess of the marginal product of labor relative to the value of an extra unit of leisure.
C) the low opportunity cost of workers' time in comparison with their marginal productivity on the job.
D) all of the above.
E) none of the above.

Question 44

Suppose that the gap between potential GDP and actual GDP equals three times the difference between the natural rate of unemployment and the actual rate of unemployment. If the natural rate of unemployment is 5 percent, the actual rate is 6 percent, and real GDP equals $6,000, then potential GDP must equal

A) $6,185.
B) $6,180.
C) $5,820.
D) $5,825.
E) $6,000.

Question 45

Which of the following would help make the natural rate of unemployment fall?

A) The workforce becomes better educated.
B) The workforce becomes younger, on average.
C) The workforce becomes older, on average.
D) The workforce becomes less mobile.
E) The workforce becomes less productive.

Question 46

The incentives to restore full employment present in recession usually take effect within

A) several weeks.
B) several months.
C) a year or two.
D) almost immediately.
E) three years or more.

Question 47

The recent decrease in the natural rate of unemployment over the last decade can be attributed to

A) a maturing baby boom generation.
B) decreases in the rates of union membership.
C) slower growth rates of the minimum wage.
D) less comprehensive unemployment benefits.
E) all of the above.

Question 48

The primary reason inflow rates to unemployment decline slowly following a surge in job destruction is that

A) firms fail to perceive the end of the recession in a timely fashion and continue laying off workers.
B) decreased spending by terminated workers reverberates throughout the economy.
C) displaced workers may take temporary work, forcing themselves to become unemployed again shortly.
D) workers expect the recession to continue and fail to search soon enough for new employment.
E) b and c.

Question 49

Which of the following would help increase the natural rate of unemployment?

A) The workforce becomes better educated.
B) The workforce becomes younger, on average.
C) The workforce becomes older, on average.
D) The workforce becomes more mobile.
E) The workforce becomes more productive, on average.

Question 50

If unemployment were 5 percent compared with a natural rate of 5.5 percent in 1995, then the GDP gap expressed as a percentage of potential GDP would be

A) 0.5 percent.
B) 1.0 percent.
C) 1.5 percent.
D) 0 percent.
E) 2.5 percent.

Question 51

In a recession in which employment is below the equilibrium level, the labor market is characterized by

A) a marginal product of labor that exceeds the opportunity cost of worker's time.
B) unemployment rates below the natural rate.
C) an opportunity cost of worker's time that exceeds the going wage rate.
D) an opportunity cost of worker's time that exceeds the marginal product of labor.
E) none of the above.

Question 52

Even though recessions cause hardships for the unemployed and the

A) higher unemployment provides politicians a reason for prolonging deficit reduction measures.
B) firms have greater incentive to produce output since people have less than they want.
C) workers have less necessity to increase productivity since demand has fallen off.
D) firms have greater incentive to increase job creation since fewer people have jobs.
E) recessions serve as a catalyst to expand modern plants and close down outdated ones.

Question 53

Since the 1950s, unemployment has

A) risen sharply during recessions.
B) risen slowly during recessions.
C) declined gradually during recoveries.
D) a and b.
E) a and c.

Question 54

An executive who is laid off during a recession and must take a part-time job at a fast-food restaurant to feed his family is considered

A) unemployed in the official statistics.
B) employed in the official statistics.
C) a discouraged worker and thus not in the labor force by the official statistics.
D) underemployed and thus counted only fractionally in the official statistics.
E) none of the above.

Question 55

Suppose that an economy suffering with unemployment 1 point above its natural rate of 6 percent were growing at 2 percent per year. If potential GDP were growing at 3 percent, what would the unemployment rate equal in one year's time?

A) 6 percent
B) 6.33 percent
C) 6.5 percent
D) 6.67 percent
E) 7 percent

Question 56

The most significant factor contributing to changes in the inflows to unemployment is

A) workers voluntarily quitting to search for new jobs.
B) job destruction.
C) workers reentering the workforce.
D) students graduating from college and seeking employment.
E) job loss without destruction.

Question 57

In an economy that is in a recession, with employment below equilibrium,

A) firms have no incentive to expand output.
B) the labor supply schedule is vertical.
C) workers could gain more from an hour of work than their valuation of an hour of leisure.
D) the contribution of an additional worker to output falls short of the cost of hiring the worker.
E) none of the above.

Question 58

If an economy with a natural rate of unemployment of 6 percent were beset by a 7.33 percent unemployment rate and a potential GDP climbing at the rate of 3 percent per year, how fast would GDP have to grow over the course of the next year to achieve full employment at the natural rate in accordance with Okun's law?

A) 3 percent
B) 4 percent
C) 5 percent
D) 6 percent
E) 7 percent

Question 59

When employment falls below its natural rate,

A) firms have no incentive to hire additional workers since the real wage equals the marginal product of labor.
B) workers have no incentive to work more since their opportunity cost of leisure equals the real wage.
C) neither firms nor workers have an incentive to increase the level of employment.
D) previous government intervention in labor markets has removed most of the incentive for adjustment to occur on its own.
E) both firms and workers have strong incentives to increase employment but economists still struggle to more fully understand why they operate so slowly.

Question 60

Suppose that the number of people employed in an economy falls by 0.1 percent over the course of a single month. It is, in such a circumstance,

A) possible for the unemployment rate to fall if enough unemployed workers become too discouraged to look for a job.
B) possible for the unemployment rate to remain constant if the fractional component falls.
C) impossible for the unemployment rate to do anything but fall.
D) impossible for the unemployment rate to do anything but rise.
E) none of the above.