Deck 28: The Natural Rate of Unemployment

Question 1

If David recently graduated and is looking for a job, then, ceteris paribus, the unemployment rate will fall and the labour-force participation rate will fall.

Answer 1

False

Question 2

The official unemployment rate is calculated as:

A)the number of working-age people 15 years of age or older who are employed, divided by the number of people in the labour force
B)all people 18 years of age or older who are employed, plus all those unemployed who are actively seeking work
C)the percentage of the working-age population 15 years or older who are not working but are actively seeking work
D)the number of people 15 years or older who are not employed and are actively seeking work, divided by the number of people in the labour force

Answer 2

D

Question 3

Cyclical unemployment arises when the economy is experiencing a recession.

Answer 3

True

Question 4

The natural rate of unemployment is:

A)unchanging
B)inevitable
C)always increasing
D)affected by minimum wage laws

Question 5

Economists and policymakers should focus on solving problems of short-term unemployment, since long-term unemployment will be resolved eventually.

Question 6

An economy's natural rate of unemployment refers to the lowest rate of unemployment the economy experiences over the business cycle.

Question 7

According to the theory of efficiency wages, firms operate less efficiently if wages are above the equilibrium level.

Question 8

Which of the following is the correct statement?

A)There is no easy way for policymakers to reduce the economy's natural rate of unemployment, but it is easy to alleviate the hardships of the unemployed
B)There is no easy way for policymakers to reduce the economy's natural rate of unemployment and at the same time alleviate the hardships of the unemployed
C)There is no easy way for policymakers to alleviate the hardships experienced by the unemployed, but it is easy to reduce the economy's natural rate of unemployment
D)None of the above

Question 9

Cyclical unemployment refers to:

A)year-to-year fluctuations of unemployment around its natural rate
B)the experience with unemployment of a typical worker over his or her life cycle
C)long-term trends in unemployment
D)none of the above

Question 10

Efficiency wages are:

A)one explanation for the natural rate of unemployment
B)wages paid for time-motion studies
C)the lowest wage an employer can pay
D)none of the above

Question 11

Firms may find it profitable to pay wages above the equilibrium level in order to give workers an incentive to avoid shirking their responsibilities.

Question 12

Frictional unemployment may be economically beneficial if it leads to a better match between worker and job.

Question 13

In a country with 20 million people aged 15 years and older, 12 million in the labour force, and 11.4 million employed, what is the unemployment rate?

A)three per cent
B)four per cent
C)five per cent
D)six per cent

Question 14

Students are regarded as employed in studies and are recorded as unemployed, but not in the labour force.

Question 15

Structural unemployment is associated with general downturns in the economy.

Question 16

The labour-force participation rate:

A)equals one minus the unemployment rate
B)measures the percentage of the total adult population in the labour force
C)measures the percentage of the number of employed in the labour force
D)equals one minus the labour force

Question 17

Surplus labour in the market creates pressure to increase market wages, in the absence of minimum-wage legislation.

Question 18

If the minimum wage is set above the equilibrium wage level, then less people could be hired compared with the equilibrium level.

Question 19

Economists and policymakers must equally consider the problems of short-term unemployment and long-term unemployment in the economy.

Question 20

A minimum wage, set above the market equilibrium wage, will create an excess supply of labour.

Question 21

According to the theory of efficiency wages:

A)firms may choose to pay a wage above the competitive equilibrium level to reduce worker turnover
B)firms will pay a higher wage to impose a cost on shirking
C)firms will pay a high wage to provide an incentive to work hard
D)all of the above

Question 22

An appropriate policy for reducing structural unemployment would be:

A)a tax cut
B)an increase in government spending
C)programs for the retraining and relocating of labour
D)an increase in the money supply

Question 23

The unemployment rate is never zero because:

A)some wages are always above the market equilibrium level
B)there will always be some people who choose not to work
C)of the presence of discouraged workers
D)of maximum wage laws

Question 24

Using the definition of unemployment, which of the following individuals would be unemployed?

A)a full-time student quits school, enters the labour market for the first time, and searches for employment
B)an employee of General Motors Holden who is laid off because of an increased level of car imports
C)your next-door neighbour who loses her job as a cleaner in a local hospital because of a reduction in the health budget
D)all of the options given here would count as unemployed

Question 25

Most of the economy's structural unemployment problem is attributable to:

A)relatively large numbers of workers who are jobless for relatively long periods of time
B)relatively large numbers of workers who are jobless for relatively short periods of time
C)relatively few workers who are jobless for relatively long periods of time
D)relatively few workers who are jobless for relatively short periods of time

Question 26

Efficiency-wage theory suggests that to improve workers performance, firms should:

A)fire all existing workers and hire new ones
B)spend more money and effort on monitoring
C)raise wages above the market equilibrium level
D)give incentive pay to employees for dobbing in their fellow workers who are shirking

Question 27

Sectoral shifts in the economy:

A)decrease job search
B)increase productivity
C)temporarily cause unemployment
D)do all of the above

Question 28

NARRBEGIN: 9-1
Graph 9-1
The government has introduced the minimum wage law.The minimum wage is set at W1 as shown in Graph 9-1.After introducing the minimum wage law, the quantity of labour supplied is _______

A)L₀, the quantity of labour demanded is L₀ and the amount of unemployed labour is zero
B)L₀, the quantity of labour demanded is L₁ and the amount of unemployed labour is L₀ - L₁
C)L₂, the quantity of labour demanded is L₀ and the amount of unemployed labour is L₂ - L₀
D)L₂, the quantity of labour demanded is L₁ and the amount of unemployed labour is L₂ - L₁

Question 29

In a growing economy that is experiencing technological change and sectoral shifts, unemployment is most likely:

A)involuntary unemployment
B)cyclical unemployment
C)structural unemployment
D)a result of inflationary pressures

Question 30

Suppose there are 10 million in the labour force, and 600 000 unemployed people.During the next month, 20 000 people lose their jobs and 30 000 find jobs.The new total of employed persons is __________ and the new unemployment rate is ___________.(Assume there are no new entrants into the labour force.)

A)10.1 million; 5.8 per cent
B)10 million; 6.1 per cent
C)9.41 million; 5.9 per cent
D)9.39 million; 6.1 per cent

Question 31

A person quits her job in order to spend time looking for a better paying job.This is an example of:

A)frictional unemployment
B)cyclical unemployment
C)seasonal unemployment
D)structural unemployment

Question 32

Fred decides to hire some additional mechanics to work in his expanded automotive business.The going wage is $16 per hour.Efficiency-wage theory suggests that Fred should offer:

A)very little as the automotive industry is a sunset industry
B)the minimum wage which is $14 per hour, since some mechanics would be willing to work at that level
C)more than $16 per hour, so as to attract a better pool of applicants
D)enough to attract the number of applicants necessary to fill the jobs available

Question 33

Effective collective bargaining will:

A)increase the demand for union workers
B)raise the wage of union workers
C)decrease the supply of labour in the non-unionised parts of the economy
D)none of the above

Question 34

Which of the following contributes to the natural rate of unemployment?

A)unions
B)efficiency wages
C)job search
D)all of the above

Question 35

The theory of efficiency wages explains why:

A)unions strike for higher wages
B)it might be inefficient to pay workers the competitive equilibrium wage
C)the actual unemployment rate varies around the long-run equilibrium unemployment rate
D)it is efficient for workers to work hard for their wages

Question 36

NARRBEGIN: 9-1
Graph 9-1
In Graph 9-1, without a minimum wage law, the equilibrium market wage is:

A)W0, and the equilibrium market quantity of labour hired is L₀
B)W0, and the equilibrium market quantity of labour hired is L₁
C)W1, and the equilibrium market quantity of labour hired is L₁
D)W1, and the equilibrium market quantity of labour hired is L₀
E)W1, and the equilibrium market quantity of labour hired is L₂

Question 37

If an unemployed person stops looking for work, then, ceteris paribus:

A)the labour-force participation rate decreases
B)the size of the labour force falls
C)the labour-force participation rate increases
D)both A and B are correct

Question 38

The natural rate of unemployment is the rate of unemployment when the economy is in:

A)a recession
B)an expansion
C)neither a recession nor an expansion
D)either a recession or an expansion

Question 39

A recent accounting graduate from a major business school is searching for a place to begin his career as an accountant.This individual is:

A)structurally unemployed
B)seasonally unemployed
C)cyclically unemployed
D)frictionally unemployed

Question 40

Which of the following statements is correct about minimum wages?

A)Minimum wages are a predominant cause of unemployment in the economy
B)Minimum wages do not cause unemployment
C)Minimum wages have an important effect on certain groups with particularly high unemployment rates
D)Minimum wages are binding in every labour market equally

Question 41

Which of the following statements about unemployment benefits is correct?

A)Unemployment benefits reduce search efforts but raise unemployment
B)Unemployment benefits increase the income uncertainty that workers face
C)Unemployment benefits improve the ability of the economy to match each worker with the most appropriate job
D)Unemployment benefits do not protect workers against income loss

Question 42

Which of the following statements is an example of moral hazard?

A)A car driver with car insurance drives more safely
B)A babysitter allows children to watch more television than the children's parents would wish
C)Buyers of private health insurance know more about their own health problems than do health funds
D)Sellers of used cars know their cars' defects whereas buyers often do not

Question 43

Discuss the 'unionisation' debate.What are the positive and negative effects when a union raises the wage above the equilibrium level?

Question 44

Wages at a rate greater than the minimum level can:

A)create productivity gains if managed correctly
B)encourage higher quality candidates to apply for positions
C)encourage a labour surplus
D)all of the above

Question 45

Explain the worker-effort variant of efficiency wage theory with moral hazard.

Question 46

Identify the principal, the agent and the moral hazard inherent in each of the following situations.
a.In order to reduce personal injury claims, insurance companies successfully lobby legislators to pass laws requiring the use of seatbelts in automobiles.
b.A university provides free employee health insurance, which reduces the direct cost to the faculty and staff of visiting the doctor and the dentist.

Question 47

Who of the following would NOT be considered unemployed?

A)a new entrant to the labour force
B)a job leaver who is looking for a better job
C)an individual fired by her employer
D)a newly retired worker

Question 48

Suppose that a firm is faced with an excess supply of workers.What would the firm do? Explain with standard economic theory and with efficiency wage theory.

Question 49

If workers are paid efficiency wages, why is there unemployment?

Question 50

When a union raises the wage above the equilibrium level, ceteris paribus:

A)it reduces the quantity of labour supplied
B)it increases the quantity of labour demanded
C)it results in surplus of labour in the labour market
D)it decreases unemployment

Question 51

According to the job search explanation, why is there unemployment?

Question 52

Explain when minimum laws are binding and result in unemployment.

Question 53

In each of the following situations, explain why there is asymmetric information, and identify the problem of adverse selection.
a.The sale of life insurance
b.The sale of used computers

Question 54

Explain how a government policy encouraging a parent to stay at home with their young children would reduce unemployment.

Question 55

Which of the following does not cause unemployment?

A)Unions
B)Minimum wage laws
C)Job matching programs
D)Efficiency wages

Question 56

The population of country X is 20 million, the labour force participation is 60 per cent and the unemployment rate is five per cent.What is the labour force? How many people are unemployed in the economy?

Question 57

What is the distinction between the natural rate of unemployment and cyclical unemployment?

Question 58

In 2010 in Australia, 11.1497 million people were employed, and 0.629 million people were unemployed.The adult population was 18.014.150 million.Therefore, the labour force was:

A)5.92 million
B)11.012 million
C)11.778 million
D)16.324 million