Question 1

The nonlabor income of households will decrease, causing consumption to decrease and labor supply to increase, if the government

Accepted Answer

If the government increases the corporate profits tax, businesses will have less income to distribute to shareholders in the form of dividends or to reinvest back into the business. This decrease in income will result in households having less nonlabor income, causing them to spend less on consumption. With less nonlabor income, households may also decide to increase their labor supply by working more hours or taking on additional jobs to compensate for the loss of income.

Question 2

The decline in the measured unemployment rate that results when people who want to work, but who cannot find work, drop out of the ranks of the unemployed and the labor force is the

Accepted Answer

The described situation is called the discouraged-worker effect, where individuals who desire employment but have given up actively searching for work are no longer counted in the labor force, leading to a decrease in the measured unemployment rate. The other options are not applicable to this situation. The leisure-preference effect suggests that individuals choose to have more leisure time instead of working, whereas the surplus labor effect and disguised unemployment effect refer to situations where there is too much labor supply and inefficiencies in the allocation of labor, respectively.

Question 3

The employment rate is the ratio of the number of people

Accepted Answer

The employment rate is the ratio of the number of people who are employed (i.e., have a job) to the number of people who are in the labor force (i.e., either employed or unemployed but actively seeking employment). Therefore, option D is the correct answer. Option A is incorrect because it does not take into account those who are employed. Option B is incorrect because it includes those who are not in the labor force, and option C is incorrect because it does not include the unemployed.

Question 4

In general, the relationship between output and unemployment

Accepted Answer

The answer of In general, the relationship between output and...

Question 5

As the economy expands, the labor force ________, and as the economy contracts, the labor force ________.

Accepted Answer

When the economy expands, businesses need to hire more workers to keep up with the increased demand for goods and services, which leads to an increase in the labor force. Conversely, when the economy contracts, businesses may need to lay off workers to cut costs, which results in a decrease in the labor force.

Question 6

The measured unemployment rate does not fall as much as one might expect when output increases because, as the economy expands,

Accepted Answer

When the economy expands, more people become optimistic about finding work and enter the labor force in search of jobs. Therefore, despite an increase in output, the unemployment rate does not fall as much as one might expect.

Question 7

The slippage between output and the unemployment rate occurs because the unemployment rate is calculated from data on

Accepted Answer

The answer of The slippage between output and the unemployment...

Question 8

The nonlabor income of households will increase, causing consumption to increase and labor supply to decrease, if the government

Accepted Answer

Decreasing the corporate profits tax would increase the nonlabor income of households since corporations would have more after-tax profits to distribute to shareholders as dividends, and this would likely lead to an increase in consumption. However, since nonlabor income would increase, labor supply might decrease as individuals have less incentive to work. Choices B, C, and D would likely have the opposite effect on nonlabor income and consumption.

Question 9

Which of the following is not one of the "slippages" between changes in output and changes in the unemployment rate?

Accepted Answer

While changes in the labor force can impact the unemployment rate, changes in the size of the labor force do not directly cause changes in the interest rate or output. Therefore, option A is not one of the "slippages" between changes in output and changes in the unemployment rate.

Question 10

If the employment rate is 93%, then the unemployment rate is

Accepted Answer

Since employment and unemployment are complementary, if the employment rate is 93%, then the unemployment rate must be 100% - 93% = 7%. Therefore, the answer is choice A.

Question 11

If the number of people employed is 190 million and the number of people in the labor force is 200 million, then the employment rate is

Accepted Answer

The employment rate is calculated by dividing the number of employed people by the total labor force and multiplying by 100%.

Employment rate = (number employed / labor force) x 100%

Substituting the given values,

Employment rate = (190 million / 200 million) x 100%
= 0.95 x 100%
= 95%

Therefore, the employment rate is 95%, which means that 95% of the people in the labor force are currently employed.

Question 12

According to Okun's Law, if GDP increased by 6%, the unemployment rate would decrease by

Accepted Answer

Okun's Law states that for every 1% increase in GDP above its potential level, the unemployment rate decreases by 2 percentage points. Therefore, a 6% increase in GDP would lead to a decrease in the unemployment rate of 2 x 6 = 12 percentage points. However, since the current unemployment rate is not at its natural rate, the decrease would be less than 12 percentage points. Typically, economists estimate that the natural rate of unemployment in the US is around 4-5%. Therefore, a 6% increase in GDP would lead to a decrease in the unemployment rate of around 2 percentage points.

Question 13

An increase in output will cause the unemployment rate to fall by a larger percentage if

Accepted Answer

If firms are already at full capacity and not holding excess labor, then an increase in output will require them to hire more workers, leading to a larger reduction in unemployment. Option A is incorrect because firms with excess labor may simply increase the hours worked by their current workforce instead of hiring additional employees. Option C is incorrect because overworking their current workforce can lead to burnout, high turnover, and decreased productivity. Option D is incorrect because hiring workers who were already employed by other firms may just create job vacancies at the original firms, leading to little net change in overall unemployment.

Question 14

If Okun's Law holds true, then a 9% increase in GDP would lead to a ________ percentage point decrease in the unemployment rate.

Accepted Answer

According to Okun's Law, for every 1% increase in GDP, there is a 3% decrease in the unemployment rate. Therefore, a 9% increase in GDP would lead to a 27% decrease in the unemployment rate, which is a decrease of 3 percentage points. Therefore, the correct answer is C.

Question 15

The unemployment rate is

Accepted Answer

The unemployment rate is calculated as the number of unemployed individuals divided by the total labor force. Therefore, it is expressed as a percentage that represents the proportion of the labor force that is unemployed. The formula used to calculate the unemployment rate is U = (unemployed workers / labor force) x 100. As a result, the unemployment rate is equal to one minus the employment rate, making choice C the correct answer.

Question 16

People who have two jobs,

Accepted Answer

People with two jobs are counted for each job they hold in job data, reflecting the total number of jobs in the economy. However, in the persons-employed data, they are only counted once, as this data reflects the number of individuals employed, regardless of how many jobs they have.

Question 17

Although the relationship between output and the unemployment rate is not as simple as Okun's Law represents it to be, it is true that

Accepted Answer

Okun's Law suggests that a 1% increase in output (or GDP) typically corresponds to a less than 1% decrease in the unemployment rate, indicating a proportional but not equal relationship between output growth and reductions in unemployment.

Question 18

If discouraged workers were counted as unemployed, then as output increased the unemployment rate would

Accepted Answer

When output increases, it typically leads to job creation, encouraging discouraged workers to re-enter the labor force and start looking for work again. If these re-entering workers are immediately counted as unemployed (since they don't have a job yet but are actively looking), the unemployment rate would temporarily show a smaller decrease or even an increase, because the denominator (labor force) increases with the addition of discouraged workers now counted as unemployed. However, since the question assumes these individuals are counted as unemployed from the start, their transition into employment as output increases would lead to a more significant decrease in the unemployment rate compared to a scenario where they are not counted at all. This is because their employment directly reduces the number of unemployed in the calculation, without the initial increase in the unemployment rate when they first re-enter the labor force and start looking for jobs.

Question 19

Okun's Law has

Accepted Answer

While there is some evidence to support Okun's Law, it is not a strict law and there are many other factors that can influence the unemployment rate beyond just changes in GDP. Additionally, the relationship between changes in GDP and the unemployment rate can vary depending on the specific time period and country being analyzed. Therefore, Option C is the best choice as it acknowledges the limitations of Okun's Law.

Question 20

Okun's Law states that the unemployment rate decreases about

Accepted Answer

Okun's Law posits that for every 1% increase in the unemployment rate, a country's GDP will be roughly an additional 2% to 3% lower than its potential GDP. Therefore, the inverse relationship suggested in option C, where the unemployment rate decreases by about 1 percentage point for every 3% increase in GDP, aligns with the general understanding of Okun's Law.

Quiz 30: Household and Firm Behavior in the Macroeconomy: a Further Look