Question 1

The natural rate of unemployment is the unemployment rate during a period of full employment.

Accepted Answer

The natural rate of unemployment refers to the level of unemployment consistent with a stable rate of inflation, occurring when the labor market is in equilibrium, typically including frictional and structural unemployment but excluding cyclical unemployment, thus representing a situation of full employment in economic terms.

Question 2

Related to the Economics in Practice on p. 447: In the U.S. from 1955 to 1996, the labor force participation rate increased for ________ and decreased for ________.

Accepted Answer

From 1955 to 1996, the labor force participation rate increased for women, while it decreased for men.

Question 3

If discouraged workers were counted as unemployed, the measured unemployment rate would increase.

Accepted Answer

Discouraged workers are those who have given up looking for work because they believe there are no job opportunities available for them. They are not included in the labor force and therefore not counted as unemployed. If they were included, the number of unemployed people would increase, and as a result, the unemployment rate would also increase.

Question 4

Anyone 16 years of age or older who is not classified as employed is classified as unemployed.

Accepted Answer

To be classified as unemployed, a person must be 16 years of age or older, not working, but actively looking for work and available to start work. Simply not being employed does not automatically classify someone as unemployed; they must also be seeking employment.

Question 5

Any unemployment that is above frictional plus structural is called cyclical unemployment.

Accepted Answer

This statement is true. Frictional and structural unemployment are considered to be "natural" rates of unemployment that will always exist to some degree. Cyclical unemployment, on the other hand, is caused by downturns in the business cycle and is above and beyond these natural rates.

Question 6

When more people who are not working start looking for jobs, the labor-force participation rate increases.

Accepted Answer

The labor-force participation rate is calculated by dividing the number of people in the labor force (employed and unemployed) by the total number of people of working age. Therefore, when more people who are not working (i.e. unemployed) start looking for jobs, they are considered part of the labor force and the labor-force participation rate increases.

Question 7

The natural rate of unemployment in the economy is determined by the Congress and the president of the country.

Accepted Answer

The natural rate of unemployment is determined by structural, technological, and demographic factors in the economy and is not directly controlled by the Congress or the president. However, policies and decisions made by these government bodies can indirectly affect the natural rate of unemployment.

Question 8

If labor markets were perfectly efficient, the employment rate would rise to 100%.

Accepted Answer

Even in perfectly efficient labor markets, there will always be some level of unemployment due to factors such as frictional unemployment (temporary unemployment while searching for a job) and structural unemployment (mismatches between the skills of job seekers and the available jobs).

Question 9

A decrease in search costs will decrease cyclical unemployment.

Accepted Answer

A decrease in search costs makes it easier for job seekers to find work and for employers to find suitable employees, potentially reducing frictional unemployment, not cyclical unemployment, which is related to the ups and downs of the economy.

Question 10

Related to the Economics in Practice on p. 448: Compared to students who graduate college and obtain employment during a recession, students who graduate during an economic expansion often find that starting wages are ________ and wage growth is ________.

Accepted Answer

During an economic expansion, there is typically higher demand for labor, leading to higher starting wages and faster wage growth compared to a recession.

Question 11

The natural rate of unemployment is cyclical plus frictional unemployment.

Accepted Answer

The natural rate of unemployment includes only frictional and structural unemployment, and not cyclical unemployment.

Question 12

An unemployment rate of 10% means that the employment rate is 90%.

Accepted Answer

This is correct as the unemployment rate is calculated by taking the number of unemployed individuals divided by the total labor force. Therefore, if 10% are unemployed, then 90% must be employed.

Question 13

Anyone 16 years of age or older who is not classified as employed is still a member of the labor force.

Accepted Answer

The labor force consists of those who are employed and those who are unemployed but seeking work. Simply being 16 years of age or older and not employed does not automatically include someone in the labor force; they must also be actively seeking employment.

Question 14

If labor markets were perfectly efficient, the unemployment rate would fall to zero.

Accepted Answer

Even in perfectly efficient labor markets, there will always be some degree of frictional and structural unemployment due to factors such as job mismatch, geographic or informational barriers, and time delays in job search and hiring processes.

Question 15

The natural rate of unemployment varies based on inflation rates.

Accepted Answer

The natural rate of unemployment is the rate at which the labor market is in equilibrium and there is no cyclical unemployment. It is not directly related to inflation rates, but can be influenced by factors such as demographics, technology, and labor market institutions.

Question 16

Related to the Economics in Practice on p. 447: If the number of women entering the labor force is equal to the number of men leaving the labor force, the labor force participation rate will, ceteris paribus

Accepted Answer

If the number of women entering the labor force exactly balances the number of men leaving the labor force, then the labor force participation rate will not change. This is because the numerator (number of people in the labor force) and the denominator (total population) will remain the same, and therefore the ratio (labor force participation rate) will remain the same as well.

Question 17

An unemployment rate of 10% means that the average worker has been unemployed for 10% of the year.

Accepted Answer

An unemployment rate of 10% means that 10% of the total workforce is unemployed, not that the average worker has been unemployed for 10% of the year.

Question 18

The type of unemployment most closely related to recessions is cyclical unemployment.

Accepted Answer

Cyclical unemployment is caused by changes in the business cycle, which includes recessions. During a recession, many companies lay off workers, leading to an increase in cyclical unemployment.

Question 19

An increase in search costs will decrease structural unemployment.

Accepted Answer

An increase in search costs will make it more difficult for job seekers to find suitable job openings, thus potentially increasing structural unemployment by prolonging the job search process.

Question 20

In which of the following conditions is the inflation rate likely to fall and the unemployment rate likely to rise?

Accepted Answer

In a recession, demand for goods and services falls, leading to a decrease in prices (deflation) and lower inflation rates. However, the decrease in demand also leads to lower production, which can cause companies to lay off workers and lead to higher unemployment rates.

Quiz 22: Unemployment, Inflation, and Long-Run Growth