Question 1

Unemployment rates for men and women normally are very similar. In the Great Recession of 2007- 09, the unemployment rate for men
A) remained roughly similar to that for women.
B) was slightly lower than that for women.
C) was much lower than that for women.
D) signiﬁcantly exceeded that for women.

Accepted Answer

During the Great Recession of 2007-09, the unemployment rate for men significantly exceeded that for women. This was due to the fact that the recession hit industries that are typically male-dominated harder, such as construction and manufacturing. In addition, women tend to have higher levels of education and work in industries that were less affected by the recession, such as healthcare and education.

Question 2

The downward stickiness of wages serves like a _____ in the labor market.
A) price ﬂoor
B) price ceiling
C) demand determinant
D) supply determinant

Accepted Answer

The downward stickiness of wages acts like a price floor in the labor market because it prevents wages from falling below a certain level, even in situations where market conditions might suggest lower wages.

Question 3

Okun's law indicates that for
A) every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 2 percent GDP gap is generated.
B) every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 5 percent GDP gap is generated.
C) a 5 percent GDP gap, a 1 percent increase in the natural unemployment rate is generated.
D) a 2 percent GDP gap, a 2 percent increase in the actual unemployment rate is generated.

Accepted Answer

Okun's law states that for every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 2 percent GDP gap is generated.

Question 4

If the natural rate of unemployment was 6 percent, the current unemployment rate was 10 percent, and the potential GDP was $4,000 billion, then according to Okun's law the economy would have
Sacriﬁced
A) $160 billion in output not produced.
B) $240 billion in output not produced.
C) $320 billion in output not produced.
D) $480 billion in output not produced.

Accepted Answer

Okun's law states that for every 1% increase in the unemployment rate above the natural rate, a country's GDP will be roughly an additional 2% lower than its potential GDP. The unemployment rate is 4% above the natural rate (10% - 6%), so the GDP is 8% below potential GDP. 8% of $4,000 billion is $320 billion.

Question 5

If the natural rate of unemployment is 4.5 percent and the actual unemployment rate is 6.5 percent, then Okun's law indicates that the GDP gap is
A) 2 percent.
B) 3 percent.
C) 4 percent.
D) 6 percent.

Accepted Answer

The answer of If the natural rate of unemployment is...

Question 6

The GDP gap measures the amount by which
A) nominal GDP exceeds real GDP.
B) actual GDP exceeds equilibrium GDP.
C) potential GDP exceeds actual GDP.
D) actual GDP exceeds national income.

Accepted Answer

The GDP gap measures the difference between potential GDP (the level of output that could be produced if all resources were utilized at their full potential) and actual GDP (the level of output that is actually produced in the economy). Therefore, option C is the correct answer. Option A is incorrect because it refers to the difference between nominal GDP (which includes the effects of inflation) and real GDP (which adjusts for inflation), not the GDP gap. Option B is incorrect because equilibrium GDP refers to the level of output that is consistent with aggregate demand and supply, which may or may not be the same as actual GDP. Option D is also incorrect because national income is a narrower concept than GDP (which includes all market transactions, including trade of intermediate goods), and therefore may not reflect the full gap between potential and actual output in the economy.

Question 7

When the economy goes into a recession and ﬁrms require less labor, managers tend to
A) reduce wages to reﬂect the lower demand for labor.
B) avoid cutting wages, for fear of drops in worker productivity.
C) lay off workers and keep wages of the remaining workers constant.
D) keep all of their workers by spreading work more thinly.

Accepted Answer

When firms require less labor during a recession, it is common for managers to lay off workers to reduce labor costs. Keeping the wages of the remaining workers constant can be done to maintain morale and productivity, but it is not always the case. Cutting wages may cause demotivation among the workers, and spreading work more thinly may lead to lower productivity and burnout. Therefore, laying off workers and keeping the wages of the remaining workers constant is often the most logical and effective course of action.

Question 8

The rate of unemployment tends to be lowest for
A) black teenagers.
B) white teenagers.
C) black adult males.
D) white adult males.

Accepted Answer

Historically, the rate of unemployment has been lower for white adult males compared to other demographic groups. This can be attributed to factors such as greater access to education and job opportunities, as well as social and cultural advantages. However, it is important to note that unemployment rates can vary widely depending on factors such as location, industry, and economic conditions.

Question 9

Potential GDP is the output that would be produced if the economy was experiencing
A) no unemployment.
B) free markets and international trade.
C) no inﬂation.
D) full employment.

Accepted Answer

Potential GDP is the maximum level of output that an economy can produce without triggering inflation. This output level is achieved when there is full employment, meaning that all available labor resources are being utilized. Therefore, the correct answer is D) full employment.

Question 10

Unemployment rates for skilled workers compared to unemployment rates for unskilled workers are
A) lower, because skilled workers tend to be employed in less cyclically vulnerable industries, such as the services and nondurable goods industries.
B) higher, because skilled workers tend to be employed in more cyclically vulnerable industries, such as the durable goods industry.
C) higher, because businesses are less likely to retain the more costly skilled workers no matter what type of industry.
D) lower, because skilled workers tend to be primarily employed by government at the local, state, and federal levels.

Accepted Answer

Skilled workers tend to be employed in less cyclically vulnerable industries, such as the services and nondurable goods industries, which results in lower unemployment rates than unskilled workers.

Question 11

The amount by which actual GDP falls short of potential GDP is one measure of the
A) natural rate of unemployment.
B) macroeconomic cost of unemployment.
C) difference between real and nominal GDP.
D) potential to produce outside the nation's PPC.

Accepted Answer

The amount by which actual GDP falls short of potential GDP is referred to as the "output gap." This output gap indicates the macroeconomic cost of unemployment because it means that the economy is not producing as much as it could, leading to lower employment opportunities and potentially lower living standards.

Question 12

Unemployment rates in the United States from 2007 to 2018 were in the range of
A) 4.1 percent to 9.3 percent.
B) 1.5 percent to 4.5 percent.
C) 9.8 percent to 12.4 percent.
D) 12.5 percent to 15.7 percent.

Accepted Answer

According to data from the Bureau of Labor Statistics, the unemployment rate in the United States from 2007 to 2018 ranged from a low of 4.1 percent in 2007 to a high of 9.3 percent in 2009. Therefore, the best choice is A - 4.1 percent to 9.3 percent.

Question 13

The full-employment unemployment rate for the United States economy is now generally considered to be
A) 2 percent of the labor force.
B) 6 percent of the labor force.
C) 4 to 5 percent of the labor force.
D) 8 to 9 percent of the labor force.

Accepted Answer

The full-employment unemployment rate, also known as the natural rate of unemployment, is the rate at which there is no cyclical unemployment and the economy is producing at its potential output. This rate is estimated to be around 4 to 5 percent of the labor force based on historical data and analysis by economists. Therefore, choice C is the best option. Choices A, B, and D are incorrect as they are either too low or too high compared to the estimated rate.

Question 14

If the unemployment rate for the U.S. economy rises from 7 to 11 percent during a year, we can conclude that
A) actual GDP exceeds potential GDP.
B) actual GDP is less than potential GDP.
C) the economy is experiencing only frictional unemployment.
D) the natural rate of unemployment for the U.S. economy has risen.

Accepted Answer

When the unemployment rate rises significantly, it typically indicates that the actual GDP (Gross Domestic Product) is less than the potential GDP. This is because a higher unemployment rate suggests that fewer people are employed and producing goods and services, leading to a gap between what the economy is currently producing (actual GDP) and what it could produce if all resources were fully utilized (potential GDP).

Question 15

If the GDP gap is positive, then
A) the inﬂation rate is falling.
B) the unemployment rate is rising.
C) potential GDP is greater than actual GDP.
D) actual GDP is greater than potential GDP.

Accepted Answer

A positive GDP gap indicates that the actual GDP is greater than the potential GDP, suggesting an economy that is overheating and could lead to inflationary pressures.

Question 16

If the actual rate of unemployment is above the natural rate of unemployment, then potential GDP is
A) equal to the GDP gap.
B) equal to actual GDP.
C) less than actual GDP.
D) greater than actual GDP.

Accepted Answer

When the actual rate of unemployment is above the natural rate, it indicates that not all resources (especially labor) are being utilized efficiently. This situation suggests that the economy could produce more if it were operating at full employment, meaning potential GDP (the maximum possible output with full employment of resources) is greater than actual GDP, which reflects current output levels.

Question 17

One labor market quirk that helps explain why unemployment goes up so much in a recession is that
A) a price ﬂoor called a "minimum wage law" exists for the labor market.
B) wages are ﬂexible upward but "sticky" downward.
C) ﬁrms are "demanders" of labor, rather than suppliers.
D) machines could "replace" humans in the labor market.

Accepted Answer

Wages tend to be "sticky" downward, meaning that they are slow to adjust downward even when there is a decrease in demand for labor. This results in firms laying off workers instead of decreasing wages, leading to an increase in unemployment during recessions.

Question 18

If the negative GDP gap were equal to 4 percent of the potential GDP, Okun's law suggests that the actual unemployment rate would exceed the natural rate of unemployment by
A) one percentage point.
B) two percentage points.
C) three percentage points.
D) four percentage points.

Accepted Answer

According to Okun's Law, for every 1 percent negative GDP gap, the actual unemployment rate exceeds the natural rate of unemployment by 2 percentage points. Therefore, with a negative GDP gap of 4 percent, the actual unemployment rate would exceed the natural rate of unemployment by 2 x 4 = 8 percentage points. However, the question asks how much it would exceed by, so we only need to consider the difference, which is 8 - 6 = 2 percentage points. Therefore, the answer is choice B.

Question 19

The higher the rate of unemployment,
A) the larger is the GDP gap.
B) the smaller is the GDP gap.
C) the higher is the level of actual GDP.
D) the lower is the level of potential GDP.

Accepted Answer

The GDP gap represents the difference between actual GDP and potential GDP. A higher rate of unemployment indicates that fewer people are working, which means that the economy is not producing at its full capacity, thus increasing the GDP gap.

Question 20

The rate of unemployment when the economy is at its potential output is called the
A) full-employment rate of unemployment.
B) natural rate of unemployment.
C) structural rate of unemployment.
D) frictional rate of unemployment.

Accepted Answer

When an economy is at its potential output, there will still be some level of unemployment due to factors such as job search and matching, and structural changes in the economy. This level of unemployment that occurs even when the economy is at full capacity is known as the natural rate of unemployment. Therefore, the correct answer is B) natural rate of unemployment.

Quiz 9: Business Cycles, Unemployment, and Inflation

Unemployment rates for men and women normally are very similar. In the Great Recession of 2007- 09, the unemployment rate for men

The downward stickiness of wages serves like a _____ in the labor market.

Okun's law indicates that for

If the natural rate of unemployment was 6 percent, the current unemployment rate was 10 percent, and the potential GDP was $4,000 billion, then according to Okun's law the economy would have Sacriﬁced

If the natural rate of unemployment is 4.5 percent and the actual unemployment rate is 6.5 percent, then Okun's law indicates that the GDP gap is

The GDP gap measures the amount by which

When the economy goes into a recession and ﬁrms require less labor, managers tend to

The rate of unemployment tends to be lowest for

Potential GDP is the output that would be produced if the economy was experiencing

Unemployment rates for skilled workers compared to unemployment rates for unskilled workers are

The amount by which actual GDP falls short of potential GDP is one measure of the

Unemployment rates in the United States from 2007 to 2018 were in the range of

The full-employment unemployment rate for the United States economy is now generally considered to be

If the unemployment rate for the U.S. economy rises from 7 to 11 percent during a year, we can conclude that

If the GDP gap is positive, then

If the actual rate of unemployment is above the natural rate of unemployment, then potential GDP is

One labor market quirk that helps explain why unemployment goes up so much in a recession is that

If the negative GDP gap were equal to 4 percent of the potential GDP, Okun's law suggests that the actual unemployment rate would exceed the natural rate of unemployment by

The higher the rate of unemployment,

The rate of unemployment when the economy is at its potential output is called the