Econ Exam 3 Ch 7 Sample quiz

If the rate of job separation is 0.02 per month and the rate of job finding is 0.10 per month, what is the natural rate of unemployment?

16.67 percent

If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be: A) 0.08. B) 0.125. C) 0.22. D) 0.435.

A) 0.08

Suppose that over the course of a year 100 people are unemployed for 4 weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total spells of unemployment were attributable to the long-term unemployed? A) 9 percent. B) 10 percent. C) 43.5 percent. D) 56.5 percent.

A) 9 percent

All of the following are reasons for frictional unemployment except: A) workers have different preferences and abilities. B) unemployed workers accept the first job offer that they receive. C) the flow of information is imperfect. D) geographic mobility takes time.

B) unemployed workers accept the first job offer that they recieve

The macroeconomic problem that affects individuals most directly and severely is: A) inflation. B) unemployment. C) low savings. D) low investment.

B) unemployment

Sectoral shifts: A) lead to wage rigidity. B) explain the payment of efficiency wages. C) depend on the level of the minimum wage. D) make frictional employment inevitable.

D) make frictional employment inevitable

Unions contribute to structural unemployment when collective bargaining results in wages: A) above the equilibrium level. B) below the minimum wage. C) below the equilibrium level. D) above the level of unemployment compensation.

A) above the equilibrium level

If wage rigidity holds the real wage above the equilibrium level, an increase in the supply of labor will ______ the number unemployed. A) increase B) decrease C) not change D) possibly increase, decrease, or leave unchanged

A) increase

When insiders have a much greater impact on the wage-bargaining process than do outsiders, the negotiated wage is likely to be ______ the equilibrium wage. A) much greater than B) much less than C) almost equal to D) about one-half of

A) much greater than

Assume that a country experiences a reduction in productivity that shifts the labor demand curve downward and to the left. If the real wage were rigid, this would lead to: A) no change in the real wage and a rise in unemployment. B) no change in the real wage and no change in unemployment. C) no change in the real wage and a fall in unemployment. D) a decrease in the real wage.

A) no change in the real wage and a rise in unemployment

The natural rate of unemployment is: A) the average rate of unemployment around which the economy fluctuates. B) about 10 percent of the labor force. C) a rate that never changes. D) the transition of individuals between employment and unemployment.

A) the average rate of unemployment

When the real wage is above the level that equilibrates supply and demand: A) the quantity of labor supplied exceeds the quantity demanded. B) the quantity of labor demanded exceeds the quantity supplied. C) there is no unemployment. D) the labor market clears.

A) the quantity of labor supplied exceeds the quantity demanded

Spells of unemployment end when the unemployed person finds a job or: A) withdraws from the labor force. B) enters the labor force. C) runs out of unemployment insurance compensation. D) refuses to answer unemployment survey questions.

A) withdraws from the labor force

If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals ______ percent (rounded to the nearest percent). A) 0 B) 9 C) 10 D) 20

B) 9

If wage rigidity holds the real wage above the equilibrium level, an increase in the demand for labor will ______ the number unemployed. A) increase B) decrease C) not change D) possibly increase, decrease, or leave unchanged

B) decrease

In the case of unions, the conflict of interest between different groups of workers results in insiders wanting ______, while outsiders want ______. A) more hirings; high wages B) high wages; more hirings C) high wages; fewer hirings D) fewer hirings; high wages

B) high wages; more hirings

Discouraged workers are counted as: A) part of the labor force. B) out of the labor force. C) employed. D) unemployed.

B) out of the labor force

Economists call the changes in the composition of demand among industries and regions: A) insider-outsider conflicts. B) sectoral shifts. C) moral hazard. D) adverse selection.

B) sectoral shifts

Most spells of unemployment are ______ term, and most weeks of unemployment are attributable to ______-term unemployment. A) short; short B) short; long C) long; long D) long; short

B) short; long

Policies to substantially reduce the natural rate of unemployment should be targeted at: A) the short-term unemployed. B) the long-term unemployed C) discouraged workers. D) insiders and outsiders.

B) the long-term unemployed

In a steady state: A) no hiring or firings are occurring. B) the number of people finding jobs equals the number of people losing jobs. C) the number of people finding jobs exceeds the number of people losing jobs. D) the number of people losing jobs exceeds the number of people finding jobs.

B) the number of people finding jobs equals the number of people losing jobs

A policy that increases the job-finding rate _____ the natural rate of unemployment. A) will increase B) will decrease C) will not change D) could either increase or decrease

B) will decrease

If the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.01 and the fraction of the unemployed who find a job each month is 0.09 (the rate of job findings), then the natural rate of unemployment is: A) 1 percent. B) 9 percent. C) 10 percent. D) about 11 percent.

C) 10 percent

If the rate of separation is 0.02 and the rate of job finding is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is ______ the equilibrium rate, and in the next period it will move ______ the equilibrium rate. A) above; toward B) above; away from C) below; toward D) below; away from

C) below; toward

Paying efficiency wages helps firms reduce the problem of moral hazard by: A) generating additional profits that can be used to improve working conditions. B) matching the wages each worker is paid to the number of units of output each worker produces. C) encouraging unsupervised workers to maintain a high level of productivity. D) providing an incentive for the best-qualified workers to remain with the firm.

C) encourage unsupervised workers to maintain a high level of productivity

Wage rigidity: A) forces labor demand to equal labor supply. B) is caused by sectoral shifts. C) prevents labor demand and labor supply from reaching the equilibrium level. D) increases the rate of job finding.

C) prevents labor demand and labor supply from reaching the equilibrium level

Any policy aimed at lowering the natural rate of unemployment must either ______ the rate of job separation or ______ the rate of job finding. A) reduce; reduce B) increase; increase C) reduce; increase D) increase; reduce

C) reduce; increase

When there is structural unemployment, the real wage is: A) rigid at a level below the market-clearing level. B) rigid at the market-clearing level. C) rigid at a level above the market-clearing level. D) flexible.

C) rigid at a level above the market-clearing level

When an economy enters expansion, the unemployment rate first increases and then decreases. Why does this happen?

discouraged workers are counted out of the labor force. when the economy moves into expansion, these discouraged workers start actively looking for a job and will be counted in the labor force as unemployed workers. Therefore this phenomenon first increases the unemployment rate even if the economy is expanding

A policy that decreases the job separation rate _____ the natural rate of unemployment. A) will increase B) will decrease C) will not change D) could either increase or decrease

B) will decrease

Which of the following is the best example of structural unemployment? A) Tim is looking for a job with flexible hours but has not been offered one yet. B) Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer-generated animation. C) Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available. D) Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has 2 months of unemployment insurance benefits left.

C) Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available

Explain how paying efficiency wages can help employers overcome both moral hazard and adverse selection problems in employment.

Efficiency wages are wages above the market-clearing level. Higher-than-equilibrium wages give the best workers more incentive to stay with the firm, thereby reducing the adverse selection problem of an employer not being able to clearly distinguish good workers from poor workers. Higher-than-equilibrium wages give workers greater incentive to avoid shirking, a moral hazard problem when workers are not easily monitored, by increasing the penalty of being caught not working

"The unemployment rate can be reduced by decreasing the rate of job separation and increasing the rate of job finding." What measures can government take to help control these rates? Give one example for each.

Government can control the rate of job separation by using a 100 percent experience rated unemployment insurance program. The rate of job finding can be increased by reducing the time duration of unemployment insurance

Reducing the natural rate of unemployment requires reducing the rate of job separation and increasing the rate of job finding. Explain at least one policy that will impact each of these aspects of the natural rate of unemployment.

Policies that could improve job finding include government employment agencies, job training programs, and reducing the amount and duration of unemployment benefits. A policy to reduce the rate of job separation could be to make unemployment insurance 100% experience rate. This increases the cost of temporarily laying off employees and could reduce the job separation rate

In an economy, if 5 percent of the employed lose their job every month (s = 0.05) while 15 percent of the unemployed find a job every month (f = 0.15), what is the steady rate of unemployment of the economy?

The rate of unemployment in that economy is 25 percent

Explain how technological changes that have reduced the demand for low-skilled workers can change the natural rate of unemployment.

The reduction in the demand for low-skilled workers will reduce the equilibrium real wage. The greater disparity between a rigid wage and the equilibrium wage, the greater the excess supply of labor and the higher the unemployment rate

If a country has a higher unionization rate, will that lead to a higher unemployment rate also?

Unions ensure that most of the employees are able to keep their jobs and get higher wages, but due to this, the number of jobs available declines as employers are reluctant to increase the number of employees, so the unemployment rate will be higher

The model of the steady-state rate of unemployment assumes that the size of the labor force is fixed. If the size of the labor force is allowed to vary: a. explain how the job-loss and job-finding processes will differ from the situation when the labor force is fixed. b. explain how interpretations of changes in the unemployment rate will become less clear?

a. with a varying labor force, job finders will include both the unemployed who find jobs and the new entrants into the labor market. Similarly, job losers will include the unemployed as well as those who leave the labor force b. a decrease in the unemployment rate could result from some combination of (1) fewer unemployed people because the previously unemployed found jobs, (2) fewer unemployed people because previously employed people left the labor force, or (3) an increase in the size of the labor force while the number of unemployed people remains unchanged

One efficiency-wage theory implies that firms pay high wages because: A) this practice increases the problem of moral hazard. B) in wealthy countries, it is important to pay workers high wages to improve their health. C) the more a firm pays its workers, the greater their incentive to stay with the firm. D) paying high wages promotes adverse selection.

C) the more a firm pays its workers, the greater their incentive to stay with the firm

Frictional unemployment is unemployment caused by: A) wage rigidity. B) minimum-wage legislation. C) the time it takes workers to search for a job. D) clashes between the motives of insiders and outsiders.

C) the time it takes workers to search for a job

All of the following are causes of structural unemployment except: A) minimum-wage laws. B) the monopoly power of unions. C) unemployment insurance. D) efficiency wages.

C) unemployment insurance

If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be: A) 0.02. B) 0.08. C) 0.10. D) 0.18.

D) 0.18

Suppose that over the course of a year 100 people are unemployed for 4 weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total weeks of unemployment were attributable to the long-term unemployed? A) 9 percent. B) 10 percent. C) 43.5 percent. D) 56.5 percent.

D) 56.5 percent

Short-term unemployment is most likely to be ______ unemployment, while long-term unemployment is mostly likely to be _____ unemployment. A) structural; frictional B) structural; the natural rate of C) the natural rate of; frictional D) frictional; structural

D) frictional; structural

Assume that a country experiences a reduction in productivity that lowers the marginal product of labor for any given level of labor. In this case, the: A) labor supply curve shifts to the right. B) labor supply curve shifts to the left. C) labor demand curve shifts upward and to the right. D) labor demand curve shifts downward and to the left.

D) labor demand curve shifts downward and to the left

Paying efficiency wages helps firms reduce the problem of adverse selection by: A) generating additional profits that can be used to pay for more proficient hiring managers. B) keeping labor unions from organizing workers in the firm. C) encouraging unsupervised workers to maintain a high level of productivity. D) providing an incentive for the best-qualified workers to remain with the firm.

D) providing an incentive for the best-qualified workers to remain with the firm

Efficiency-wage theories suggest that a firm may pay workers more than the market-clearing wage for all of the following reasons except to: A) reduce labor turnover. B) improve the quality of the firm's labor force. C) increase worker effort. D) reduce the firm's wage bill.

D) reduce the firm's wage bill

Unemployment insurance increases the amount of frictional unemployment by: A) making workers more frantic in their search for new jobs. B) inducing workers to accept the first job offer that they receive. C) making employers more reluctant to lay off workers. D) softening the economic hardship of unemployment.

D) softening the economic hardship of unemployment

The unemployment resulting when real wages are held above equilibrium is called ______ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called ______ unemployment. A) efficiency; inefficiency B) efficiency; structural C) frictional; efficiency D) structural; frictional

D) structural; frictional

In the model of the steady-state unemployment rate with a fixed labor force, the rate of job finding equals the percentage of the ______ who find a job each month, while the rate of job separation equals the percentage of the ______ who lose their job each month. A) labor force; labor force B) labor force; unemployed C) employed; labor force D) unemployed; employed

D) unemployed; employed

Assume that the real wage in an economy is held above equilibrium. a. Graphically illustrate how an increase in technology that raises the demand for labor will change the number of unemployed workers. Be sure to label the axes and the quantities of labor hired before and after the technological progress. b. Explain in words what happens to the number of unemployed as a result of this change

b. the number of unemployed falls from (L-L1) to (L-L2)