Chapter 11.6 Cyclical Unemployment

After a recession, it typically takes:

longer for the unemployment rate to return to pre-recession levels than for the growth rate to do so

Minimum wages and union contracts:

slow the labor market adjustment process in response to a recession

One of the reasons that employers are reluctant to reduce nominal wages is:

the fear of reducing morale

In what way is the labor market different from the market for apples when there is unemployment?

The price of labor, wages, is sticky

What would happen in a product market if the quantity supplied exceeded the quantity demanded?

The price of the good would fall

What is the first and most obvious reason that low growth is usually accompanied by high unemployment?

When GDP is falling or growing slowly, firms may lay off workers

What is the second and more subtle reason that low growth is usually accompanied by high unemployment?

When workers are sitting idle, so is capital, so the economy is not growing as quickly as it could

Cyclical unemployment is:

correlated with the ups and downs of the business cycle

Does the data support the notion that wages are sticky

The data supports the notion that wages are sticky in the downward direction

The natural rate of unemployment is the rate of unemployment that would occur if there were no:

cyclical unemployment