Macroeconomics (ECON 2120) Chapter 9 Employment and Unemployment

34) Refer to the figure above. If there is downward wage rigidity in the market, what is the wage rate at which wages will be held, everything else remaining unchanged?

$25

14) Refer to the figure above. What is the equilibrium wage rate and equilibrium level of employment?

$25 and 20 hours per week per person

39) Refer to the figure above. What is the equilibrium wage rate and employment level after the labor demand curve shifts to LD2?

$40 and 30 hours per week per person

41) Refer to the figure above. Everything else remaining unchanged, at what rate will the wage be held if there is downward wage rigidity in the market, when the demand curve shifts to LD2?

$50

5) The value of marginal product of the tenth worker hired by a firm is $50. What is the maximum wage that should be paid to the worker?

$50

38) Refer to the figure above. What is the initial equilibrium wage rate and employment level?

$50 and 40 hours per week per person

17) Which of the following equations is correct?

Adults not in the labor force = potential adult workers - employed workers - unemployed workers

15) Which of the following equations is correct?

Adults not in the labor force = potential adult workers - labor force

7) Which of the following groups of people will be considered as unemployed?

Agricultural workers who are unemployed and have been looking for jobs for the last four weeks

37) Which of the following statements is true?

All else equal, the incentive to look for a job is lower for an individual with a lower opportunity cost of time.

22) Which of the following is likely to shift the demand curve for engineers rightward, assuming all else equal?

An increase in the productivity of engineers

52) a. Everything else remaining unchanged, what is likely to happen to the demand curve for coffee workers if: i. there is a fall in the price of coffee. ii. there is an increase in the wage rate. iii. there is a rise in the price of coffee seeds. iv. a new fertilizer that increases the productivity of coffee farmers is invented. b. Everything else remaining unchanged, what is likely to happen to the supply curve of female workers if: i. the opportunity cost of working outside home decreases. ii. there is an increase in the wage rates.

Answer: A i. A decrease in the price of coffee reduces the value of marginal product of coffee workers. Therefore, the demand curve for coffee workers shifts to the left. ii. If there is an increase in the wage rate, the quantity demanded of coffee workers will decrease. This will cause a upward movement along the demand curve for coffee workers. iii. An increase in the price of coffee seeds is likely to result in a decrease in the marginal product of coffee farmers. This in turn will cause a leftward shift in the demand curve for coffee workers. iv. If a new fertilizer that increases the productivity of coffee farmers is invented, it will increase the value of marginal product of coffee workers. This will cause a rightward shift in the demand curve for coffee workers. B i. If the opportunity cost of working outside home decreases, it implies that there is a reduction in the time consumed on household chores. This encourages workers to shift more time out of home production into paid employment. This will increase the supply of female workers at all wage rates. The change will cause a rightward movement in the supply curve of women workers. ii. If there is an increase in the wage rate, there will be an increase in the quantity supplied of women workers. This will cause an upward movement along the supply curve of female workers.

What is downward wage rigidity?

Answer: Downward wage rigidity refers to the phenomena where workers resist a cut in their wages. When downward wage rigidity exists, last year's wage acts as a wage floor for current wages.

50) How do efficiency wages help increase a firm's profits?

Answer: Efficiency wages are wages offered above the wage that workers would accept, where the premium is paid to increase worker productivity. It helps increase a firm's profits in a number of ways. Some of these are: 1. Efficiency wages reduce worker turnover. 2. Risk of losing a high-paying job motivates employees to work harder than they otherwise would. 3. There is a possibility that employees are grateful for receiving an above-market wage, leading them to work harder.

27) Which of the following statements is true?

Both efficiency wages and minimum wages increase unemployment.

42) Which of the following statements is true?

Both employees and employers have complete information about each other in a frictionless labor market.

14) Refer to the scenario above. What is the size of the labor force in the economy?

4 million

26) If the labor force participation rate in an economy is 50%, and there are 100 million potential adult workers in the economy, the size of the labor force in the economy will equal:

50 million.

25) If there are 48 million people in a country's labor force, and the number of potential adult workers in the country is 80 million, the labor force participation rate in the economy is:

60 percent.

19) If the number of employed workers in an economy is 4 million, the number of unemployed people in the economy is 2 million, and the number of adults not in the labor force is 1 million, the potential adult workers in the economy is:

7 million.

18) If the number of potential workers in a country is 25 million, and the size of the labor force in the country is 17 million, the number of adults not in the work force will equal:

8 million.

1) Which of the following is a part of the potential work force of a country?

Civilian non-institutionalized people aged 16 years and above

48) Which of the following is true of cyclical unemployment?

Cyclical unemployment is the deviation of unemployment from its natural rate.

40) Which of the following statements is true of a frictionless labor market?

Firms can instantly hire and fire workers.

33) Which of the following statements is true?

Firms usually tend to lay off workers than cut wages to reduce costs.

4) Which of the following groups of people will NOT be considered as employed?

Housewives raising kids at home

8) Which of the following groups of people will be considered as unemployed?

Housewives who do not have a job but have been actively looking for jobs for the last two months

c. If engineers unionize themselves and negotiate a wage that is $30 higher than the market clearing wage, what will be the impact on the employment level?

If engineers form a union and bargain for wages $30 above the equilibrium wage, 60 engineers would be willing to work but the firms would not hire any engineer. This will result in unemployment. Extent of unemployment = 60 - 0 = 60 engineers. Hence, 60 engineers will be unemployed in the market.

b. If the government thinks that engineers are underpaid in the country and fixes a minimum wage of $50 per hour, what will be the impact on the level of employment?

If the government fixes a minimum wage at $50 per hour, which is higher than the equilibrium wage rate, the quantity supplied of engineers will exceed the quantity demanded of engineers. This will cause unemployment. The extent of unemployment = 40 - 20 = 20 engineers. 20 engineers will be unemployed if the government fixes a minimum wage at $50 per hour.

35) Which of the following statement is true?

In the last thirty years, the unemployment rate in the U.S. has never gone below 3%.

8) Which of the following explains why frictional unemployment exists in an economy?

It arises because it takes time for an unemployed worker to find a firm with a well-matched job vacancy.

20) What will happen to the demand curve for workers in steel mills if some technology that increases their productivity is introduced assuming all else equal?

It may cause a rightward shift in the demand curve of the workers.

33) Which of the following statements is true of the unemployment rate in a country?

It normally decreases during periods of economic expansion and increases during periods of economic contraction.

4) Which of the following statements is true?

Job search refers to the activities that workers undertake to find appropriate jobs.

2) Which of the following statements is true?

Lack of information relating to the job market can lead to unemployment.

36) Which of the following statements is true when wages are above the market clearing wage?

The larger the gap between the current market wage and the market clearing wage, greater will be the amount of unemployment.

34) Which of the following statements is true of unemployment?

The rate of unemployment is positive in any well-functioning economy.

6) Which of the following statements is true?

There always exists some amount of unemployment in an economy.

19) What will happen to the demand curve for workers in cotton farms if the price of cotton falls, assuming all else equal?

There will be a leftward shift in the demand curve for these workers.

18) What will happen to the demand curve for tea workers if the price of tea increases, assuming all else equal?

There will be a rightward shift in the demand curve for tea workers.

29) Which of the following statements correctly differentiates between unemployed workers and discouraged workers?

Unemployed workers are counted in the labor force, but discouraged workers are excluded from the labor force.

36) Which of the following statements is true?

Unemployment rate is higher among groups with lower educational attainment.

44) Which of the following statements is true?

Unemployment will be higher if there is a leftward shift in the labor demand curve and there is downward wage rigidity in the labor market, everything else remaining unchanged.

8) The labor demand curve represents the relationship between the quantity of labor demanded at:

different wage rates.

27) Workers who are unemployed but are not actively looking for jobs are referred to as:

discouraged workers.

23) Wages that are higher than the current market wage:

dissuade workers from shirking.

6) A worker is unemployed if he:

does not have a job and has been actively looking for one in the prior four weeks and is available for work.

9) The labor demand curve is:

downward sloping.

22) Wages that are above the wage that workers would accept, where the premium is paid to increase worker productivity, are referred to as:

efficiency wages.

6) If a firm hires a worker by paying him a wage higher than his value of marginal product, ________.

firing the worker will increase the firm's profits

9) Frictional unemployment exists because:

firms and workers have imperfect information about each other and the state of the economy.

5) In a perfectly competitive labor market, at the equilibrium wage rate:

frictional unemployment is zero.

7) Unemployment arising from job search is called:

frictional unemployment.

3) An employed individual is one who:

has a full-time or part-time paid job.

24) At a fixed level of worker productivity, ________.

higher wages reduce profits

11) Downward wage rigidity is likely to:

increase unemployment.

20) Collective bargaining can:

increase unemployment.

3) The value of a worker's marginal product:

is the additional revenue that the worker brings in to the firm.

45) The natural rate of unemployment:

is the average of the unemployment rate in a country over time.

37) Everything else remaining unchanged, a sudden increase in the price of oil is likely to cause a(n):

leftward shift in the demand curve for labor.

49) Excessive dependence on cheaper foreign imports can cause a(n) ________ in certain sectors of the economy.

leftward shift in the domestic labor demand curve.

15) Any change that causes a decrease in the demand for labor at a given wage rate will be represented by a(n) ________, assuming all else equal.

leftward shift in the labor demand curve

32) Recessions are periods of:

leftward shifts in labor demand.

29) A reduction in wage is most likely to:

lower worker productivity.

10) The size of the labor force in a country is equal to the:

number of employed workers plus the number of unemployed workers in the country.

21) The unemployment rate is defined as the:

percentage of labor force that is unemployed.

26) As the wage rate increases, ________, assuming all else equal.

quantity supplied of labor increases.

14) Any change that causes an increase in the demand for labor at a given wage rate will be represented by a(n) ________, assuming all else equal.

rightward shift of the labor demand curve

13) Any change that affects the entire schedule relating the quantity of labor and the value of the marginal product of labor will ________, assuming all else equal.

shift the labor demand curve

29) Any change that increases the quantity of labor supplied at all wage rates will ________, assuming all else equal.

shift the labor supply curve to the right

12) Unemployment that arises when there is a mismatch between the quantity of labor demanded and supplied is referred to as:

structural unemployment.

43) Everything else unchanged, following an adverse shift in the labor demand curve, ________.

the fall in employment will be greater if there is downward wage rigidity

7) If a firm hires a worker by paying him a wage lower than his value of marginal product, ________.

the firm should hire more workers to increase profits

30) If there is an increase in the number of discouraged workers in a country, ________.

the labor force participation rate will decrease

31) If the number of potential workers in an economy increases while the size of the labor force remains unchanged, ________.

the labor force participation rate will fall

1) As a firm hires more and more workers:

the value of marginal product of the additional workers eventually decreases.

2) A profit-maximizing firm will pay a worker:

the value of the worker's marginal product.

41) In a frictionless labor market:

the wage adjusts instantly to clear the market.

11) A downward movement along the labor demand curve occurs when ________, assuming all else equal.

the wage rate decreases

38) If at a given wage, the quantity supplied of labor exceeds the quantity demanded of labor:

the wage rate will fall.

21) If a firm introduces some technology that substitutes capital for labor, ________, assuming all else equal.

there will be a leftward shift in the labor demand curve of the firm

35) If the opportunity cost of working outside the home increases then it is likely that ________ assuming all else equal.

there will be a leftward shift in the labor supply curve.

34) If the opportunity cost of working outside the home decreases then it is likely that ________, assuming all else equal.

there will be a rightward shift in the labor supply curve

21) Collective bargaining between unions and employers often lead:

to wages that are higher than what workers would have received at equilibrium.

12) The impact of an increase in the wage rate on labor demand is represented by ________, assuming all else equal.

upward movement along the demand curve for labor

27) The labor supply curve is:

upward sloping.

39) If the quantity demanded of labor exceeds the quantity supplied of labor:

wage rate will rise.

4) Unemployment normally arises when:

wages are above the market clearing wage level.

28) Downward wage rigidity arises when:

workers and firms resist to wage cuts.

30) The impact of an increase in the wage rate on labor supply will be represented by ________, assuming all else equal.

an upward movement along the labor supply curve.

5) Minimum wage laws:

can give rise to wage rigidity.

6) Minimum wages:

can increase unemployment.

26) Efficiency wages:

can lead to wage rigidity.

31) Downward wage rigidity:

causes the wage to be above the market clearing wage.

2) The potential adult work force includes:

civilian non-institutional population 16 years and over.

19) Contract negotiations between an employer and a labor union representing workers are referred to as:

collective bargaining.

28) Workers who are underemployed are:

considered as employed.

17) Refer to the figure above. If the government fixes a minimum wage rate at $25, the unemployment in the market will be:

0 hours per week per person

18) Refer to the figure above. If the government fixes a minimum wage rate at $15, the unemployment in the market will be:

0 hours per week per person

40) Refer to the figure above. If there is no wage rigidity in the labor market, how much unemployment is created after the labor demand curve shifts to LD2?

0 hours per week per person

13) Refer to the scenario above. What is the number of unemployed workers in the economy?

1 million

15) Refer to the figure above. If the government institutes a minimum wage rate at $30, the unemployment in the market will be:

10 hours per week per person

35) Refer to the figure above. If there is downward wage rigidity in the market, what will be the unemployment in the market after the demand curve shifts to LD2?

10 hours per week per person

24) The number of adults not in the work force of a country equals 6 million and the number of individuals employed is 5 million. If there are 12 million potential adult workers in the economy, what is the current unemployment rate in this country?

16.67 percent

Consider an economy that consists of the following economic agents only.

2 million full-time workers.1 million part-time workers.1 million people who have been laid off by their employers but are currently looking for employment. 1 million children of age fifteen years or less. 2 million housewives not looking for jobs

47) If the natural rate of unemployment in a country is 6% and the unemployment rate in the country is 8%, the cyclical unemployment in the country must be:

2%.

16) Refer to the figure above. If the government sets the minimum wage rate at $35, the unemployment in the market will be:

20 hours per week per person

42) Refer to the figure above. If there is wage rigidity in the market, how much unemployment is created when the labor demand curve shifts to LD2?

20 hours per week per person

22) If the number of unemployed workers in an economy is 4 million, and the size of the labor force in the economy is 16 million, the unemployment rate in the economy is:

25 percent.

23) If the number of employed workers in a country is 6 million, and the size of the labor force in the economy is 8 million, the unemployment rate in the country is:

25 percent.

12) Refer to the scenario above. What is the number of employed workers in the economy?

3 million

20) If the number of employed workers in an economy is 8 million, the number of potential workers in the economy is 12 million, and the number of adults not in the labor force is 1 million, the number of unemployed people in the economy will equal:

3 million.

11) If the number of employed people in a country is 21 million, and the number of unemployed workers in a country is 10 million. The size of the labor force in the country is equal to ________.

31 million

17) Which of the following is likely to shift the demand curve for coffee workers to the left, assuming all else equal?

A decrease in the price of coffee

24) Which of the following is likely to shift the demand curve for carpenters rightward, assuming all else equal?

A fall in the price of wood

23) Which of the following is likely to shift the demand curve for corn farmers leftward, assuming all else equal?

A fall in the productivity of corn farmers due to increased pest attacks

25) Which of the following statements is true?

A higher wage can raise profits if productivity is directly proportional to wages.

33) Which of the following is likely to shift the labor supply curve to the right, assuming all else equal?

A rise in the immigration of workers in search of better work opportunities

25) Which of the following is likely to shift the demand curve for carpenters leftward, assuming all else equal?

A rise in the price of the tools used by carpenters

28) Which of the following is likely to cause an upward movement along the labor supply curve assuming all else equal?

A rise in the wage rate.

32) Which of the following is likely to shift the labor supply curve to the left, assuming all else equal?

A social change that discourages women to participate in the labor force

51) Gary, Kevin, and Joshua are three individuals who were previously employed but do not have jobs now. Gary lost his job a year ago. Although he would like to have a job, he has given up looking for one as he thinks there are no suitable jobs available for him. Kevin was working as a finance teacher, but quit his job a few months back to become a stock broker. Ever since he quit his job, he is unable to get a new one, although he is actively seeking. Joshua was employed in a steel mill. He lost his job when the labor union in his mill demanded a hike in wages. Classify the three individuals according to their type of unemployment.

Answer: Since Gary previously had a job but has stopped looking for one now, he can be considered a discouraged worker. Discouraged workers are potential workers who have stopped looking for jobs since they think there are none available for them. Kevin is unemployed because it is taking time for him to find a suitable job. Hence, Kevin can be said to be frictionally unemployed. Such unemployment arises because workers have imperfect information about available jobs and need to engage in a time-consuming process of job search. Joshua is unemployed because the labor union in his workplace demanded higher wages. When wages are above the market clearing wage, there is a fundamental mismatch between the quantity demanded and quantity supplied of labor. Unemployment caused because of this mismatch is referred to as structural unemployment.

32) Which of the following statements is true?

As an economy experiences growth in GDP, the rate of unemployment is expected to decrease.

36) Which of the following statements is true?

At wages above the equilibrium wage rate, quantity supplied of labor exceeds the quantity demanded of labor.

37) Which of the following statements is true?

At wages below the equilibrium wage rate, quantity demanded of labor exceeds the quantity supplied of labor.

a. What is the equilibrium wage rate and employment level in the market?

The equilibrium wage is determined by the intersection of the labor demand curve LD1 and labor supply curve LS1. Hence, the equilibrium wage rate in the market is $40 per hour and the equilibrium employment level is 30 engineers.

10) The slope of the labor demand curve can be attributed to the Law of:

Diminishing Marginal Productivity of Labor.

13) Which of the following statements is true of minimum wages?

Minimum wages are normally set above the labor market clearing wage rate.

38) If unemployment rate among workers with no high school diploma is represented by NS, unemployment rate among workers with an high school diploma is represented by HS, and unemployment rate among workers with a bachelor's degree is represented by BS, then which of the following statements is true?

NS > HS > BS

9) Which of the following statements is true of the U.S. economy in 2014, as per the records of the BLS?

Number of employed workers > number of adults out of the workforce > number of unemployed workers

16) Which of the following groups of people is included in the labor force of a country?

Part-time paid workers

5) Which of the following statements is true?

Some people seeking paid jobs may not be able to find employment.

1) Which of the following statements is true?

Some workers may be willing to work only at a wage rate above the equilibrium wage rate.

46) Which of the following is true of the natural rate of unemployment?

The actual rate of unemployment is higher than the natural rate of unemployment during a recession.

4) Which of the following equations is true of a profit-maximizing firm?

Wage = value of worker's marginal product

10) ________ refers to any factor that keeps the market wage above the level that would clear the labor market.

Wage rigidity

30) Which of the following statements is true?

Wage rigidity can cause unemployment.

31) The impact of a decrease in the wage rate on labor supply will be represented by ________, assuming all else equal.

a downward movement along the labor supply curve

3) An implication of the fact that the labor market is perfectly competitive is that:

a worker willing to work at the equilibrium wage rate can instantly find work.