MACRO BOOK CH 6 QUIZ

8. Which of the following policies would reduce the amount of frictional unemployment? A. a reduction in corporate taxes B. an increase in unemployment insurance C. an increase in the minimum wage D. public retraining programs

The correct answer is D. Public retraining programs ease the transition of workers from declining to growing industries, thereby reducing frictional unemployment. See Section 6-2.

22. Suppose that 130 people are unemployed for part of a given year; 120 are unemployed for 1 month, and 10 are unemployed throughout the year. What percentage of total months of unemployment is attributable to the long-term unemployed? A. 7.7 percent B. 10 percent C. 13 percent D. 50 percent

The correct answer is D. There are 240 total months of unemployment, of which half are short-term and half are long-term.

16. The unemployment caused by unions and by the threat of unionization is an instance of A. voluntary unemployment B. the discouraged-worker effect. C. efficiency wages. D. conflict between insiders and outsiders.

The correct answer is D. Unemployment occurs because workers already employed by a firm (insiders) fight to keep their wages high. High wages prevent the firm from hiring new workers (outsiders).

6. The unemployment caused by the time that it takes to match workers and jobs is called A. frictional unemployment. B. the discouraged-worker effect. C. structural unemployment. D. wage rigidity.

A. frictional unemployment.

21. Compared to long-term unemployment, short-term unemployment is more likely to be A. frictional unemployment. B. structural unemployment. C. a result of minimum-wage laws. D. a result of union activity.

A. frictional unemployment. The correct answer is A. Short-term unemployment is more likely to be frictional unemployment. See Section 6-4.

3. Suppose that 2 percent of the employed lose their jobs each month (s = 0.02) and 38 percent of the unemployed find a job each month (f = 0.38). Then, the steady-state rate of unemployment is A. 2 percent. B. 5 percent. C. 16 percent. D. 36 percent.

B. 5 percent. As explained in Section 6-1, the steady-state rate of unemployment is given by U = s/(s + f).

20. Which of the following statements about unemployment is true? A. Most spells of unemployment are long. B. Most of the time spent unemployed is accounted for by the long-term unemployed. C. The long-term unemployed make up only a small fraction of the unemployed. D. Most people who become unemployed remain unemployed for a long time.

B. Most of the time spent unemployed is accounted for by the long-term unemployed Most spells of unemployment are short, but a large fraction of the people unemployed at any given time are in long spells of unemployment. See Section 6-4.

1. If the rate of unemployment is neither rising nor falling, then the number of people finding jobs must equal the number of people A. unemployed. B. losing or leaving jobs. C. looking for jobs. D. leaving the labor force.

B. losing or leaving jobs. The correct answer is B. The number of people leaving jobs must equal the number of people finding jobs for the rate of unemployment to be constant.

12. A teenager is not able to find a job because the legal minimum wage is higher than the wage that firms are willing to offer. This situation is an example of A. frictional unemployment. B. structural unemployment. C. cyclical unemployment. D. efficient unemployment.

B. structural unemploymen

15. Which of the following is not a cause for real wage rigidity? A. minimum-wage laws B. unemployment insurance C. union power D. efficiency wages

B. unemployment insurance

13. Minimum-wage laws are an example of A. collective bargaining. B. wage rigidity. C. the discouraged-worker effect. D. insiders versus outsiders.

B. wage rigidity.

19. Efficiency wages do not lead to A. structural unemployment. B. wages above their equilibrium level. C. lower firm profits. D. increased worker productivity.

B. wages above their equilibrium level.

2. If the rate of job finding rises, the natural rate of unemployment will A. remain constant. B. increase. C. decrease. D. rise or decline, depending on the rate of job separation

C. decrease. As explained in Section 6-1, the higher the rate of job finding, the lower the natural rate of unemployment.

19. Efficiency wages do not lead to A. structural unemployment. B. wages above their equilibrium level. C. lower firm profits. D. increased worker productivity.

C. lower firm profits. The correct answer is C. Firms pay efficiency wages in order to increase worker productivity. This results in higher firm profits. See Section 6-3

11. The unemployment resulting from wage rigidity and job rationing is called A. the natural rate of unemployment. B. the discouraged-worker effect. C. structural unemployment. D. insiders versus outsiders.

C. structural unemployment.

14. Structural unemployment results when A. the minimum wage is set to increase in the near future. B. there is generous unemployment insurance. C. workers are temporarily laid off due to weather conditions. D. the real wage is above its market-clearing level.

D. the real wage is above its market-clearing level.

26. Which of the following statements regarding U.S. and European unemployment rates was true as of 2009? A. The U.S. unemployment rate is lower than the unemployment rates of most (but not all) of the European countries. B. The U.S. unemployment rate is lower than the unemployment rates of all of the European countries. C. The U.S. unemployment rate is higher than the unemployment rates of all of the European countries. D. The U.S. unemployment is the same as the unemployment rates of all of the European countries.

The correct answer is A. As of 2009, one-third of Europeans live in countries with lower unemployment rates than the United States.

25. Many economists believe that the rise in European unemployment is caused by A. generous government benefits. B. the decreased influence of union insiders. C. an increase in the number of younger workers, who have higher rates of unemployment. D. economic inequality.

The correct answer is A. Many European countries allow their unemployed to collect benefits for many years. This makes taking a job a less attractive alternative.

5. Unemployment insurance schemes mainly increase A. frictional unemployment. B. seasonal unemployment. C. teenage unemployment. D. cyclical unemployment.

The correct answer is A. Since unemployment insurance programs reduce the economic hardships associated with unemployment, they increase the amount of frictional unemployment. See Section 6-2

18. Efficiency wage theories claim that firms may pay high real wages in order to A. avoid the threat of unionization. B. make workers more productive. C. discourage unskilled workers from applying. D. reduce the level of frictional unemployment.

The correct answer is B. For an explanation of efficiency wage theories, see Section 6-3.

23. Measured unemployment may be lower than actual unemployment because A. measured unemployment does not include the frictionally unemployed. B. some individuals may want a job but have become discouraged and stopped looking for one. C. some individuals claim to be unemployed when they are not looking very seriously for a job. D. measured unemployment does not include teenage unemployment.

The correct answer is B. If there are individuals who want jobs, but are discouraged and no longer looking for them, actual unemployment will be higher than measured unemployment. See Section 6-4

4. The unemployment rate is 10 percent. The rate of job separation is 5 percent. How high does the rate of job finding have to be to keep the unemployment rate constant? A. 10 percent B. 45 percent C. 50 percent D. 90 percent

The correct answer is B. Since 90 percent of the labor force is working and the separation rate is 5 percent, 4.5 percent of the labor force loses its job each period. For unemployment to be constant, the same fraction of the labor force must find jobs each period. See Section 6-1.

9. If the government increases the amount of unemployment insurance that unemployed workers can collect, the amount of frictional unemployment would be expected to A. fall. B. remain constant. C. rise. D. first rise and then fall.

The correct answer is C. If the amount of unemployment insurance rises, the economic hardships of unemployed workers are reduced, so there is less incentive to search for a new job. This causes frictional unemployment to rise

24. Discouraged workers who want jobs but have stopped looking for jobs are A. frictionally unemployed. B. unemployed due to structural unemployment. C. no longer in the labor force. D. helped by minimum-wage legislation.

The correct answer is C. Individuals who are not working or actively searching for a job are not considered to be part of the labor force

7. Frictional unemployment occurs because A. the minimum wage is too high. B. unions exert pressure in the labor market. C. rigidities exist in the wage-setting process. D. it takes time to match firms and workers.

The correct answer is D. For a discussion of frictional unemployment, see Section 6-2.

10. When the real wage is above the level that equilibrates supply and demand, then the quantity of labor supplied A. depends on the nominal wage. B. is smaller than the quantity of labor demanded. C. is equal to the quantity of labor demanded. D. is greater than the quantity of labor demanded.

The correct answer is D. If the real wage is above its equilibrium value, labor supply will be greater than labor demand.