EC 102.07-08-09 Exercises for Chapter 28 SPRING 2006
1. The natural rate of unemployment is the
a. unemployment rate that would prevail with zero inflation.
b. rate associated with the highest possible level of GDP.
c. difference between the long-run and short-run unemployment rates.
d. amount of unemployment that the economy normally experiences.
ANSWER: d. amount of unemployment that the economy normally experiences.
2. The natural rate of unemployment
a. is a constant.
b. is the desirable rate of unemployment.
c. cannot be altered by economic policy.
d. None of the above are correct.
ANSWER: d. None of the above are correct.
3. Who of the following would be counted as unemployed according to official statistics?
a. Gokhan, who is waiting for his new job to start
b. Begum, who worked only 35 hours last week
c. Guzin, who neither has a job nor is looking for one
d. None of the above would be counted as unemployed.
ANSWER: a. Gokhan, who is waiting for his new job to start
4. Who would not be included in the labor force?
a. Ali, who is on temporary layoff
b. Ayse, who has retired and is not looking for work
c. Demet, who does not have a job, but has applied for several in the last week
d. None of the above are included in the labor force.
ANSWER: b. Ayse, who has retired and is not looking for work
5. Didem, a homemaker who works as a volunteer at the local Red Cross and is currently not looking for a job, is counted as
a. employed and in the labor force.
b. unemployed and in the labor force.
c. unemployed and not in the labor force.
d. not in the labor force.
ANSWER: d. not in the labor force.
6. In 2000 in the United Kingdom, the adult population was about 46.5 million, the labor force participation rate was 63.5 percent, and the unemployment rate was 5.8 percent. What was the number of people employed and the number of people unemployed?
a. about 29.5 million and 2.7 million.
b. about 29.5 million and 1.7 million.
c. about 27.8 million and 2.7 million.
d. about 27.8 million and 1.7 million.
ANSWER: d. about 27.8 million and 1.7 million.
7. Turgut loses his job and immediately begins looking for another. Ceteris paribus, the unemployment rate
a. increases, and the labor-force participation rate decreases.
b. increases, and the labor-force participation rate is unaffected.
c. is unaffected, and the labor-force participation rate increases.
d. decreases, and the labor-force participation rate is unaffected.
ANSWER: b. increases, and the labor-force participation rate is unaffected.
8. President Erdoğan is running for re-election against Baykal. Erdoğan proclaims that more people are working now than when he took office. Baykal says that the unemployment rate is higher now than when Erdogan took office. You conclude that
a. one of them must be lying.
b. both of them could be telling the truth if the labor force participation rate and the labor force both fell.
c. both of them could be telling the truth if the labor force grew slower than employment.
d. both of them could be telling the truth if the labor force grew faster than employment.
ANSWER: d. both of them could be telling the truth if the labor force grew faster than employment.
9. In one year you meet 45 people who are each unemployed for one week, and five people who are each unemployed for the whole year. What percent of the people you meet are short-term unemployed, and what percent of the unemployment you encounter is long-term?
a. 90 percent and 85.3 percent
b. 10 percent and 85.3 percent
c. 90 percent and 10 percent
d. 10 percent and 14.7 percent
ANSWER: a. 90 percent and 85.3 percent
10. Some people are counted as out of the labor force because they have made no serious or recent effort to look for work. However, some of these people may want to work even though they are too discouraged to make a serious effort to look for work. If these persons were counted as unemployed instead of out of the labor force,
a. both the unemployment rate and labor-force participation rate would be higher.
b. the unemployment rate would be higher and the labor-force participation rate would be lower.
c. the unemployment rate would be lower and the labor-force participation rate would be higher.
d. None of the above are correct.
ANSWER: a. both the unemployment rate and labor-force participation rate would be higher.
11. Levent is a stockbroker. He has had several job offers, but he has turned them down because he thinks he can find a firm that better matches his tastes and skills. Can is an accountant. He has looked for work for some time, but no accounting firms are hiring.
a. Can and Levent are both frictionally unemployed.
b. can and Levent are both structurally unemployed.
c. Levent is frictionally unemployed, and John is structurally unemployed.
d. Levent is structurally unemployed, and John is frictionally unemployed.
ANSWER: c. Levent is frictionally unemployed, and Can is structurally unemployed.
12. Which of the following is a cause of frictional unemployment?
a. the minimum wage
b. a worker leaving a job to find one with better benefits
c. labor unions
d. All of the above are correct.
ANSWER: b. a worker leaving a job to find one with better benefits
13. Unemployment insurance
a. and unions both create structural unemployment.
b. and unions both create frictional unemployment.
c. creates frictional unemployment and unions create structural unemployment.
d. creates structural unemployment and unions create frictional unemployment.
ANSWER: c. creates frictional unemployment and unions create structural unemployment
14. An increase in the minimum wage would
a. increase both the quantity demanded and the quantity supplied of labor.
b. decrease both the quantity demanded and the quantity supplied of labor.
c. increase the quantity of labor demanded while decreasing the quantity supplied.
d. decrease the quantity of labor demanded while increasing the quantity supplied.
ANSWER: d. decrease the quantity of labor demanded while increasing the quantity supplied.
Use the graph below to answer the following four questions.
15. If the minimum wage is $5, the number of people unemployed is
a. 40 and if the minimum wage is $6 it is 0.
b. 20 and if the minimum wage is $6 it is 20.
c. 40 and if the minimum wage is $6 it is 20.
d. 0 and if the minimum wage is $6 it is 0.
ANSWER: d. 0 and if the minimum wage is $6 it is 0.
16. If the minimum wage fell from $7 to $5
a. unemployment would fall by 20.
b. unemployment would fall by 40.
c. unemployment would be unchanged.
d. unemployment would rise by 20.
ANSWER: b. unemployment would fall by 40.
17. If the minimum wage rose from $5 to $7, unemployment would
a. rise by 40.
b. rise by 20.
c. fall by 20.
d. fall by 40.
ANSWER: a. rise by 40.
18. If the minimum wage rose from $6 to $7, unemployment would
a. rise by 40.
b. rise by 20.
c. fall by 20.
d. fall by 40.
ANSWER: a. rise by 40.
19. Which of the following causes of unemployment is not associated with an excess supply of labor?
a. minimum-wage laws
b. unions
c. job search
d. efficiency wages
ANSWER: c. job search
20. When a union bargains successfully with employers, in that industry
a. both the quantity of labor supplied and the quantity of labor demanded increase.
b. both the quantity of labor supplied and the quantity of labor demanded decrease.
c. the quantity of labor supplied increases and the quantity of labor demanded decreases.
d. the quantity of labor supplied increases the quantity of labor demanded decreases.
ANSWER: c. the quantity of labor supplied increases and the quantity of labor demanded decreases.
21. The theory of efficiency wages explains why
a. setting wages at the equilibrium level may increase unemployment.
b. it may be in the best interest of firms to offer wages that are above the equilibrium level.
c. the most efficient way to pay workers is to pay them according to their skills.
d. it is efficient for firms to set wages at the equilibrium level.
ANSWER: b. it may be in the best interest of firms to offer wages that are above the equilibrium level.
22. Which of the following would reduce the natural rate of unemployment?
a. The Internet provides more readily available information about available jobs.
b. Congress increases the minimum wage.
c. Laws are passed that make it more difficult to monitor the efforts of workers.
d. All of the above are correct.
ANSWER: a. The Internet provides more readily available information about available jobs.
23. Four employers have justified their actions as follows. Whose logic is inconsistent with the logic of efficiency wage theory?
a. Jay develops a new assembly line technology that limits the amount of shirking workers may do, so he reduces what he pays his employees so as to make it closer to the equilibrium wage.
b. Kay pays her workers less than the equilibrium wage so they won’t have the time or money to look for work somewhere else.
c. Ray pays his workers in a developing country more than the going wage hoping that they will get a better diet and so be more productive.
d. All of the above are inconsistent with the logic of efficiency wage theory.
ANSWER: b. Kay pays her workers less than the equilibrium wage so they won’t have the time or money to look for work somewhere else.
24. The table below uses data for the year 2000 provided by theEurostat. All values are in millions. Fill in the blank entries in the table. Show your work!
Country / AdultPopulation / Labor Force / Employed / Unemployed / Unemployment Rate / Labor-Force Participation Rate
Japan / 108.12 / 63.79 / 3.20
France / 25.98 / 2.45 / 56.4 percent
Germany / 69.17 / 39.75 / 8.08 percent
ANSWER:
Demographic Group / Population / Labor Force / Employed / Unemployed / Unemployment Rate / Labor-Force Participation RateJapan / 108.12 / 66.99 / 63.79 / 3.20 / 4.78 percent / 61.96 percent
France / 46.06 / 25.98 / 23.53 / 2.45 / 9.43 percent / 56.4 percent
Germany / 69.17 / 39.75 / 36.54 / 3.21 / 8.08 percent / 57.47 percent