Theme 10.

Unemployment
Directions: Each of the questions or incomplete statements below is followed by four or five suggested answers or
completions. Select the one that is the best in each case.

If you find any mistake, please send us a message on icef.macro.1year@gmail.com. Thank you!

Labour Market Equilibrium and Wage Determination

1. The short-run labour supply function is
(A) Positively sloped because of the increasing disutility of work
(B) Negatively sloped because of the decreasing disutility of work
(C) Positively sloped because of the decreasing disutility of leisure
(D) Negatively sloped because of the increasing disutility of leisure
(E) Vertical at the full employment level

2. Given a demand for labour schedule, the quantity of labour units demanded
(A) Falls as the price level rises
(B) Increases as the price level rises
(C) Increases as the price level falls
(D) Increases when there is a proportionate increase in the price level and the nominal wage
(E) Falls when there is a proportionate increase in the price level and the nominal wage

3. When the marginal physical product of labour is 800 – 2L, the price of goods is $2, and the cost
of labour is $4 per unit, the quantity of labour employed is
(A) 20 units
(B) 399 units
(C) 800 units
(D) 80 units
(E) 40 units

4. Real wages are higher,

(A) The greater the amount of capital available per worker
(B) The more advanced the technology of production
(C) The greater the availability of natural resources such as fertile land and mineral deposits
(D) The higher are investment in human capital
(E) All of the above

5. Which of the following statements is incorrect?

(A) Firms demand labour and other resources in order to produce the products demanded by
consumers.
(B) A perfectly competitive firm's demand for labour is its marginal revenue product of labour
schedule or curve.
(C) Another name for the marginal revenue product of labour is the marginal resource cost of
labour.
(D) The market demand for labour is obtained by adding each firm's demand for labour.
(E) All the above statements are correct.

6. The market supply of labour depends on

(A) The population size
(B) The proportion of the population in the labour force
(C) The state of the economy
(D) The amount of immigrants
(E) All of the above
7. Which of the following statements is incorrect?
(A) The competitive equilibrium wage rate is determined at the intersection of the demand and
supply curve of labour.
(B) In order to hire more labour, the perfectly competitive firm must pay a higher wage rate.
(C) The perfectly competitive firm hires labour until the marginal revenue product of labour
equals the wage rate.
(D) If the market demand for labour increases, the equilibrium wage rate rises.
(E) All the above statements are correct.

8. A firm which is the only buyer of or has monopoly power in the labour (or other resource)
market is called a(n)
(A) Monopolist
(B) Monopsonist
(C) Oligopolist
(D) Oligopsonist
(E) Uncompetitive firm

9. Which of the following statements about a monopsonist in the labour market is incorrect?
(A) It faces a rising market supply curve of labour.
(B) The marginal resource cost of labour is rising.
(C) The wage rate exceeds the marginal resource cost of labour.
(D) The marginal resource cost of labour curve is above the market supply curve of labour.
(E) All the above statements are correct.

10. Which of the following statements about a monopsonist is incorrect?

(A) To maximize total profits, it hires labour up to the point where MRPL = MRCL.
(B) The wage that it pays is read from the labour supply curve.
(C) W is smaller than MRPL.
(D) W = MRCL,
(E) All the above statements are correct.

11. If a union is successful in increasing the demand for labour

(A) The wage rate rises but employment falls
(B) The wage rate falls but employment rises
(C) Both the wage rate and employment will rise
(D) The supply of labour rises
(E) All of the above are possible

12. The attempt of industrial unions to raise wage rates usually results in
(A) Higher wages and more employment,
(B) Higher wages and less employment
(C) Higher wages without affecting employment
(D) Actually lower wages but more employment
(E) More employment without affecting wages

13. An economist's definition of investment in human capital would be represented by

(A) Labour costs in producing an intermediate good
(B) Labour costs in producing a final good
(C) Government’s expenses for unemployment compensation
(D) The expenditures by an individual on college tuition and other college expenses
(E) Wage expenditures on a balance sheet
14. Unions might increase efficiency in the case where they
(A) Raise the wage for insiders above the competitive equilibrium
(B) Offset the market power of a large firm in a company town
(C) Lower the wage of local outsiders
(D) Threaten a strike but don’t actually follow through so there are no lost hours of work
(E) In all of the above cases

15. Which of the following statements is correct?

(A) A change in unit labour costs is unrelated to changes in either nominal wage rates or labour
productivity.
(B) Percentage change in real wage rates less percentage change in unit labour costs
approximates percentage change in labour productivity.
(C) Percentage change in nominal wage rates less percentage change in labour productivity
approximates percentage change in unit labour costs.
(D) Percentage change in nominal wage rate less percentage change in the price level
approximates percentage change in unit labour costs.
(E) No true answer.

16. Which of the following, if it occurred, would be least likely to increase real wage rates over the
long run?
(A) Continued productivity improvements in agriculture
(B) A more rapid rate of accumulation of capital than of population growth
(C) An increase in investment in human capital
(D) The gradual exhaustion of natural resources
(E) A reduction in labour-force participation rates

17. If the general price level increases, the real income of workers will increase only if the
following condition holds:
(A) Employers have a monopsonistic hiring market
(B) The increase in wages is equal to labour's increase in productivity
(C) Wages increase by exactly the same amount as prices
(D) Proportional increases in wages are greater than the proportional increase in the price level
(E) Price increases are greater than wage increases

18. According to the sticky-wage model, workers and employers make an explicit or implicit
agreement that covers:
(A) Nominal wages
(B) Real wages
(C) Both nominal wages and quantity of employment
(D) Both real wages and quantity of employment
(E) No true answer

19. According to sticky-wage model, when the price level is less than the expected price level,
workers get a:
(A) Lower real wage than expected, and more workers are hired than expected
(B) Equilibrium wage rate
(C) Lower real wage than expected, and fewer workers are hired than expected
(D) Higher real wage than expected and more workers are hired than expected
(E) Higher real wage than expected and fewer workers are hired than expected

20. A "reservation wage" is the

(A) Maximum wage the firm is willing to pay
(B) Minimum wage the worker is willing to accept
 (C) Tip necessary to get a waiter to reserve a table
(D) Competitive equilibrium wage
(E) Wage resulting from the collective bargaining

21. An unemployed person is likely to turn down a job offer if the wage they are offered is below
their
(A) Replacement ratio
(B) Reservation wage
(C) Experience rating
(D) Cost-of-living agreement (COLA)
(E) All of the above

22. The ________ ratio is the ratio of one's after-tax income while unemployed to one's after-tax
income while employed
(A) Replacement
(B) Sacrifice
(C) Benefit
(D) Indexation
(E) No true answer

23. If full employment output exceeds the equilibrium GDP for an economy, then the economy is
experiencing:
(A) Rapid growth
(B) Inflation
(C) Recession
(D) Stagflation
(E) Expansion

24. A positive GDP gap exists when

(A) Nominal GDP is greater than real GDP
(B) Real GDP is greater than potential GDP
(C) Potential GDP is greater than real GDP
(D) Economic activity is at its full-employment level
(E) Economic activity is greater than full
Measurement of Unemployment
25. The macroeconomic problem that affects individuals most directly and severely is
(A) Inflation
(B) Unemployment
(C) Low savings
(D) Low investment
(E) Low confidence

26. According to the U.S. Bureau of Labour Statistics definition, a person is not considered
unemployed if that person:
(A) Is waiting for a new job to start
(B) Has been temporarily laid off
(C) Is out of a job and looking for work
(D) Is going to school
(E) Is looking for a job but never worked before
27. According to the U.S. Bureau of Labour Statistics definition, people are considered to be
unemployed if they:
(A) Are out of a job but not looking for work
(B) Are keeping house without formal pay
(C) Have found a job but are waiting for it to start
(D) Are in the military service
(E) Are discouraged

28. A husband who chooses to stay home and take care of the household is
(A) Unemployed
(B) Employed
(C) Not in the labour force
(D) A discouraged worker
(E) A part-time worker

29. When the unemployment rate is calculated, the following are among the unemployed:
(A) Children
(B) Only persons 18 years old and over
(C) Housewives
(D) Persons receiving unemployment compensation
(E) All persons not employed

30. An accountant that has been unable to find work for so long that she has stopped looking for
work is considered to be
(A) Employed
(B) Unemployed
(C) In labour force
(D) Not in the labour force
(E) Not in the adult population

31. Suppose that the adult population of the country is 188.1 million. Total employment is 119.0
million, and 6.5 million are unemployed. Then the unemployment rate, as normally computed,
is approximately:
(A) 3.5%
(B) 4.5%
(C) 5.2%
(D) 5.5%
(E) 5.9%
32. 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
(E) Measured unemployment may never be lower than actual unemployment

33. Measured unemployment may be higher 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
(E) Measured unemployment may never be higher than actual unemployment
34. Discouraged workers who want jobs, but have stopped looking for jobs are
(A) Frictionally unemployed
(B) Structurally unemployed
(C) Unemployed due to real-wage unemployment
(D) No longer in the labour force
(E) Helped by minimum-wage legislation

35. 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 job.
(D) Leaving the labour force
(E) Entering the labour force

36. An increase in the labour force participation rate will

(A) Increase investment and decrease savings
(B) Increase savings and decrease investment
(C) Have no effect on unemployment
(D) Make it easier to reduce unemployment
(E) Make it more difficult to reduce unemployment

37. If unemployment insurance were so generous that it paid laid off workers 95% of their regular
salary,
(A) Measured unemployment would probably understate true unemployment
(B) Measured unemployment would probably overstate true unemployment
(C) There would be no impact on measured unemployment
(D) Search unemployment would fall
(E) None of the above
Use the following table for next three questions. Numbers are in millions.
Total population 195.4
Adult population 139.7
Number of unemployed 5.7
Number of employed 92.3
38. The labour force is
(A) 92.3 million
(B) 98.0 million
(C) 134.0 million
(D) 139.7 million
(E) None of the above
39. The unemployment rate is
(A) 3.2%
(B) 5.7%
(C) 5.8%
(D) 6.2%
(E) Not enough information to answer

40. The labour-force participation rate is

(A) 47.1% (B) 50.2% (C) 65.9% (D) 70.2% (E) 71.5%
41. In the country Y age of 16 and more is considered as fit for work. There are 72 min people of
this age. 15 min of them do not work or look for a job (housewives, retired people, students,
disabled and homeless, 3 min each group). 52 min people in the country are employed.
Unemployment rate in the country Y is:
(A) 6.9% (B) 8.8% (C) 9.6% (D) 11.1% (E) 15.4%

Use the following information about Employment Country to answer the questions below.
2014 2015
Population 223.6 226.5
Adult population 168.2 169.5
Number of unemployed 7.4 8.1
Number of employed 105.2 104.2

42. What is the labour force in 2014 and 2015?

(A) 2014: 112,6; 2015: 112,3
(B) 2014: 112,3; 2015: 112,6
(C) 2014: 168,2; 2015: 169,5
(D) 2014: 105,2; 2015: 104,2
(E) 2014: 223,6; 2015: 226,5

43. What is the labour force participation rate in 2014 and 2015?
(A) 2014: 60%; 2015: 70%
(B) 2014: 66.9%; 2015: 66.3%
(C) 2014: 76.5%; 2015: 75.6%
(D) 2014: 6.6%; 2015: 7.2%
(E) 2014: 33.1% 2015: 33.7%

44. What is the unemployment rate in 2014 and 2015?

(A) 2014: 6.6%; 2015: 6.7%
(B) 2014: 7.2%; 2015: 6.6%
(C) 2014: 5.6%; 2015: 7.2%
(D) 2014: 6.6%; 2015: 7.2%
(E) 2014: 3.3%; 2015: 3.5%

45. From 2014 to 2015, the adult population went up while the labour force went down. The
explanation why this might have occurred is the following:
(A) Earlier retirements,
(B) Students staying in college longer,
(C) More parents staying at home with children
(D) Discouraged workers discontinuing their job search.
(E) All of the above

46. If the natural rate of unemployment in Employment country is 6.6%, how much is cyclical
unemployment in 2014 and 2015?
(A) 2014: 0%; 2015: 6%
(B) 2014: 6%; 2015: 0%
(C) 2014: 1%; 2015: 0%
(D) 2014: 0%; 2015: 0.6%
(E) 2014: 2%; 2015: 2%
47. Is Employment Country likely to be experiencing a recession in either of these years?
(A) In 2014 there is no recession. In 2015 the Country may be in a recession.
(B) In 2014 there is a recession. In 2015 there is no recession.
(C) In both years there is a recession.
(D) In both years there is no recession.
(E) Not enough information to answer the question.

Types of Unemployment
48. One reason for unemployment is that:
(A) It takes time to match workers and jobs
(B) All jobs are identical
(C) Labour input is homogeneous
(D) The labour market is always in equilibrium
(E) A laid-off worker can immediately find a new job at the market wage

49. Unemployment may be frictional, cyclical, or structural. Structural unemployment would be

represented by
(A) A worker who no longer has the appropriate skill required in the economy
(B) A worker who is between jobs
(C) A worker who is unemployed because the economy is in recession
(D) A worker who has decided to quit seeking work
(E) None of the above

50. 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) Real-wage unemployment
(D) Wage rigidity
(E) Insider-outsider relation

51. Which of the following is an example of structural unemployment?

(A) A computer programmer who leaves her job to move to Florida.
(B) A worker who loses his job during a recession.
(C) An autoworker who is replaced by a robot.
(D) A construction worker who is always unemployed during the winter months.
(E) A worker who is engaged in unproductive work.

52. A professional singer who loses his voice may have a hard time finding employment because he
or she has no marketable skills. This is an example of which of the following?
(A) Frictional unemployment.
(B) Structural unemployment.
(C) Cyclical unemployment.
(D) Seasonal unemployment.
(E) Discouraged workers.
53. Frictional unemployment exists when
(A) There is a fall in aggregate demand
(B) Workers are seasonally unemployed
(C) Workers lack the skills necessary to be employed
(D) Potential GDP exceeds real GDP
(E) Nominal GDP exceeds real GDP
54. Frictional unemployment occurs because
(A) The minimum wage is too high
(B) Unions exert pressure in the labour market
(C) Rigidities exist in the wage-setting process
(D) It takes time to match firms and workers
(E) Wages paid by some firms are too high

55. All of the following are reasons for frictional unemployment except:
(A) Workers’ preferences and abilities do not always match the employers needs
(B) Unemployed workers accept the first job offer that they receive
(C) Job search takes time
(D) The flow of information is imperfect
(E) Geographic mobility takes time

56. Frictional unemployment is inevitable because:

(A) Different sectors do not shift
(B) The economy needs to be lubricated
(C) Workers never quit their jobs to change careers
(D) The demand for different goods always fluctuates
(E) It is useful for the economy

57. Which of the following sources of unemployment is not based on the wage being held above
the competitive equilibrium wage?
(A) Unemployment due to job search.
(B) Unemployment due to minimum wage laws.
(C) Unemployment due to unions.
(D) Unemployment due to efficiency wages.
(E) All of the above are based on that kind of wage.

58. Sectoral shifts tend to raise which type of unemployment?

(A) Unemployment due to job search.
(B) Unemployment due to minimum wage laws.
(C) Unemployment due to unions.
(D) Unemployment due to efficiency wages.
(E) All of the above.

59. Unemployment insurance schemes mainly increase

(A) Frictional unemployment
(B) Seasonal unemployment
(C) Teenage unemployment
(D) Cyclical unemployment
(E) Structural unemployment

60. Unemployment insurance increases the amount of frictional unemployment by:

(A) Making workers more urgent 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
(E) All of the above
61. Which of the following statements is true?
(A) During a recession the economy is inside its production-possibility frontier.
(B) During a recession the GDP gap is positive.
(C) During a recession the unemployment rate is increasing.
(D) During a recession labour supply of labour exceeds demand for labour.
(E) All of the above.

62. When there is real-wage unemployment:

(A) The real wage is rigid at a level below the market-clearing level
(B) The real wage is rigid at the market-clearing level
(C) The real wage is rigid at a level above the market clearing-level
(D) The real wage is flexible
(E) The price level is rigid

63. The unemployment resulting from wage rigidity and job rationing is called
(A) The natural rate of unemployment
(B) The discouraged-worker effect
(C) Real-wage unemployment
(D) Insiders versus outsiders
(E) Search unemployment

64. Real-wage 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
(E) There is a large number of new-entrants in the labour market

65. 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.
(E) All of the above are causes for real wage rigidity.

66. The minimum wage:

(A) Is usually about 75 percent of the average wage in manufacturing.
(B) Raises the wages of highly skilled workers.
(C) Encourages master workers to take on apprentices.
(D) Increases teenage unemployment.
(E) Lowers the wage of highly skilled workers.

67. 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) Real-wage unemployment.
(C) Cyclical unemployment.
(D) Efficient unemployment.
(E) Structural unemployment.
68. Minimum-wage laws are an example of
(A) Collective bargaining.
(B) Wage rigidity.
(C) The discouraged-worker effect.
(D) Insiders versus outsiders.
(E) Job rationing.

69. A minimum-wage law tends to

(A) Create more unemployment in high skill job markets than in low skill job markets
(B) Create more unemployment in low skill job markets than in high skill job markets
(C) Create more unemployment among men than among women
(D) Have no impact on unemployment as long as it is set above the competitive equilibrium
wage
(E) Help all teenagers because they receive a higher wage than they would otherwise

70. If, for any reason, the wage is held above the competitive equilibrium wage
(A) Unions will likely strike and the wage will fall to equilibrium
(B) The quality of workers will fall due to the adverse selection of workers in the applicant pool
(C) The quantity of labour supplied will exceed the quantity of labour demanded and there will
be unemployment
(D) he quantity of labour demanded will exceed the quantity of labour supplied and there will
be a labour shortage
(E) The workers’ shrinking increases

71. Unions might increase efficiency in the case where they

(A) Raise the wage for insiders above the competitive equilibrium
(B) Offset the market power of a large firm in a company town
(C) Lower the wage of local outsiders
(D) Threaten a strike but don't actually follow through so there are no lost hours of work
(E) Raise the wage for insiders and lower employment of outsiders

72. Unions tend to increase the disparity in pay between insiders and outsiders by
(A) Increasing the wage in the unionized sector which may create an increase in the supply of
workers in the nonunionized sector
(B) Increasing the wage in the unionized sector which may create a decrease in the supply of
workers in the nonunionized sector
(C) Decreasing the demand for workers in the unionized sector
(D) Increasing the demand for workers in the unionized sector
(E) Decreasing the supply of workers in the unionized sector

73. The unemployment caused by unions and by the threat of unionization is an instance of
(A) Minimum wage laws.
(B) The discouraged-worker effect.
(C) Efficiency wages.
(D) Conflict between insiders and outsiders.
(E) Moral hazard.

74. Unions may cause unemployment if

(A) Outsiders push wages down
(B) Insiders force real wages higher than the market-clearing level
(C) Outsiders are subject to minimum-wage legislation
(D) Insiders are fired and outsiders are hired
(E) Outsiders force real wages to their market-clearing level
75. All of the following items are causes of real-wage unemployment except:
(A) Minimum-wage laws
(B) The monopoly power of unions
(C) Unemployment insurance
(D) Efficiency wages
(E) Collective bargaining system

76. Which of the following statements about efficiency wage theory is true?
(A) Firms do not have a choice about whether they pay efficiency wages or not because these
wages are determined by law.
(B) Paying the lowest possible wage is always the most efficient (profitable).
(C) Paying above the competitive equilibrium wage creates a moral hazard because it causes
workers to shirk their responsibilities.
(D) Paying above the competitive equilibrium wage may improve worker health, lower worker
turnover, improve worker quality, and increase worker effort.
(E) Paying above the competitive equilibrium wage creates adverse selection.

77. Efficiency-wage theories imply that firms pay high wages because:
(A) This practice increases the problem of moral hazard
(B) In a highly developed country, 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 will leave the firm with inferior highly paid employees
(E) Paying high wages raises the problem of adverse selection

78. 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
(E) Reduce the natural rate of unemployment

79. Efficiency wages do not lead to

(A) Real-wage unemployment
(B) Wages above their equilibrium level
(C) Lower firm profits
(D) Increased worker productivity
(E) Higher worker turnover

80. When the real wage is above the level that equilibrates supply and demand, then the quantity of
labour supplied
(A) Depends on the nominal wage
(B) Is smaller than the quantity of labour demanded
(C) Is equal to the quantity of labour demanded
(D) Is greater than the quantity of labour demanded
(E) None of the above

81. Which of the following is an example of "moral hazard?"

(A) At a low wage, a worker quits to find a better job.
(B) At a low wage, a worker sleeps when the boss is not looking because the worker is not
deeply concerned about being fired.
(C) At a low wage, only poorly qualified workers ever apply for this job.
 (D) At a low wage, a worker cannot afford a healthy diet so she falls asleep at work due to a
lack of energy.
(E) At a low wage unions threaten a strike.

82. Which of the following is an example of "adverse selection?"

(A) At a low wage, a worker quits to find a better job.
(B) At a low wage, a worker sleeps when the boss is not looking because the worker is not
deeply concerned about being fired.
(C) At a low wage, only poorly qualified workers ever apply for this job.
(D) At a low wage, a worker cannot afford a healthy diet so he falls asleep at work due to a lack
of energy.
(E) At a low wage unions threaten a strike.

83. Compared to long-term unemployment, short-term unemployment is more likely to be

(A) Frictional unemployment
(B) Real-wage unemployment
(C) A result of minimum-wage laws
(D) A result of union activity
(E) A result of unemployment insurance system

84. Suppose that 130 people are unemployed for part of a given year; 120 are unemployed for 1
month, 10 are unemployed throughout the year; what percentage of total months of
unemployment is attributable to the long-term unemployed?
(A) 7.7% (B) 10% (C) 13% (D) 50% (E) 65%

85. The amount of unemployment that the economy normally experiences is known as
(A) Efficiency wage unemployment
(B) Search unemployment
(C) Cyclical unemployment
(D) Zero rate unemployment
(E) The natural rate of unemployment

Natural Rate of Unemployment

86. The natural rate of unemployment is:
(A) About 10 percent of the labour force
(B) A rate that never changes
(C) About 4 percent of the labour force
(D) The rate of unemployment around which the economy fluctuates
(E) The transition of individuals between employment and unemployment

87. Which of the following is present when the economy is at full-employment?

I. Cyclical unemployment
II. Frictional unemployment
III. Structural unemployment
(A) I only
(B) I and II only
(C) I and III only
(D) II and III only
(E) I, II, and III
88. The natural rate of unemployment is the rate of unemployment that exists when there is only
(A) Frictional and structural unemployment
(B) Frictional and cyclical unemployment
(C) Structural and cyclical unemployment
(D) Frictional unemployment
(E) Real-wage unemployment

89. The natural rate of unemployment is currently estimated to be about

(A) 0 %
(B) 2% to 3%
(C) 5% to 6%
(D) 8% to 9%
(E) Any rate less than 10%

90. The natural-rate level of output:

(A) Is affected by aggregate demand
(B) Is the level of output at which the unemployment rate is zero
(C) Is the level of output at which the unemployment rate is at its natural level
(D) Is permanent and unchangeable
(E) Is zero

91. Which of the following is true if the economy is producing at the full-employment level of
output?
(A) The unemployment rate is zero.
(B) No person is receiving unemployment compensation from the government.
(C) There is frictional unemployment.
(D) The government's budget is balanced.
(E) The balance of trade is in equilibrium.

92. 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
(E) First fall and then rise

93. If s is the rate of job separation, f is the rate of job findings and both rates are constant, then the
unemployment rate is approximately:
(A) f/(f + s)
(B) (f + s)/f
(C) s/(s + f)
(D) (s + f)/s
(E) (s – f)/f

94. If the fraction of employed workers who lose their jobs each month (the rate of job separation)
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% (B) 9% (C) 10% (D) about 11% (E) 19%
95. 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
(E) Rise or decline, depending on the level of economy’s development

96. Suppose that 2% of the employed lose their jobs each month (s = 0.02) and 38% of the
unemployed find a job each month (f = 0.38). Then, the steady-state rate of unemployment is
(A) 2% (B) 5% (C) 16% (D) 36% (E) 40%

97. The unemployment rate is 10%. The rate of job separation is 5%. How high does the rate of job
finding have to be to keep the unemployment rate constant?
(A) 10% (B) 45% (C) 50% (D) 85% (E) 90%

98. The natural rate of unemployment is the level at which

(A) Entry and exit from the unemployment pool balance
(B) Expectations about wages and prices are correct
(C) The real wage is at the market-clearing level
(D) Both (A) and (B) occur
(E) All of the above occur

99. The natural rate of unemployment changes in response to

(A) Labour market policies
(B) The composition of the labour force
(C) Changes in unemployment insurance system
(D) True answers are (A) and (B)
(E) All of the above

Unemployment and Output. Okun’s Law.

100. According to Okun's law, if real GDP grows at 5% this year, the unemployment rate
should change by
(A) -2% (B) -1% (C) 0% (D) 1% (E) 2%

101. According to Okun's law, for the unemployment rate to remain unchanged, output must
grow at about
(A) 0% (B) 1% (C) 2% (D) 3% (E) 4%

102. Okun's law specifies that for each 2% that real GDP falls short of potential GDP, there is a
(A) 1% rate of cyclical unemployment below the natural rate
(B) 1% rate of cyclical unemployment above the natural rate
(C) 1% rate of structural unemployment above the natural rate
(D) 1% rate of structural unemployment below the natural rate
(E) 1% rate of frictional unemployment below the natural rate

103. According to Okun's law, if the unemployment rate rises by about one percent, over a year’s
time, the change in real GDP will be a rise of approximately:
(A) 5% (B) 3.5% (C) 2.5% (D) 1% (E) 0%
104. If the unemployment rate rose by one percent over a very short time, Okun's law would
predict the corresponding change in real GDP to be a:
(A) Rise of about 0.5 percent
(B) Rise of about 2 percent
(C) Fall of about 2 percent
(D) Fall of about 0.5 percent
(E) Fall by 1 percent

Government Policy and Unemployment

105. Which of the following government policies would not tend to lower the unemployment
rate?
(A) Reduce unemployment benefits.
(B) Establish employment agencies.
(C) Establish worker training programs.
(D) Raise the minimum wage.
(E) Establish right-to-work laws.

106. The unemployment insurance system may be desirable because:

(A) Unemployment insurance raises the natural rate of unemployment
(B) Any system that employers dislike cannot be all bad
(C) Unemployment insurance increases workers' uncertainty about their incomes
(D) Unemployment insurance induces workers to reject unattractive job offers
(E) Unemployment insurance makes workers more urgent in their search for new jobs

107. 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.
(E) An increase in the length of unemployment insurance payments.

108. One way to reduce the natural rate of unemployment would be to

(A) Raise the minimum wage rate
(B) Pursue an expansive fiscal policy
(C) Pursue an expansive monetary policy
(D) Increase job information
(E) Increase unemployment benefits

109. Any policy aimed at lowering the natural rate of unemployment must:
(A) Either reduce the rate of job separation or reduce the rate of job finding
(B) Either increase the rate of job finding or increase the rate of job separation
(C) Either reduce the rate of job separation or increase the rate of job finding
(D) Either increase the rate of job separation or reduce the rate of job finding
(E) Not enough information to answer

110. All of the following policies were adopted by government in an attempt to reduce the
natural rate of unemployment except
(A) Unemployment insurance
(B) Government employment agencies
(C) Public retraining programs
(D) The bonus programs for unemployment insurance claimants who found jobs quickly
(E) All of the above will reduce the natural rate of unemployment