Principles of Macroeconomics Brief Edition 3rd Edition Frank Test Bank

Principles of Macroeconomics Brief Edition 3rd Edition Frank Test Bank
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Edition Frank Test Bank
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File: Chapter 015 The Labor Market: Workers, Wages, and Unemployment
Multiple Choice
1. In the twentieth century, average real wages have risen substantially:

A. only in the United States.
B. in industrial countries excluding the United States.
C. in industrial countries including the United States.
D. in neither the United States nor other industrial countries.
Answer: C
Difficulty: 01 Easy
Topic: Five Important Labor Market Trends
AACSB: Reflective Thinking
Blooms: Remember
Learning Objective: 15-01
Feedback: The United States and most industrial countries around the world have seen
substantial increases in average real wages over the past 100 years.
2.The real purchasing power of the average worker's yearly earnings in the United States in 2014
was ____ as in 1960.
A. five times as large
B. more than twice as large
C. about the same
D. about half as much
Answer: B
Difficulty: 01 Easy
Blooms: Remember
Feedback: In the United States in 2014, the average worker’s yearly earnings could
command more than twice as many goods and services as in 1960.
3.The real purchasing power of the average worker's yearly earnings in the United States in 2014
was ____ as in 1929.
A. five times as large
B. more than twice as large
C. about the same
D. about half as much
Answer: A
Difficulty: 01 Easy
1
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Blooms: Remember
Feedback: In the United States in 2014, the average worker’s yearly earnings could
command more than five as many goods and services as in 1929, just prior to the Great
Depression.
4. In the United Sates, the average annual rate of growth of real wages was fastest in the
period:
A. 1960-1973.
B. 1960-1995.
C. 1996-2010.
D. 1973-1995.
Answer: A
Difficulty: 01 Easy
Blooms: Remember
Feedback: The decade of the 1960’s, and spilling into the 70’s, saw large increases in
average real wages.
5. The growth rate of average annual earnings in the United States from 1973 to 1995
was:
A. higher than it was from 1960 to 1973.
B. lower than it was from 1960 to 1973.
C. the same as it was from 1960 to 1973.
D. roughly equal to zero.
Answer: B
Difficulty: 01 Easy
Blooms: Remember
Feedback: The U.S. growth rate of average annual earnings slowed in the early 1970’s,
and was negative until 1995.
6. Compared to the 1973 to 1995 period, average real earnings of workers ______ from
1960 to 1973.
A. grew more slowly
B. declined
C. grew at about the same rate
D. grew more rapidly
Answer: D
2
Difficulty: 02 Medium
Blooms: Remember
Feedback: The U.S. growth rate of average annual earnings started to decline in the early
1970’s, and declined annually until 1995.
7. In the period from 1996 to 2007, real wages in the United States _____ during the
1973 to 1995 period..
A. declined
B. declined more rapidly
C. grew at about the same rate
D. grew more rapidly
Answer: D
Blooms: Remember
1970’s, and declined annually until 1995. Average annual earnings started growing again
after 1996, in part because of the Internet and communications technology.
8. Compared to the 1960 and 1973 period, average real earnings of workers ______ from
1973 to 1995 and then ______ from 1996 to 2010.
A. declined; grew more slowly
B. declined; declined even more
C. slowly; grew at about the same rate
D. grew more rapidly; declined
Answer: A
Blooms: Remember
1970’s, and declined annually until 1995. Average annual earnings started growing again
after 1996, in part because of the Internet, but at a rate lower than seen in the 1960s.
3
9. In the United States the real wages of the least-skilled, least educated workers have
______ and the wages of best-educated, highest skilled workers have ______.
A. increased; increased
B. declined; increased
C. increased; declined
D. declined; remained constant
Answer: B
Difficulty: 01 Easy
Blooms: Remember
Feedback: Unskilled workers in the United States have lost ground to global competition
whereas the highest skilled workers have gained.
10. In the United States there is evidence of:

A. an increase in in job creation since 2000.
B. increasing wage inequality.
C. increasing wage equality.
D. an increase in the proportion of the population over 16 employed since 2000.
Answer: B
Difficulty: 01 Easy
Blooms: Remember
whereas the highest skilled workers have gained. This has led to increasing wage
inequality.
11. A "two-tier" labor market in the United States refers to plenty of jobs for ______ workers
and few jobs for _____ workers.
A. highly-skilled; unskilled
B. southern; northern
C. unskilled; highly-skilled
D. old; young
Answer: A
Difficulty: 01 Easy
Blooms: Remember
4
whereas the highest skilled workers have gained. This has led to fear of a "two-tier" labor
market in the United States.
12. The increasing wage inequality in the United States is between _____ workers and ____
workers.
A. highly-skilled; unskilled
B. service-sector; industrial-sector
C. male; female
D. old; young
Answer: A
Difficulty: 01 Easy
Blooms: Remember
whereas the highest skilled workers have gained. This has led to increasing wage
inequality.
13. In the United States between 1970 and 2000, employment:

A. was constant, while the over-sixteen population increased.
B. decreased, while the over-sixteen population increased.
C. grew more rapidly than the over-sixteen population.
D. grew at approximately the same rate as the over-sixteen population.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: Employment grew rapidly in the post-1980’s due to an influx of working
women.
14 Since the year 2000, the share of the population holding or actively looking for jobs
have _______ in the United States:
A. been record high.
B. increased.
C. remained approximately constant.
D. decreased.
Answer: D
Difficulty: 01 Easy
5
Blooms: Remember
Feedback: Employment grew rapidly in the post-1970’s, but peaked in 2000. Since then
the share of the population holding or actively looking for jobs have steadily decreased.
15. Compared to the United States, over the last three decades unemployment in Western Europe
has been ____ and the rate of job creation has been ______.
A. lower; slower
B. higher; faster
C. higher; slower
D. lower; faster
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: Compared with the United States, western European countries have, in
general, been suffering higher rates of unemployment and slower rates of job creation
during much of the last three decades.
16. Compared to Western Europe, over the last three decades unemployment in United States has
been ____ and the rate of job creation has been ______.
A. lower; slower
B. higher; faster
C. higher; slower
D. lower; faster
Answer: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: Compared with western European countries, the United States has, in general,
been experiencing lower rates of unemployment and higher rates of job creation during
much of the last three decades.
17.The major labor market problem in the United States is ______ and in Western Europe the
problem is _______.
A. high persistent unemployment; low average wages
B. high persistent unemployment; increasing wage inequality
C. increasing wage inequality; increasing wage inequality
6
D. increasing wage inequality; high persistent unemployment
Answer: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: Compared with western European countries, the United States has, in general,
been experiencing lower rates of unemployment and higher rates of job creation during
much of the last three decades. However the United States is seeing a trend towards
increasing wage inequality.
18. One trend in labor markets is:

A. a decrease in average real wages in the United States and other industrial countries.
B. decreasing wage inequality in the United States.
C. weak rates of job creation in the United States since 1980.
D. a slowdown in real wage growth in the United States since 1973.
Answer: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: Real wages in the United States grew quickly in the post-World War II years,
but this strong growth rate fell after 1973.
19. One trend in labor markets is:

A. a decrease in average real wages in the United States and other industrial countries.
B. increasing wage inequality in the United States.
C. weak rates of job creation in the United States since 1980.
D. an increase in the rate of real wage growth since the early 1970s.
Answer: B
Difficulty: 01 Easy
Blooms: Remember
Feedback: Recent decades have brought a pronounced increase in wage inequality in the
United States.
7
20. All of the following describe trends in U.S. labor markets except:
A. growing wage equality in the United States in recent decades.
B. a slowdown in real wage growth since the 1970s.
C. substantial growth in the level of employment in the United States.
D. substantial growth in real ages during the last century.
Answer: A
Difficulty: 01 Easy
Blooms: Remember
Feedback: In recent decades the United States has seen increasing wage dispersion: the
rich are getting richer.
21. All of the following describe trends in U.S. labor markets except:
A. growing wage inequality in the United States in recent decades.
C. substantial growth in the level of employment in the United States since 2000.
D. substantial growth in real ages during the last century..
Answer: D
Blooms: Understand
Feedback: Employment grew rapidly in the post-1970’s, but peaked in 2000. Since then
the share of the population holding or actively looking for jobs have steadily decreased.
22.Which of the following labor market trends have occurred in both the U.S. and in most
Western European countries?
A. continuous and substantial growth in real wages and substantial job growth
B. a substantial growth in real wages and double digit rates of unemployment in the 1990s
C. a substantial growth in real wages over the twentieth centaury
D. a pronounced decrease in wage inequality and double digit rates of unemployment in the
1990s
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: The United States and most industrial countries around the world have seen
substantial increases in average real wages over the past 100 years.
8
23.All of the following describe trends in the labor markets of the industrialized world EXCEPT:
A. growing wage inequality.
C. low rates of unemployment in Western Europe.
D. substantial growth in real wages over the twentieth centaury
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: Compared with the United States, western European countries have, in
general, been suffering higher rates of unemployment and slower rates of wage creation
during much of the last three decades.
24. In the market for labor, the price of labor is the:

A. same as price of the product produced by the labor.
B. real wage.
C. marginal product of labor.
D. number of hours employed per year.
Answer: B
Difficulty: 01 Easy
Topic: Supply and Demand in the Labor Market
Blooms: Remember
Feedback: In the market for labor, the “price” is the real wage paid to workers in
exchange for their services.
25. The real wage is the:

A. price of labor.
B. marginal product of labor .
C. supply of labor.
D. the ratio of wage of unskilled workers to the wage of skilled workers.
Answer: A
Difficulty: 01 Easy
Blooms: Remember
Feedback: In the market for labor, the “price” is the real wage paid to workers in
exchange for their services.
9
26. The demand for labor depends on ______ and _______.
A. the supply of labor; the marginal product of labor
B. the supply of labor; the price of output produced
C. the rate of price inflation; the price of the output produced
D. the marginal product of labor; the price of output produced
Answer: D
Blooms: Remember
Feedback: When a business hires workers, the business is interested in both the
productivity of the worker and the price of the output the worker produces. So these
determine the demand for labor.
27. The marginal product of labor and the price of the output produced determine the:
A. the supply of labor
B. worker mobility
C. the price of labor
D. the demand for labor
Answer: D
Blooms: Remember
Feedback: When a business hires workers, the business is interested in both the
productivity of the worker and the price of the output the worker produces. So these
determine the demand for labor.
28. The extra production gained by employing one more worker is called the:
A. real wage of labor.
B. price of labor.
C. marginal product of labor.
D. opportunity cost of labor.
Answer: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: The marginal product of labor is the additional output produced by one more
worker.
10
29. The marginal product of labor is the additional:
A. wage paid for an additional hour of work.
B. wage paid for an additional worker employed.
C. labor employed to produce one more unit of output.
D. output produced by one more worker.
Answer: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: The marginal product of labor is the additional output produced by one more
worker.
30. According to the principle of diminishing returns to labor, if the amount of capital
and other inputs are held constant, employing additional workers:
A. increases output at an increasing rate.
B. increases output at a constant rate.
C. increases output at a decreasing rate.
D. decreases output at an increasing rate
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: This is the definition of “diminishing returns to labor.”
31. The principle of diminishing returns to labor is based on the:

A. scarcity principle.
B. cost-benefit principle.
C. principle of increasing opportunity cost.
D. equilibrium principle.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: The economic basis for diminishing returns to labor is the concept of
increasing opportunity cost.
11
32. The value of the marginal product of labor equals the marginal product of labor times
the:
A. real wage.
B. nominal wage.
C. price of output.
D. quantity of labor.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: The value of the marginal product of labor equals the marginal product of
labor times the price of output.
33. The following table provides information about production at the XYZ-TV Company.
Number of Workers TVs Produced Marginal Product Value of Marginal

Product
0 0 --- ---
1 35 35 $35,000
2 68 33 $33,000
3 99 31 $31,000
4 128 29 $29,000
5 155 27 $27,000
How many workers will XYZ-TV Company hire if the going wage for TV production
workers is $32,000?
A. 0
B. 1
C. 2
D. 3
Answer: C
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Apply
Feedback: The firm will hire 2 workers. At that level, the value of marginal product is
$33,000 whereas the cost is only $32,000. Note that a third worker would only add
$31,000 of value but cost an additional $32,000.
12

Product
0 0 --- ---
1 35 35 $35,000
2 68 33 $33,000
3 99 31 $31,000
4 128 29 $29,000
5 155 27 $27,000
workers is $30,000?
A. 0
B. 1
C. 2
D. 3
Answer: D
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Apply
$31,000 whereas the cost is only $30,000. Note that a fourth worker would only add

Product
0 0 --- ---
1 35 35 $35,000
2 68 33 $33,000
3 99 31 $31,000
4 128 29 $29,000
5 155 27 $27,000
workers is $28,000?
A. 1
B. 2
C. 3
D. 4
Answer: D
13
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Apply
$29,000 whereas the cost is only $28,000. Note that a fifth worker would only add

Product
0 0 --- ---
1 35 35 $35,000
2 68 33 $33,000
3 99 31 $31,000
4 128 29 $29,000
5 155 27 $27,000
workers is $60,000?
A. 0
B. 4
C. 5
D. More than 5
Answer: A
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Apply
Feedback: The firm will hire no workers. The value of marginal product for the first
worker is $35,000 whereas the cost is $60,000.
37. High Tech, Inc. produces plastic chairs that sell for $10 each. The following table
provides information about how many plastic chairs can be produced per hour.
Number of Workers Chairs Produced Per Hour

0 0
1 10
2 18
3 24
4 28
5 30
14
For simplicity, assume that labor is the only input. How many workers will be hired if the
hourly wage for workers is $70?
A. 1
B. 2
C. 3
D. 4
Answer: B
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Apply
Feedback: Since the marginal product is diminishing when more workers are hired, the
value of the marginal product is also diminishing. While the first worker adds 10 chairs
per hour (10 - 0), the second worker only adds 8 chairs per hours (18-10) and so forth.
The marginal value of marginal product is therefore: $100 for the first worker (10 × $10),
$80 for the second worker (8 × $10), $60 for the third worker (6 × $10), $40 for the
fourth worker (4 × $10), and $20 for the fifth and final worker (2 × $10). So the firm will
hire 2 workers. At that level, the value of marginal product is $80 per hour whereas the
cost is only $70 per worker. Hiring additional workers will reduce profit as the value of
the marginal product for the third worker is only $60 per hour.

0 0
1 10
2 18
3 24
4 28
5 30
A. 1
B. 2
C. 3
D. 4
Answer: D
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Apply
15
cost is only $30 per worker. Hiring additional workers will reduce their profit, as the
value of the marginal product for the fifth worker is only $20 per hour.

0 0
1 10
2 18
3 24
4 28
5 30
A. 0
B. 3
C. 5
D. More than 5
Answer: A
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Apply
hire no workers. The value of marginal product for the first worker is $100 whereas the
cost is $120. Hiring the first worker would result in negative profit.
16

0 0
1 10
2 18
3 24
4 28
5 30
A. 1
B. 3
C. 5
D. 2
Answer: A
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Apply
cost is only $50 per worker. Hiring additional workers will reduce profit as the value of
the marginal product for the fourth worker is only $40 per hour.
41. Firms will hire additional workers as long as the wage:

A. is less than the marginal product of labor.
B. equals the marginal product of labor.
C. is greater than the marginal product of labor.
D. is less than the value of the marginal product of labor.
Answer: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: This is an application of the marginal benefit-marginal cost rule.
17
42. An increase in the price of the output produced by labor will:
A. increase the supply of labor.
B. decrease the supply of labor.
C. increase the demand for labor.
D. decrease the demand for labor.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: When the price that the firm can sell output increases, more workers will be
desired, as the value of each worker’s marginal product is now higher. The labor demand
curve shifts to the right.
43. A decrease in the price of the output produced by labor will:

D. decrease the demand for labor.
Answer: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: When the price that the firm can sell output decreases, fewer workers will be
desired, as the value of each worker’s marginal product is now lower. The labor demand
curve shifts to the left.
44. The introduction of a new technology that increases the productivity of labor will:
D. decrease the demand for labor
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: Increased worker productivity means more output per worker is produced,
which in turn causes firms to want to hire or demand more workers.
18
45. If the price of TVs produced by XYZ-TV Company falls from $1,000 to $750 per TV
set, then the:
A. supply of labor to the XYZ-TV Company increases.
B. supply of labor to the XYZ-TV Company decreases.
C. demand for labor by the XYZ-TV Company increases.
D. demand for labor by the XYZ-TV Company decreases.
Answer: D
Blooms: Understand
Feedback: When prices fall for the goods and services produced by workers, the demand
for labor falls too.
46. If the price of TVs produced by XYZ-TV Company falls from increases from $1,000
to $1,250 per TV set, then the:
A. supply of labor to the XYZ-TV Company increases.
B. supply of labor to the XYZ-TV Company decreases.
C. demand for labor by the XYZ-TV Company increases.
D. demand for labor by the XYZ-TV Company decreases.
Answer: C
Blooms: Understand
Feedback: When the price that the firm can sell output increases, more workers will be
desired, as the value of each worker’s marginal product is now higher. The labor demand
curve shifts to the right.
47. The demand for labor increases when the:

A. real wage increases.
B. real wage decreases.
C. value of the marginal product of labor increases.
D. value of the marginal product of labor decreases.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
19
Feedback: The demand for labor increases when the value of their contribution to the
employer rises. Economists call this an increase in the “value of marginal product.” Note
that the quantity of labor demanded will increase when real wages decrease, however that
describes a movement along a stationary demand for labor curve rather than a shift of the
curve itself.
48. The demand for labor decreases when the:

A. real wage increases.
B. real wage decreases.
C. value of the marginal product of labor increases.
D. value of the marginal product of labor decreases.
Answer: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: The demand for labor decreases when the value of their contribution to the
employer decreases. Economists call this a decrease in the “value of marginal product.”
Note that the quantity of labor demanded will decrease when real wages increase,
however that describes a movement along a stationary demand for labor curve rather than
a shift of the curve itself.
49. If the price of tables sold by All-Oak Table Co. increases from $400 to $500, then
the:
A. supply of labor to All-Oak Table Co. increases.
B. supply of labor to All-Oak Table Co. decreases.
C. demand for labor by All-Oak Table Co. decreases.
D. demand for labor by All-Oak Table Co. increases.
Answer: D
Blooms: Understand
Feedback: The value of the final good has fallen, so as a result, the demand for labor
decreases.
20
50. Production data for Joe's Pizza Parlor are as follows. For simplicity assume that labor
is the only input. Each pizza sells for $5.
Pizzas Baked Per Day

Number of Workers
0 0
1 10
2 18
3 24
4 30
5 32
How many workers will Joe hire if he must pay each one $35 a day?
A. 1
B. 2
C. 3
D. 4
Answer: B
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Apply
value of the marginal product is also diminishing. While the first worker adds 10 pizzas
per hour (10 - 0), the second worker only adds 8 pizzas per hours (18-10) and so forth.
$40 for the second worker (8 × $5), $30 for the third worker (6 × $5), $20 for the fourth
worker (6 × $5), and $10 for the fifth and final worker (2 × $5). So Joe hires 2 workers as
the value of marginal product is higher than $35 for two workers. Any other number of
workers reduces profits, as the added cost per hour would exceed the added value from
additional pizza.

Number of Workers
0 0
1 10
2 18
3 24
4 30
5 32
21
A. 1
B. 2
C. 3
D. 4
Answer: A
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Apply
worker (6 × $5), and $10 for the fifth and final worker (2 × $5). So Joe hires 1 worker as
the value of marginal product is higher than $45 for only one worker. Any other number
of workers reduces profits, as the added cost per hour would exceed the added value from
additional pizza.

Number of Workers
0 0
1 10
2 18
3 24
4 30
5 32
A. 1
B. 2
C. 3
B. 4
Answer: A
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Apply
22
worker (6 × $5), and $10 for the fifth and final worker (2 × $5). So Joe hires 3 workers,
as the value of marginal product is higher than $25 for three workers. Any additional
workers reduce profits, as the added cost per hour would exceed the added value from
additional pizza.
53. The minimum payment you are willing to accept to do a job is your:
A. nominal wage.
B. real wage.
C. reservation price.
D. value of marginal product.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: The minimum payment you are willing to accept to do a job is your
reservation price.
54. The decision whether to work at any given wage is an application of the
A. cost-benefit principle.
B. principle of increasing opportunity cost.
C. scarcity principle.
D. principle of comparative advantage.
Answer: A
Difficulty: 01 Easy
Blooms: Remember
Feedback: The In economic terms, deciding whether to work at any given wage is an
application of the cost-benefit principle.
55. An increase in the size of the working-age population:

A. increases labor demand.
B. decreases labor demand.
C. increases labor supply.
23
D. decreases labor supply.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: When the working-age population increases, the potential labor supply
increases.
56. As the real wage increases, the quantity of labor demanded ______ and the quantity
of labor supplied _______.
A. increases; increases
B. increases; decreases
C. decreases; decreases
D. decreases; increases
Answer: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: As real wages increase, firms will desire fewer employees due to the increase
in cost. Conversely, as real wages increase, more people will find it worthwhile to work
or worker more hours.
57. As the real wage decreases, the quantity of labor demanded ______ and the quantity
of labor supplied _______.
C. decreases; decreases
Answer: B
Difficulty: 01 Easy
Blooms: Remember
Feedback: As real wages decrease, firms desire more employees. Conversely, as real
wages decrease, fewer people find it worthwhile to work or workers desire fewer hours.
58. An increase in number of foreign immigrants allowed into the country who wish to
work will:
24
A. increases labor demand.
B. decreases labor demand.
C. increases labor supply.
D. decreases labor supply.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: When there are more people willing to work at any given wage level, the
supply of labor increases.
59. Holding other factors constant, if food prices decline relative to the prices of other
products, then the real wages of agricultural workers will ______ and employment of
agricultural workers will _____.
A. increase; increase
B. increase; decrease
C. decrease; not change
D. decrease; decrease
Answer: D
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Analyze
Feedback: If food prices decline then the producers of food will be less inclined to hire
workers, so the demand for labor shifts left Wages and employment will decrease.
60. Holding other factors constant, if 3D-printing technology allows factory workers to
manufacture more products per hour, then the real wages of factory workers will ______
and employment of factory workers will _____.
D. decrease; increase
Answer: A
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Analyze
25
Feedback: If factory workers become more productive, thereby increasing their
contribution to the employer, then producers will be more inclined to hire workers so the
demand for labor shifts right. Wages and employment will increase.
61. Holding other factors constant, if a larger proportion of the population enters the labor
force as a result of a growing social acceptance of women working, then the real wages
of workers will ______ and employment of workers will _____.
Answer: D
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Analyze
Feedback: If social attitudes become more accepting of women workers, then the supply
of labor shifts right. The number of workers will grow but increased competition for jobs
will decrease wages
62. Holding other factors constant, if the retirement of many in people in the post-war
baby boom generation reduces the portion of the population is the labor force, then the
real wages of workers will ______ and employment of workers will _____.
Answer: B
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Analyze
Feedback: If more people retire and thereby leave the labor force, then the supply of labor
shifts left. The number of employed workers will decrease but increased competition for
workers will increase wages
26
63. Holding other factors constant, if oil prices rise relative to the prices of other
products, then the real wages of oil workers will ______ and employment of oil workers
will _____.
Answer: A
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Analyze
Feedback: If oil prices rise, then the production of oil becomes more profitable and
producers of oil will be more inclined to hire workers and there will be more demand for
oil workers (demand shifts right). As a result, wages and employment will increase.
64. Holding other factors constant, if the education and skills of the typical worker in an
economy increases, then the real wages of workers will ______ and employment of
workers will _____.
Answer: A
Difficulty: 03 Hard
AACSB: Analytic
Blooms: Analyze
Feedback: If worker quality increases, then more workers are desired because they are
more productive. Demand for labor will shift right, increasing wages and employment.
65. An increase in the demand for chicken is predicted to ______ the real wage and
______ employment of unskilled workers in a poultry processing plant.
C. increase; not change
Answer: A
Difficulty: 03 Hard
Blooms: Analyze
27
Feedback: If there is more demand for chicken, we would expect the price of chicken to
increase too and the production of chicken becomes more profitable. As a consequence,
chicken producers will be more inclined to hire workers and there will be more demand
for poultry workers (demand shifts right). As a result, wages and employment will
increase.
66. A sharp increase in the price of beef that causes consumers to switch to chicken is
predicted to ____ the real wage and ____ employment of unskilled workers in a poultry
processing plant.
Answer: A
Difficulty: 03 Hard
Blooms: Analyze
Feedback: If there is more demand for chicken, we would expect the price of chicken to
increase too and the production of chicken becomes more profitable. As a consequence,
chicken producers will be more inclined to hire workers and there will be more demand
for poultry workers (demand shifts right). As a result, wages and employment will
increase.
67. If the existence of alternative opportunities makes people become less willing to work
in poultry processing plants, then the real wage of unskilled workers in poultry
processing plants is predicted to ______ and the employment of unskilled workers in
poultry processing plants is predicted to ______.
Answer: B
Difficulty: 03 Hard
Blooms: Analyze
Feedback: If the work setting becomes more favorable outside of poultry processing
plants, then the supply of workers will shift left and there will be more competition for
the remaining poultry processing workers, causing wages will increase and employment
to decrease.
28
68. If new production technology is put into practice that allows workers to increase their
productivity and process more chickens per hour, then the real wage of unskilled workers
in poultry processing plants is predicted to _____ and the employment of unskilled
workers in poultry processing plants is predicted to _____.
Answer: A
Difficulty: 03 Hard
Blooms: Analyze
Feedback: If each worker is more productive and thereby increases their value to their
employer, then chicken producers will be more inclined to hire additional workers and
there will be more demand for poultry workers (demand shifts right). As a result, wages
and employment will increase.
69. If the introduction of industrial robots in the poultry industry means that robots will
now do most of the tasks in poultry processing plants, thereby replacing most of the
unskilled workers. Then the real wage of unskilled workers in poultry processing plants is
predicted to ______ and the employment of unskilled workers in poultry processing
plants is predicted to ______.
Answer: D
Difficulty: 03 Hard
Blooms: Analyze
Feedback: If the fewer workers are needed then the demand for labor will shift left and
there will be more competition for the remaining poultry processing jobs, causing wages
to decrease and employment to decrease.
70. Real wages increased in industrialized countries in the twentieth century because the
demand for labor:
A. increased more rapidly than the supply of labor increased.
B. increased more slowly than the supply of labor increased.
C. increased, while the supply of labor decreased.
D. decreased, while the supply of labor increased.
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Answer: A
Difficulty: 01 Easy
Topic: Explaining the Trends in Real Wages and Employment
Blooms: Remember
Feedback: Labor markets follow the same principles as goods and services markets: when
both supply and demand rise at the same time, it is certain that quantity will increase but
uncertain whether price will rise or fall. When wages rose in this case, the demand shift
was greater than the supply shift.
71. Holding other factors constant, technological progress ______ the real wage and
______ employment.
C. increases; does not change
Answer: A
Blooms: Understand
Feedback: Technical progress almost always increases worker productivity, which makes
workers more desirable to employers. The demand for labor will shift right and therefore
puts upward pressure on wages and increase employment too.
72. Large productivity gains explain:

A. increasing wage inequality
B. high unemployment in Western Europe.
C. skill-based technological change.
D. the long-term increase in real wages
Answer: D
Blooms: Understand
Feedback: Increases in worker productivity, which makes workers more desirable to
employers, will shift the demand for labor will shift right and therefore puts upward
pressure on real wages (and increase employment too).
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73. The two most important factors contributing to increased productivity in
industrialized countries in the twentieth century were:
A. higher relative prices and a larger labor supply.
B. higher relative prices and technological progress.
C. technological progress and increases in the capital stock.
D. technological progress and increases in the labor supply.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: Industrial countries invested heavily in human and physical capital in the
twentieth century. These investments greatly increased productivity.
74. Long-term increases in productivity that have increased the demand for labor, and
raised real wages, have resulted primarily from ______ and _____.
A. technological progress; a modernized capital stock
B. technological progress; an increased labor supply
C. a modernized capital stock; skill-biased technological change
D. a modernized capital stock; an increased labor supply
Answer: A
Blooms: Remember
Feedback: Technological progress and a modernized capital stock will increase worker
efficiency, which increases the demand for labor and puts upward pressure on wages.
75. Larger increases in the demand for labor than in the supply of labor explain:
A. the substantial increase in real wages.
B. the slowdown in real wage growth.
C. increasing wage inequality.
D. skill-biased technological change.
Answer: A
Blooms: Understand
Feedback: When both labor supply and labor demand rise at the same time, it is certain
that quantity will increase but uncertain whether wages will rise or fall. If wages rise, we
know the demand shift was larger than the supply shift.
31
76. Slower growth in labor demand in combination with increases in labor supply
explains ____________ accompanied by __________.
A. a slowdown in real wage growth; a decline in employment
B. a slowdown in real wage growth; rapid employment growth
C. a slowdown in real wage growth; increasing wage inequality
D. accelerated real wage growth; a decline in employment
Answer: B
Blooms: Understand
Feedback: When both labor supply and labor demand rise at the same time, it is certain
that quantity will increase but uncertain whether wages will rise or fall. If the demand
shift was smaller than the supply shift there is downward pressure on real wages but an
increase in employment.
77. Holding other factors constant, an increase in the capital stock ______ the real wage
and ______ employment.
C. increases; does not change
Answer: A
Blooms: Understand
Feedback: Increases in the capital stock make workers more productive, which increases
the demand for labor and puts upward pressure on wages and increases employment.
78. A war destroys much of the capital stock in the country of Omega. As a result,
holding other factors constant, the real wage in Omega will ______ and employment in
Omega will ______.
Answer: D
Blooms: Understand
32
Feedback: A smaller capital stock in Omega causes workers to be less productive, which
decreases the demand for labor and puts downward pressure on wages. With lower
wages, workers desire fewer hours of work and employment decreases too.
79. As a result of a war in the country of Omega, refugees flee to the country of Alpha to
seek employment. Holding other factors constant, the influx of refugees will ______ the
real wage in Alpha and ______ employment in Alpha.
C. decrease; decrease
Answer: D
Blooms: Understand
Feedback: The work force in Alpha has increased which increases the supply of labor and
puts downward pressure on real wages but increases employment levels in Alpha.
80. A pandemic causes the deaths of a large proportion of the working-age population in
the country of Alpha. As a result the real wage in Alpha _____ and employment in Alpha
____..
C. decrease; decrease
Answer: C
Blooms: Understand
Feedback: The work force in Alpha has tragically decreased, which decreases the supply
of labor and puts upward pressure on real wages but decreases employment levels in
Alpha.
33
81. Factors increasing the U.S. labor supply and thereby contributing to the slowdown in
real-wage growth that began in the 1970s include ______ and _____.
A. skill-biased technological change; globalization
B. increased labor force participation by women; the coming-of-age of the baby-boom
generation
C. technological progress; diminishing returns to labor
D. increasing wage inequality; globalization
Answer: B
Difficulty: 01 Easy
Blooms: Remember
Feedback: The expanded role of women in the labor force and huge numbers in the baby-
boom generation shifted labor supply out greatly. That shift put downward pressure on
wage rates in the U.S.
82. The slowdown in the growth of real wages in the United States since 1973,
accompanied with job growth is consistent with _______ growth of labor demand and
________ growth of labor supply:
A. slower; slower.
B. slower; faster.
C. slower; no change in.
D. faster; slower.
Answer: B
Difficulty: 01 Easy
Blooms: Remember
Feedback: A productivity slowdown occurred in the early 1970’s, reducing the increase
in the demand for labor. Also, the expanded role of women in the labor force and huge
numbers of baby-boomers increased labor supply and put downward pressure on wage
rates in the U.S.
83. The slowdown in the growth of real wages in the United States since 1973 is
consistent with a concurrent:
A. slowdown in productivity gains.
B. slowdown in the growth of the working age population.
C. slowdown in immigration into the country.
D. speedup in the rate of inflation.
Answer: A
Difficulty: 01 Easy
34
Blooms: Remember
Feedback: A slowdown in productivity gains will reduce (or even reverse) the growth in
the demand for labor. Slower increases in the demand for labor will reduce the growth in
real wages and a decrease in the demand for labor will reduce real wages as demand
shifts left.
84. Slower real wage growth in the U.S. since the 1970s accompanied by rapid job
growth, can be explained by:
A. skill-biased technological change.
B. globalization.
C. a productivity slowdown accompanied by an increase in the labor supply.
D. a productivity slowdown accompanied by a decrease in the labor supply.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: A productivity slowdown occurred in the early 1970’s, reducing the increase
in the demand for labor. Also, the expanded role of women in the labor force and huge
numbers of baby-boomers increased labor supply and put downward pressure on wage
rates in the U.S.
85. Given the slower growth in the demand for labor in the United States since 1973, the
large increases in employment must be the result of:
A. decreases in the supply of labor.
B. decreases in the demand of labor.
C. increases in the supply of labor.
D. increases in the real wage.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: The expanded role of women in the labor force and huge numbers of baby-
boomers increased labor supply, which lead to a raid increase in employment.
35
86. In recent decades, slower growth in the demand for labor accompanied by an
accelerated growth in the supply of labor in the U.S. explains:
A. negative real wage growth and double-digit rates of unemployment.
B negative real wage growth and increasing wage inequality.
C. negative real wage growth and an increase in the number of people with jobs.
D. increasing wage inequality and double-digit rates unemployment.
Answer: C
Blooms: Remember
Feedback: : Labor markets follow the same principles as goods and services markets:
when both supply and demand increases at the same time, it is certain that quantity or
employment will increase but uncertain whether price or wages will rise or fall. So
employment must have increased, and since the demand growth or shift was slower than
the supply growth or shift, the real wage must have declined.
87. Two explanations for increasing wage inequality are ______ and ________.
A. technological progress; a modernized capital stock
B. increased labor supply; a slowdown in productivity growth
C. increased worker mobility; transition aid
D. globalization; skill-biased technological change
Answer: D
Blooms: Remember
Feedback: Globalization has expanded international markets, which has induced
“outsourcing” of low wage work. At the same time, highly skilled workers have become
relatively more valuable, which has increased their incomes.
88. The increased efficiency and specialization that results from globalization illustrates the:
A. scarcity principle.
B. principle of comparative advantage.
C. cost-benefit principle.
D. principle of increasing opportunity costs.
Answer: B
Difficulty: 01 Easy
Blooms: Remember
36
Feedback: Increased efficiency and specialization illustrates the principle of comparative
advantage.
89 Initially, workers in the shoe industry and the computer industry earn the same wage.
Reductions in trade barriers give domestic consumers access to cheaper shoes produced
abroad, which causes domestic shoe prices fall. At the same time, foreign consumers
purchase more computers, raising the relative price of computers. As a result of these
changes, the demand for labor in the shoe industry ______ and the demand for labor in
the computer industry ______.
C. decreases; increases
D. decreases; decreases
Answer: C
Blooms: Understand
Feedback: In this case, fewer workers are demanded in the declining shoe industry, while
more workers are demanded in the growing computer industry.
90. Initially, workers in the shoe industry and the computer industry earn the same wage.
Reductions in trade barriers give domestic consumers access to cheaper shoes produced
abroad, so domestic shoe prices fall. At the same time, foreign consumers purchase more
computers, raising the relative price of computers. As a result of these changes, wages in
the shoe industry ______ and wages in the computer industry ______.
C. decrease; increase
Answer: C
Blooms: Understand
Feedback: In this case, fewer workers are demanded in the declining shoe industry, while
more workers are demanded in the growing computer industry. Wages will adjust to the
new demands; decreasing in the shoe industry and increasing in the computer industry.
37
91. Macroland produces dishes and glassware. Before trade, a set of dishes sells for $100
and a set of glasses sells for $50. When Macroland opens to trade, foreign demand for
domestically produced china is strong, raising the price of a set of dishes to $125. But
foreign competition reduces the demand for domestically produced glasses, so they now
sell for $25 a set. Assuming workers cannot move between industries, the wages of
workers producing dishes will ______ and the wages of workers producing glasses will
____.
B. increase; not change
C. increase; decrease
Answer: C
Blooms: Understand
Feedback: Workers in the dishes industry see increasing wages because the strong
demand for dishes increases the demand for workers. Conversely, the glasses industry
sees decreasing wages due to reduced demand for glasses and therefore less demand for
workers.
92. Globalization ______ the wages of workers in the exporting industries and ______
the wages of workers in the import-competing industries.
A. raises; raises
B. raises; lowers
C. raises; does not change
D. lowers; raises
Answer: B
Difficulty: 01 Easy
Blooms: Remember
Feedback: In industries where U.S. foreign competition is weak, like airplanes and
chemicals, workers see increasing wages due to increased demand for such workers with
globalization. Conversely, in industries where foreign competition is strong, like textiles,
U.S. workers see falling real wages due to decreased demand for such workers.
38
93. Increased international trade increases the demand for a country's exports, _____ the
demand for workers in export industries, and _____ their wages.
A. increases; decreases
B. increases; increases
Answer: B
Blooms: Understand
Feedback: In industries where a country’s foreign competition is weak, demand for the
country’s exports will increase and thereby increase the demand for workers in those
industries. With increased demand for labor, we also see an increase in real wages.
94. Increased international trade reduces the demand for a country's products that are
produced more efficiently abroad (import-competing products). This increase in trade
_____ the demand for workers in import-competing industries, and _____ their wages..
A. increases; decreases
B. increases; increases
Answer: D
Blooms: Understand
Feedback: In industries where a country’s foreign competition is strong or more efficient,
demand for the country’s domestically made products will decrease and thereby decrease
the demand for workers in those industries. With decreased demand for labor, we also see
a decrease in real wages.
95. Increasing wage inequality results when international trade leads to ______ wages for
workers in exporting industries and ______ wages for workers in importing industries.
A. higher; higher
B. higher; lower
C. lower; no change in
D. lower; higher
Answer: B
39
Blooms: Understand
Feedback: In industries where U.S. foreign competition is weak, workers see increasing
wages due to increased demand for such workers with globalization. Conversely, in
industries where foreign competition is strong, U.S. workers see falling real wages due to
decreased demand for such workers. This phenomenon increases wage inequality.
96. An increase in the demand for workers producing computers for export versus
producing agricultural products that can be imported more cheaply from abroad is an
example of how increasing wage inequality can result from:
A. the diminishing marginal product of labor.
B. the diminishing marginal product of capital.
C. increasing reservation prices.
D. globalization.
Answer: D
Blooms: Understand
Feedback: Globalization puts downward wage pressure on industries where foreign
competition is strong and upward wage pressure on industries where foreign competition
is weak. This phenomenon often increases wage inequality.
97. Globalization can increase wage inequality in the United States if international
competition is primarily in industries requiring ______ workers.
A. many
B. few
C. highly-skilled
D. low-skilled
Answer: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: The U.S. has a comparative disadvantage in those industries that employ low-
skilled workers. Globalization puts downward wage pressure on workers in those
industries.
40
98.The movement of workers between jobs, firms, and industries is called:
A. the supply of labor.
B. diminishing returns to labor.
C. the demand for labor.
D. worker mobility.
Answer: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: Worker mobility is the movement of workers between job, firms, and
industries
99. Worker mobility is the:

A. demand for labor in different industries and firms.
B. movement of workers between job, firms, and industries.
C. process of increasing the size of the working-age population.
D. way to end globalization.
Answer: B
Difficulty: 01 Easy
Blooms: Remember
Feedback: Worker mobility is the movement of workers between job, firms, and
industries
100. The increase in wage inequality resulting from globalization can be reversed
through:
A. revoking the principle of comparative advantage.
B. increases in worker mobility.
C. decreases in worker mobility.
D. making markets more competitive.
Answer: B
Blooms: Understand
Feedback: Increased worker mobility, both within the country and internationally,
induces workers to move to higher-paying industries and move away from lower-paying
industries.
41
101. Technological change that affects the marginal products of high-skilled and low-
skilled workers differently is called ______ technological change.
A. capital-labor
B. skill-biased
C. marginal-productivity
D. high-low
Answer: B
Difficulty: 01 Easy
Blooms: Remember
Feedback: Technological change that affects the marginal products of high-skilled and
low-skilled workers differently is called skill-biased technological change.
102. Skill-biased technological change increases wage inequality by altering the ______
high-skilled workers relative to low-skilled workers.
A. reservation price of
B. mobility of
C. supply of
D. demand for
Answer: D
Blooms: Understand
Feedback: High-skilled workers find the demand for their services has increased whereas
low-skilled workers see the opposite. The result is greater wage inequality.
103. The introduction of word processing software that increases the demand for workers
with computer skills relative to those without such skills is an example of:
A. increasing reservation prices.
B. skill-biased technological change.
C. the diminishing marginal product of labor.
D. globalization.
Answer: B
Blooms: Understand
42
Feedback: Computer skills are in growing demand in the modern economy. This is an
example of skill-biased technological change.
104. Whether a particular technological innovation is good for a particular worker depends on
the effect of that innovation on the worker's:
A. reservation price.
B. marginal product.
C. labor mobility.
D. union contract.
Answer: B
Blooms: Understand
Feedback: The demand for a worker increases when the value of that worker’s contribution to his
or her employer rises. An increase in labor productivity of a worker will increase the value of
marginal product and therefore increase demand for that worker.
105. Most economists generally argue ______ trying to block technological advances
because these technological advances ______.
A. in favor of; cause the economy to grow to rapidly
B. in favor of; increase wage inequality
C. against; are necessary for improved standards of living
D. against; promote wage equality
Answer: C
Blooms: Remember
Feedback: Technological advances are a major reason why economies grow. Thus
economists promote technological advances as a way to improve living standards.
106. A Luddite is:

A. someone who opposes the introduction of new technologies.
B. a worker whose real wage rises as a result of globalization.
C. a fictional character from American folk history.
D. a consumer who refuses to buy imported goods, even if they are cheaper.
Answer: A
Difficulty: 01 Easy
43
Blooms: Remember
Feedback: A Luddite is someone who opposes the introduction of new technologies.
107. If the Luddites had succeeded in ______ the introduction of labor-saving machinery,
economic growth in Great Britain may have been ______.
A. blocking; slower
B. blocking; more rapid
C. promoting; slower
D. promoting; more rapid
Answer: A
Difficulty: 01 Easy
Blooms: Remember
Feedback: Labor-saving machinery is a valuable economic innovation. Blocking it, as the
Luddites wanted, would have slowed economic development.
108. Skill-biased technological has different effects on the marginal products of ______
workers and ______ workers.
A. male; female
B. union; nonunion
C. government; private-sector
D. higher-skilled; lower-skilled
Answer: D
Difficulty: 01 Easy
Blooms: Remember
Feedback: Skill-based technological differences occur among many groups, but the
groups most affected by the recent globalization are the higher-skilled at the expense of
the lower-skilled.
109. Globalization and skill-biased technological change have contributed to:

A. the long-term growth in real wages.
B. the slowdown in productivity since 1973.
C. increasing wage inequality.
D. high rates of employment in Western Europe.
Answer: C
Difficulty: 01 Easy
44
Blooms: Remember
Feedback: Skill-based technological differences are increased by the recent globalization
of economies. Wage inequality has increased as higher-skilled workers gained at the
expense of the lower-skilled workers.
110. Government assistance to workers whose employment prospects have worsened is called:
A. worker mobility payments.
B. the minimum wage.
C. transition aid.
D. social security.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: To help the displaced workers who have seen a decline in the demand for their
labor, transition aid can be used to provided retraining and relocation.
111. From an economic perspective, the best response to increased wage inequality is to:
A. block future technological change.
B. stop all international trade.
C. provide transition aid to disadvantaged workers.
D. make skill-biased technological change illegal.
Answer: C
Difficulty: 01 Easy
Blooms: Remember
Feedback: Globalization has increased the size of markets, which is generally good. To
help the displaced workers who have seen a decline in the demand for their labor,
transition aid can be used to provided retraining and relocation.
112.Worker mobility and transition aid to workers are two ways to offset some of the impacts of:
A. increasing wage inequality.
B. the slowdown in real-wage growth.
C. the slowdown in productivity growth.
D. increases in the labor supply.
Difficulty: 01 Easy
45
Blooms: Remember
Feedback: To help the displaced workers who have seen a decline in the demand for their
labor, transition aid can be used to provided retraining and relocation.
113. Each person who is 16 years or older is considered to be in one of the following
categories:
A. employed, unemployed, or discouraged worker.
B. part-time worker, full-time worker, or unemployed.
C. part-time worker, full-time worker, or out of the labor force.
D. employed, unemployed, or not in the labor force.
Answer: D
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: For economic measurement purposes, workers are sorted into 3 categories:
employed, unemployed, or out of the labor force.
114. A person 16 years or older who does not work, but is actively looking for work, is
officially classified as:
A. employed.
B. unemployed.
C. chronically unemployed.
D. out of the labor force.
Answer: B
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: This is the definition of “unemployed.”
115. Who from among the following would be counted as unemployed?

A. A person with a part-time job who wants and is looking for a full-time job.
B. A person who is willing to work and has looked for a job in the last week.
C. A person who is willing to work but has not looked for a job in two months.
D. All of these people would be counted as unemployed.
Answer: B
Difficulty: 01 Easy
Topic: Unemployment
46
Blooms: Remember
Feedback: For a person to be classified as unemployed, he or she must be willing to work
and have recently looked for work.
116. The number of unemployed divided by the labor force equals the:
A. labor-force participation rate.
B. employment rate.
C. unemployment rate.
D. duration rate.
Answer: C
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: The unemployment rate is the number of unemployed divided by the labor
force.
117. Frictional unemployment is:

A. the unemployment that results when people retire or leave the labor force.
B. the additional unemployment not captured in official statistics resulting from
discouraged workers and involuntary part-time workers.
C. the extra unemployment that occurs during periods of recession.
D. short-term unemployment that is associated with the process of matching workers with
jobs.
Answer: D
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: Frictional unemployment is short-term unemployment that is associated with
the process of matching workers with jobs.
118. Structural unemployment is:

A. the additional unemployment not captured in official statistics resulting from
B. the extra unemployment that occurs during periods of recession.
C. short-term unemployment that is associated with the process of matching workers with
jobs.
47
D. long-term and chronic unemployment that exists even when the economy is producing
at a normal rate.
Answer: D
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: Structural unemployment is long-term and chronic unemployment that exists
when the economy is producing at a normal rate.
119. Cyclical unemployment is:

A. the additional unemployment not captured in official statistics resulting from
B. the extra unemployment that occurs during periods of recession.
C. short-term unemployment that is associated with the process of matching workers with
jobs.
D. long-term and chronic unemployment that exists even when the economy is producing
at a normal rate.
Answer: B
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: Cyclical unemployment is the extra unemployment that occurs during periods
of recession.
120. Heterogeneity and the dynamic nature of labor markets are the principal causes of
______ unemployment.
A. cyclical
B. chronic
C. structural
D. frictional
Answer: D
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: Workers are regularly coming and going from the labor force because there is
so much variety in the labor market. For example, people retire every day and workers
move from time-to-time, both of which are dynamic.
48
121. Which of the following is an example of cyclical unemployment?
A. Dora lost her job when the textile factory closed. She does not have skills to work in
another industry and has been unemployed for over a year.
B. Marsha was laid off from her job with the airline because the recession reduced
demand for airline travel. She expects to get her job back when the economy picks up.
C. George is an unskilled worker who mows lawns in the summer, but is unemployed the
rest of the year.
D. Jim had a job as an engineer, but quit when his wife was transferred to another state.
He looked for a month before finding a new job that he liked.
Answer: B
Topic: Unemployment
Blooms: Understand
Feedback: This is cyclical unemployment because it was caused by a period of recession.
122. Which of the following is an example of structural unemployment?

B. Marsha was laid off from her job with the airline because the recession has reduced
the demand for airline travel. She expects to get her job back when the economy picks up.
C. Alan, a software engineer, lost his job when the internet startup he worked for went
bankrupt. He interviewed with five companies in the area before taking a job with
another firm in the industry.
D. Jim had a job as an engineer, but quit when his wife was transferred to another state.
He looked for a month before finding a new job that he liked.
Answer: A
Topic: Unemployment
Blooms: Understand
Feedback: Dora lost her job because the industry she worked in was most likely moved
out of the country. The job may never come back, so she should train in another field or
move to find work.
49
123. Which of the following is an example of frictional unemployment?
B. Marsha was laid off from her job with the airline because the recession has reduced
the demand for airline travel. She expects to get her job back when the economy picks up.
C. George is an unskilled worker who mows lawns in the summer, but is unemployed the
rest of the year.
D. Hector looked for a job for five weeks after finishing college. He turned down several
jobs that didn't fit his skills, but now has a job that requires the expertise he gained in
college.
Answer: D
Topic: Unemployment
Blooms: Understand
Feedback: Hector faces frictional unemployment because it takes him a while to match
his skills with those skills desired in the labor market.
124. The costs of unemployment are lowest (and perhaps even negative) for ______
unemployment.
A. frictional
B. cyclical
C. structural
D. cyclical and structural
Answer: A
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: Frictional unemployment is acceptable because it gives workers time to find a
better match between their skills and the jobs offered.
125. Martha did not like her job as a receptionist, so she quit and is looking for one that
better suits her artistic talents. Ting Pei would like to work, but employers are not willing
to hire him because he does not speak English. Martha is ______ unemployed and Ting
Pei is ______ unemployed.
A. frictionally; structurally
B. structurally; frictionally
C. cyclically; structurally
D. structurally; cyclically
Answer: A
50
Topic: Unemployment
Blooms: Understand
Feedback: Martha expects to be out of work for a short while as she finds a better fit for
her talents. Ting Pei, on the other hand, might be out of work for a long time as he learns
a new language that will make him more employable.
126. Frictional unemployment may be economically beneficial if:

A. its psychological costs are borne only by the unemployed worker.
B. losses in economic output are small.
C. it leads to a better match between worker and job.
D. the social costs are limited to smaller tax revenues collected.
Answer: C
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: Frictional unemployment allows some “slippage” in the job market, much like
what happens in the apartment rental market. If there were never openings in either
market, there would be no opportunities to “trade up.”
127. Arthur is an unskilled worker who is currently unemployed. He has been offered a
job that pays $40 a day, but he is currently receiving unemployment insurance benefits
equal to $50 a day, so he chooses not to accept the job and to continue looking for a
better job. Arthur is ______ unemployed.
A. frictionally
B. structurally
C. cyclically
D. not
Answer: B
Topic: Unemployment
Blooms: Understand
Feedback: Arthur is being very selective in picking a job because he has unemployment
insurance that pays him more than working would. According to the definition, he is
structurally unemployed.
51
128. A long-term mismatch between the skills of some workers and the jobs available is a
principal cause of ______ unemployment.
A. cyclical
B. structural
C. global
D. frictional
Answer: B
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: Structural unemployment results from “structural” changes in the economy,
which result from changes in supply, demand and globalization.
129. Periods of unusually low production in an economy result in ______ unemployment.

A. cyclical
B. environmental
C. structural
D. frictional
Answer: A
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: Cyclical unemployment results from a dip in the business cycle.
130. Features of the labor market that are likely to cause structural unemployment include
all of the following except:
A. labor unions.
B. minimum wage laws.
C. unemployment compensation.
D. differences in the skills and experience of workers.
Answer: D
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: Labor unions, minimum wage laws and unemployment compensation are
structural impediments to smooth running labor markets and they impede labor market
adjustments.
52
131. Labor unions and minimum wage laws may create ______ unemployment.
A. cyclical
B. environmental
C. structural
D. frictional
Answer: C
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback Labor unions and minimum wage laws keep wages high. Because of this,
unions add impede the smooth adjustment of markets to changing conditions.
132. Structural unemployment can increase due to all of these except:

A. unemployment insurance.
B. worker mobility.
C. government regulations.
D. labor unions.
Answer: B
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: While labor unions, government regulations, and unemployment can all have
benefits to the economy; they may also increase structural unemployment. Increased
worker mobility, however, induces workers to move to higher-paying industries and
move away from lower-paying industries.
133. An increase in unemployment insurance benefits will:

A. increase the demand for labor.
B. decrease the demand for labor.
C. increase job search efforts of unemployed workers.
D. decrease job search efforts of unemployed workers.
Answer: D
Topic: Unemployment
Blooms: Understand
53
Feedback: If unemployment insurance benefits go up, as they often do under political
pressure, unemployed workers will be more selective in the job they accept. This
decreases job search efforts.
134. Unemployment insurance contributes to structural unemployment by:

A. keeping wages above the market-clearing level.
B. keeping wages below the market-clearing level.
C. allowing unemployed workers to search longer or less intensively for jobs.
D. forcing unemployed workers to take the first job offered to them.
Answer: C
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: Unemployment insurance makes workers more selective in their job search,
which lengthens the time of mismatch between workers and jobs.
135. When unemployment insurance benefits exceed the wages a worker could earn
when employed, the worker will have an incentive to:
A. remain unemployed longer than otherwise.
B. have his/her unemployment insurance benefits cancelled.
C. accept the first job offered.
D. decrease his/her reservation price.
Answer: A
Topic: Unemployment
Blooms: Understand
Feedback: The more generous are unemployment benefits, the less hurried job seekers
are. This lengthens periods of unemployment.
136. Structural unemployment will decrease when:

A. the minimum wage is increased.
B. the minimum wage is decreased.
C. unemployment insurance benefits are increased.
D. union wages are increased.
Answer: B
Topic: Unemployment
Blooms: Understand
54
Feedback: If the minimum wage is decreased, employers will want to hire more workers
or increase the quantity of labor demanded. This opens job opportunities for those who
are looking for work.
137. Government regulations that increase the cost to the employer of hiring workers
will:
A. increase the demand for labor.
B. decrease the demand for labor.
C. increase the supply of labor.
D. decrease the supply of labor.
Answer: B
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: If government regulations increase, e.g., like requiring drug testing for all
workers, it decreases demand for workers. Businesses sometimes replace workers with
machines as a result.
138. Health and safety regulations in the labor market:

A. are always efficient because they improve working conditions.
B. should be evaluated by comparing their costs to their benefits.
C. are necessarily inefficient if they impose additional costs on employers.
D. can lead to an increase in frictional unemployment.
Answer: B
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: There are trade-offs when making the workplace safer, so both costs and
benefits of new regulations should be considered.
139. Government health and safety regulations or anti-discrimination laws can reduce
real wages by:
A. decreasing the demand for labor.
B. decreasing the supply of labor.
C. reducing employer costs.
D. increasing worker productivity.
Answer: A
Difficulty: 01 Easy
55
Topic: Unemployment
Blooms: Remember
Feedback: Government laws and regulations sometimes discourage employers from
hiring. These laws and regulations effectively shift the demand for labor to the left.
140.More rigid government regulations and union contracts in Western Europe contribute to
greater _____ in Western Europe than in the United States.
A. real GDP per capita.
B. wage inequality
C. unemployment
D. real wage growth
Answer: C
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: One reason for higher unemployment in major western European countries is
the existence of structural rigidities in their labor markets, including more government
regulations and union contracts.
141. One part of the explanation for the persistently high rates of unemployment in Western
Europe is:
A. productivity growth.
B. labor market rigidities.
C. increases in labor demand.
D. increases in labor supply.
Answer: B
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: One reason for higher unemployment in major western European countries is
the existence of structural rigidities in their labor markets, including more government
regulations and union contracts.
142. Policies to deregulate the labor market in Britain are examples of _____ policy.
A. monetary
B. structural
C. environmental
56
D. anti-trust
Answer: B
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: Labor reforms aimed at increasing flexibility in the labor market are called
structural policies.
143.Compared to the United States, minimum wages are ____ and unemployment benefits _____
in Western Europe.
A. higher; less generous
B. lower; less generous
C. lower ; more generous
D. higher; more generous
Answer: B
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: Compared to the United States, minimum wages are higher and unemployment
benefits more generous in Western Europe, which are two reasons for higher
unemployment in major western European countries.
144. Compared to the United States, unions are _____ and labor markets are ____ in Western
Europe.
A. stronger; more regulated
B. weaker; less regulated
C. stronger; more flexible
D. stronger; less regulated
Answer: A
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: Compared to the United States, labor unions are stronger and labor markets are
more regulated in Western Europe, which are two reasons for higher unemployment in
major western European countries.
145. Regulation in the labor market is not necessarily undesirable, but should be subject to the:
A. principle of comparative advantage.
57
Principles of Macroeconomics Brief Edition 3rd Edition Frank Test Bank
B. principle of increasing opportunity cost.

C. scarcity principle.
D. cost-benefit principle.
Answer: A
Difficulty: 01 Easy
Topic: Unemployment
Blooms: Remember
Feedback: While regulations in the labor market can have benefits to the economy; they
may also increase structural unemployment. So regulations should only be enacted if the
benefits outweigh the costs as indicated by the cost-benefit principle.
58
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1. In the twentieth century, average real wages have risen substantially:

10. In the United States there is evidence of:

13. In the United States between 1970 and 2000, employment:

18. One trend in labor markets is:

19. One trend in labor markets is:

24. In the market for labor, the price of labor is the:

25. The real wage is the:

31. The principle of diminishing returns to labor is based on the:

Number of Workers TVs Produced Marginal Product Value of Marginal

Number of Workers TVs Produced Marginal Product Value of Marginal

Number of Workers TVs Produced Marginal Product Value of Marginal

Number of Workers TVs Produced Marginal Product Value of Marginal

Number of Workers Chairs Produced Per Hour

Number of Workers Chairs Produced Per Hour

Number of Workers Chairs Produced Per Hour

Number of Workers Chairs Produced Per Hour

41. Firms will hire additional workers as long as the wage:

43. A decrease in the price of the output produced by labor will:

47. The demand for labor increases when the:

48. The demand for labor decreases when the:

Pizzas Baked Per Day

Pizzas Baked Per Day

Pizzas Baked Per Day

55. An increase in the size of the working-age population:

72. Large productivity gains explain:

99. Worker mobility is the:

106. A Luddite is:

109. Globalization and skill-biased technological change have contributed to:

115. Who from among the following would be counted as unemployed?

117. Frictional unemployment is:

118. Structural unemployment is:

119. Cyclical unemployment is:

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

126. Frictional unemployment may be economically beneficial if:

129. Periods of unusually low production in an economy result in ______ unemployment.

132. Structural unemployment can increase due to all of these except:

133. An increase in unemployment insurance benefits will:

134. Unemployment insurance contributes to structural unemployment by:

136. Structural unemployment will decrease when:

138. Health and safety regulations in the labor market:

B. principle of increasing opportunity cost.

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