CHAPTER 7

UNEMPLOYMENT

Difficulty: Easy
1. Which of these people could officially be counted as unemployed?
A) a garage attendant who got fired from his old job two months ago but will start a new job in
two weeks
B) a busboy who works only four hours a day, five days a week, but would prefer to work full-
time as a waiter
C) an accountant who quit her job when she had a baby two months ago
D) a woman who joined the babysitters' union several months ago and averages about five
customers a week at her $10/hour rate
E) none of the above
Ans: A

Difficulty: Easy
2. Which of the following statements is TRUE for the United States?
A) the unemployment rate consistently tends to be slightly higher among males than among
females
B) the unemployment rate of teenagers tends to be much higher and more variable than that of
people 20 years and older
C) during the 1981/1982 recession, the unemployment rate among teenagers was nearly the
same as the unemployment rate among workers over 20
D) the highest unemployment rate in the post World War II period occurred in the 1974/75
recession
E) the unemployment rate among minorities consistently remained above 10 percent over the
last 5 decades
Ans: B

Difficulty: Easy
3. The Beveridge curve shows a relationship between
A) the frequency and the duration of unemployment
B) the level of output and the unemployment rate
C) job vacancies and the unemployment rate
D) job vacancies and the labor force participation rate
E) the unemployment rate and alcohol consumption
Ans: C

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Difficulty: Easy
4. The relationship between job vacancies and the unemployment rate is called
A) the Beveridge curve
B) the original Phillips curve
C) the augmented Phillips curve
D) Okun's law
E) none of the above
Ans: A

Difficulty: Easy
5. Okun's law states that if the unemployment rate increases by 1percentage point, then
A) real GDP will fall by about 2 percent
B) real GDP will also fall by about 1 percent
C) real GDP will fall by about 0.5 percent
D) the rate of inflation will decline by about 2 percent
E) the rate of inflation will decline by about 0.5 percent
Ans: A

Difficulty: Easy
6. The fact that an increase in the unemployment rate by 1 percent will lead to a roughly 2
percent loss in output is referred to as
A) the sacrifice ratio
B) the replacement ratio
C) the misery index
D) the Beveridge relationship
E) Okun’s law
Ans: E

Difficulty: Easy
7. Concerns about high unemployment
A) are not justified since most people find new employment in less than 3 months
B) are irrational since the government routinely provides unemployment benefits for more than
one year
C) arise from its high costs in terms of lost output
D) stem from the fact that the costs of unemployment tend to be unevenly distributed
E) both C) and D)
Ans: E

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Difficulty: Medium
8. Based on what we know about the unemployment rates of adult males and females over the
last five decades, which of the following is true?
A) the female unemployment rate was consistently higher than the male rate
B) the male unemployment rate was consistently higher than the female rate
C) after 1980, males experienced much more drastic changes in unemployment than females
D) the unemployment rate for males never exceeded 10 percent
E) none of the above
Ans: E

Difficulty: Easy
9. An employed person is defined as a person who during a reference week
A) had a job but was not working due to family or personal reasons
B) had a job but was not working due to maternity or paternity leave
C) did at least one hour of work as a paid employee
D) all of the above
E) none of the above
Ans: D

Difficulty: Easy
10. Which of the following people is in the unemployment pool?
A) Chris, who quit her job to look for other employment
B) Jack, who has been temporarily laid off by his employer, but who expects to be called back
after one or two months
C) Lesley, who lost her job because her firm had to shut down
D) all of the above
E) only A) and C)
Ans: D

Difficulty: Easy
11. Which of the following people has moved out of the pool of unemployment?
A) Peter, who just got hired as a part-time security guard
B) Paul, who was laid off two months ago but just got a recall notice to resume his job at the
assembly line starting the week after next
C) Mary, who has given up looking for a job, leaving the work force permanently
D) all of the above
E) both Peter and Mary
Ans: E

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Difficulty: Easy
12. The spell of unemployment is
A) defined as the period during which a person remains continuously unemployed
B) defined as the average length of time a person remains unemployed
C) defined as the time it takes for the economy to reduce unemployment to its natural rate
D) the same as the average duration of unemployment
E) the average number of times a worker is laid off within a year
Ans: A

Difficulty: Easy
13. The duration of unemployment depends on
A) how organized the labor market is in matching potential workers with jobs
B) the age, sex, and racial mix of the labor force
C) the ability and desire of those who are unemployed to hold out for a better job
D) the availability of jobs that match workers' skills
E) all of the above
Ans: E

Difficulty: Medium
14. Which of the following statements is FALSE?
A) there is a high turnover rate in the labor market
B) a significant amount of the turnover rate in the labor market is cyclical
C) there are large variations in unemployment rates across groups defined by age, race, and sex
D) over 50 percent of the workers who became unemployed in 2009 remained unemployed for
more than half a year
E) many workers who are counted as unemployed will be (or have been) unemployed for
several weeks
Ans: D

Difficulty: Easy
15. If we look at U.S. unemployment by duration we can see that in 2009
A) more than half of the unemployed stayed unemployed for more than half a year
B) less than 20 percent of the unemployed were unemployed for more than half a year
C) the mean duration of unemployment was less than 12 weeks
D) the mean duration of unemployment was more than 24 weeks
E) none of the above
Ans: D

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Difficulty: Easy
16. Which of the following does NOT affect the duration of unemployment?
A) the availability of unemployment benefits
B) the rate at which new workers enter the work force
C) the demographic make-up of the labor force
D) the organization of the labor market
E) none of the above
Ans: B

Difficulty: Easy
17. Unemployment hysteresis refers to the fact that
A) high rates of unemployment tend to perpetuate themselves
B) when unemployed, individuals reduce their consumption, causing firms to lay off more
workers and therefore cyclical unemployment increases even more
C) individuals who experience long spells of unemployment often get desperate and take jobs
for which they are overqualified
D) politicians often react irrationally to news of high unemployment and stimulate the economy
causing unnecessary political cycles
E) none of the above
Ans: A

Difficulty: Medium
18. Which of the following can affect the frequency of unemployment?
A) the availability of unemployment benefits
B) the variability of the demand for labor across different employers
C) the rate at which new workers enter the labor force
D) both A) and B)
E) both B) and C)
Ans: E

Difficulty: Easy
19. Over the last five decades, the natural rate of unemployment has
A) always been around 4%
B) declined from about 5.5% in the 1950s to about 4% in 2009
C) changed as the composition of the labor force has changed
D) consistently declined as more women entered the labor force
E) increased from 3% in the 1950s to 8% in the 1980s, but decreased ever since
Ans: C

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Difficulty: Easy
20. Frictional unemployment is
A) the unemployment that exists even at the full-employment level of output
B) unemployment that results from an increase in the GDP gap
C) unemployment that occurs as a result of a supply shock
D) the result of discouraged workers leaving the work force
E) mostly the result of a high minimum wage rate
Ans: A

Difficulty: Easy
21. Roughly how large was the working-age population (16 years or older) in the U.S. in 2011?
A) 315 million
B) 306 million
C) 240 million
D) 140 million
E) 86 million
Ans: C

Difficulty: Easy
22. In 2009, the high unemployment rate in the U.S. caused a loss in real GDP of roughly
A) $68 billion
B) $168 billion
C) $680 billion
D) $1,168 billion
E) none of the above
Ans: D

Difficulty: Easy
23. Which country below had the lowest unemployment rate in 2011?
A) France
B) Germany
C) Sweden
D) United Kingdom
E) United States
Ans: B

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Difficulty: Easy
24. Which of the following statements is FALSE?
A) the availability of unemployment benefits reduces the natural rate of unemployment
B) the natural rate of unemployment can be reduced by policies designed to affect the
composition of the labor force
C) high rates of unemployment often have a way of perpetuating themselves
D) the unemployment rate among white males 20 years and older is lower than the overall
unemployment rate
E) even when the economy is at the full-employment level of output, some frictional
unemployment still exists
Ans: A

Difficulty: Easy
25. The natural rate of unemployment is
A) zero since everyone who is unemployed is voluntarily unemployed
B) determined in part by labor market frictions as people changes careers, etc.
C) rarely more than 3 percent
D) the amount of unemployment caused by an average recession
E) generally the result of misguided government policy
Ans: B

Difficulty: Medium
26. The ill effects of unemployment are often more severe than official data suggest since
A) the natural rate of unemployment is not accounted for
B) much of the unemployment that is reported is structural
C) over 50 percent of the unemployed are unemployed for more than half a year
D) the incidence of unemployment, both in frequency and duration, is spread unevenly
throughout the population
E) workers who enter the labor force for the first time are not counted as unemployed
Ans: D

Difficulty: Easy
27. The natural rate of unemployment can be reduced by
A) expansionary monetary policies, but this would create more inflation
B) expansionary fiscal policies, such as an income tax decrease
C) restrictive fiscal policies designed to balance the federal budget
D) training and skills programs that focus on teenagers and the long-term unemployed
E) none of the above
Ans: D

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Difficulty: Medium
28. Some evidence suggests that prolonged periods of high unemployment actually increase the
natural unemployment rate. This phenomenon is known as
A) Okun's law
B) structural unemployment
C) unemployment hysteresis
D) the misery effect
E) the long-term unemployment effect
Ans: C

Difficulty: Easy
29. Generous unemployment benefits may actually lead to an increase in the measured rate of
unemployment since
A) people who are not really looking for jobs may report themselves as unemployed to collect
unemployment benefits
B) receiving unemployment benefits reduces the opportunity costs of looking for a better job
even after a job offer may have been made
C) firms are more likely to lay off workers knowing that the consequences of being unemployed
are not too severe
D) unemployment benefits increase the replacement ratio and that, in turn, affects the
reservation wage
E) all of the above
Ans: E

Difficulty: Medium
30. When we look at unemployment in the United States, which of the following statements is
most accurate?
A) flows into and out of the unemployment pool tend to be fairly small relative to the actual
number of unemployed
B) variations in the unemployment rates are fairly small across groups defined by age, gender,
or race
C) the average duration of unemployment for the majority of unemployed tends to be more than
half a year long
D) the average duration of unemployment was higher in the period of between 1975 and 1985
than it was between 1995 and 2005
E) the unemployment rates during the recessions of 1981/82 and 2001/02 were lower than the
rate during the Great Recession of 2007-09
Ans: D

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Difficulty: Easy
31. In a "jobless recovery,"
A) no new jobs are created during a recession or in the early stages of recovery
B) firms do not hire new workers until they see the economy has recovered from the recession
C) unemployment must go back to its natural rate before the upswing can start
D) there is a lag between GDP growth and a drop in unemployment
E) none of the above
Ans: D

Difficulty: Easy
32. The natural rate of unemployment will most likely increase if
A) the minimum wage rate is decreased
B) unemployment benefits are increased
C) monetary growth is decreased
D) income taxes are increased
E) all of the above
Ans: B

Difficulty: Easy
33. In 2009, the mean duration of unemployment was about
A) 11.4 weeks
B) 12.6 weeks
C) 19.5 weeks
D) 22.4 weeks
E) 31.5 weeks
Ans: D

Difficulty: Difficult
34. Assume adult males have a 47% share of the work force and their unemployment rate is
8.6%, adult females have a share of 45% and their unemployment rate is 8.4%, and teenagers
have a share of 8% and their unemployment rate is 21%. Approximately what is the overall
unemployment rate?
A) 9.0%
B) 9.5%
C) 9.8%
D) 10.2%
E) 10.4%
Ans: B

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Difficulty: Easy
35. In which of the following periods did the U.S. economy NOT experience a recession?
A) 1974/75
B) 1981/82
C) 1987/88
D) 2001-02
E) 2007-09
Ans: C

Difficulty: Medium
36. Which of the following is FALSE for the United States from 1960 to 2013?
A) black workers had consistently higher unemployment rates than white workers
B) teenagers had consistently higher unemployment rates than adult workers
C) male workers had consistently higher unemployment rates than female workers
D) the unemployment rate of teenage workers was never below 10 percent
E) the unemployment rate of white workers was never above 10 percent
Ans: C

Difficulty: Easy
37. Which of the following is FALSE for the unemployed in the United States?
A) in 2000, over 50 percent remained unemployed for less than 15 weeks
B) in 2000, less than 12 percent remained unemployed for more than 27 weeks
C) in 2009, less than 50 percent remained unemployed for less than 15 weeks
D) in 2009, over 40 percent remained unemployed for more than 27 weeks
E) in 2009, over 60 percent remained unemployed for less than 27 weeks
Ans: D

Difficulty: Medium
38. Which of the following statements is FALSE for the United States?
A) most of the unemployed remain unemployed for more than half a year
B) a significant amount of the turnover rate in the labor market is cyclical
C) variations in unemployment rates across groups defined by age, race, and gender tend to be
large
D) almost 50 percent of the unemployed find a job in less than 14 weeks
E) many jobs were permanently eliminated in the 1990s, so the search for new employment took
longer than it had in the past
Ans: A

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Difficulty: Easy
39. The replacement ratio is
A) the reservation wage divided by the wage rate offered on a new job
B) the reduction in real GDP caused by a 1 percent reduction in unemployment benefits
C) after-tax income while unemployed divided by after-tax income while employed
D) the wage rate offered on a new job divided by unemployment benefits
E) the increase in the unemployment rate caused by a 1 percent increase in the inflation rate
Ans: C

Difficulty: Medium
40. Which of the following did NOT happen over the period from 2006 to 2011?
A) Germany's unemployment rate declined
B) the official unemployment rate in Greece almost doubled
C) Mexico's unemployment rate almost doubled reaching over 10 percent in 2011
D) South Korea's unemployment rate stayed consistently below 4 percent
E) Spain's unemployment rate went from below 10 percent to over 20 percent
Ans: C

Difficulty: Medium
41. From 2006 to 2011, when the U.S. unemployment rate almost doubled,
A) unemployment in Greece nearly doubled as well
B) the unemployment rate in Germany declined
D) unemployment in Norway remained below 4 percent
D) all of the above
E) none of the above
Ans: D

Difficulty: Difficult
42. Assume the unemployment rates among different groups in the labor force are as follows:
adult males 10%, adult females 8%, and teenagers 18%. Teenagers account for 10% of the
total labor force, while women account for 45% of the adult labor force. What is the actual
unemployment rate nationwide?
A) 9.7%
B) 9.8%
C) 9.9%
D) 10.2%
E) 10.9%
Ans: C

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Difficulty: Difficult
43. Assume the unemployment rates among different groups in the labor force are as follows:
adult males 7.5%, adult females 7.3%, and teenagers 15%. Teenagers account for 12% of the
total labor force, while men account for 54% of the adult labor force. What is the actual
unemployment rate nationwide?
A) 7.8%
B) 8.3%
C) 8.8%
D) 9.2%
E) 9.6%
Ans: B

Difficulty: Difficult
44. Assume the unemployment rates among different groups in the labor force are as follows:
teenagers 21%, males 8.5%, adult females 8.6%. Teenagers account for 8% of the total labor
force, while men account for 56% of the total labor force. What is the actual unemployment
rate nationwide?
A) 7.8%
B) 8.2%
C) 8.6%
D) 9.0%
E) 9.4%
Ans: D

Difficulty: Difficult
45. Policy makers should be aware that they
A) can never lower the unemployment rate without causing a rapid increase in the rate of
inflation
B) can reduce unemployment without causing inflation if they start off slowly but intensify their
efforts as the economy approaches full employment
C) may be able to stimulate the economy out of a deep recession without significantly
accelerating inflation
D) must always deal with the large long-run tradeoff between inflation and unemployment
E) can announce a policy change, which will create more rational expectations and enable them
to reduce inflation without any costs to society
Ans: C

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Difficulty: Difficult
46. Assume that the share of whites in the labor force is 85% and their unemployment rate is
10% and that the share of non-whites in the labor force is 15% and their unemployment rate
is 14%. What is the overall unemployment rate?
A) 12.4%
B) 12.0%
C) 11.6.4%
D) 10.6%
E) 10.4%
Ans: D

Difficulty: Easy
47. Which recessionary period below caused the highest unemployment rate the U.S.?
A) 1974/75
B) 1981/22
C) 1990/91
D) 2001-02
E) 2007-09
Ans: B

Difficulty: Medium
48. Assume the share of whites in the labor force is 86% and their unemployment rate is 6%; the
share of non-whites in the labor force is 14% with an unemployment rate of 11%. What is the
overall unemployment rate?
A) 6.3%
B) 6.7%
C) 7.4%
D) 8.2%
E) 8.5%
Ans: B

Difficulty: Easy
49. Some research has found that a doubling of unemployment benefits can increase
unemployment
A) by less than half a percentage point
B) by exactly 1 percentage point
C) by more than 2 percentage points
D) significantly since many unemployed will feel less urgency about finding a new job
E) none of the above
Ans: A

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Difficulty: Difficult
50. Assume adult males have a 48% share of the work force and their unemployment rate is
7.0%; adult females' share is 45% and their unemployment rate is 6.8%; teenagers' share of
the work force is 7% with an unemployment rate of 18.0%. What is the overall
unemployment rate?
A) 7.0%
B) 7.2%
C) 7.7%
D) 8.4%
E) 9.6%
Ans: C

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