Chapter 6: Unemployment
Chapter 6: Unemployment
Multiple Choice Questions
THE LABOR FORCE
1. Which of the following are included in the labor force?
A) A student who is still in school, but not working or looking for work.
B) A part-time store clerk who is looking for another job.
C) A person who voluntarily runs a charity.
D) A person who spends the entire day taking care of his or her own young children at home.
Answer: B Type: Definition Page: 113
2. Which of the following is included in the labor force?
A) A hard-working homemaker who does not want to be employed outside the home.
B) A man doing ten years for armed robbery.
C) The president of Microsoft.
D) A retired commander of the armed forces.
Answer: C Type: Basic Understanding Page: 113
3. People leave the labor force when they:
A) Quit a job and go on vacation before starting another job.
B) Cannot find work between growing seasons.
C) Become unemployed as a result of a recession.
D) Give up looking for a job.
Answer: D Type: Definition Page: 113
4. People are not part of the labor force when they:
A) Go on vacation.
B) Are old enough to work but choose not to work.
C) Suffer from a temporary illness which keeps them away from their job.
D) Go on strike.
Answer: B Type: Definition Page: 113
5. The labor-force participation rate is the number:
A) Of unemployed divided by the number of employed.
B) Of employed divided by the number in the labor force.
C) Of employed divided by the total population.
D) In the labor force divided by the total population.
Answer: D Type: Definition Page: 114
6. When the labor-force participation rate is declining, the:
A) Unemployment rate is rising faster than the population rate.
B) Percentage of the population that is outside the labor force is declining.
C) Percentage of the population that is willing and able to work is declining.
D) Percentage of the population that is employed is rising.
Answer: C Type: Basic Understanding Page: 114
7. Jack graduated from college last month, but he has not yet started looking for a job. Jack is:
A) Frictionally unemployed.
B) Structurally unemployed.
C) A discouraged worker and is part of the unemployment statistic.
D) Not part of the labor force and is not counted in the unemployment rate.
Answer: D Type: Complex Understanding Page: 114
8. An increase in real GDP is called:
A) Labor force expansion. C) Economic growth.
B) Institutional growth. D) Production constraint.
Answer: C Type: Basic Understanding Page: 115
9. Long-run economic growth can be illustrated by:
A) An outward shift of the production-possibilities curve.
B) An inward shift of the production-possibilities curve.
C) A rightward shift of the aggregate demand curve.
D) A leftward shift of the aggregate supply curve.
Answer: A Type: Complex Understanding Page: 115
10. The institutional production-possibilities curve:
A) May lie inside or outside the physical production-possibilities curve depending on whether the economy is at full employment or not.
B) Must lie outside the physical production-possibilities curve.
C) Is another name for the physical production-possibilities curve.
D) Must lie inside the physical production-possibilities curve.
Answer: D Type: Basic Understanding Page: 115
11. Which of the following would cause the institutional production-possibilities curve to shift outward immediately?
A) Imposing more strict child labor laws.
B) Providing better retirement benefits.
C) Relaxing government restrictions on the use of efficient nuclear technology.
D) All of the above.
Answer: C Type: Basic Understanding Page: 115
12. Which of the following would shift the institutional production-possibilities curve outward, but would leave the physical production-possibilities curve unchanged?
A) Fewer social constraints on who can work. C) Increased technology.
B) Increased availability of factors of production. D) Better retirement benefits.
Answer: A Type: Basic Understanding Page: 115
13. Social constraints define and limit:
A) Both the physical and institutional production-possibilities curves.
B) The physical but not the institutional production-possibilities curve.
C) The institutional but not the physical production-possibilities curve.
D) Neither the physical nor the institutional production-possibilities curve.
Answer: C Type: Basic Understanding Page: 115
14. If more teenagers stay in school longer:
A) Physical and institutional production-possibilities curves both shift inward.
B) The institutional but not the physical production-possibilities curve shifts inward.
C) The physical but not the institutional production-possibilities curve shifts inward.
D) The unemployment rate goes up.
Answer: B Type: Basic Understanding Page: 115
15. When the economy is below full employment, it is:
A) Producing beyond the physical production-possibilities curve.
B) Producing beyond the institutional production-possibilities curve.
C) Producing beyond both the physical and institutional production-possibilities curves.
D) Producing inside the institutional production-possibilities curve.
Answer: D Type: Basic Understanding Page: 115
16. When society reduces social constraints in time of war, the:
A) Physical production-possibilities curve shifts outward.
B) Economy moves between the institutional and physical production-possibilities curves.
C) Institutional production-possibilities curve shifts outward.
D) Economy moves inside the institutional production-possibilities curve.
Answer: C Type: Basic Understanding Page: 115
17. According to Okun's Law:
A) A 2 percent decrease in output will cause a 1 percent decrease in inflation.
B) An increase in unemployment will cause an increase in output.
C) A 1 percent increase in unemployment will cause a 2 percent decrease in output.
D) An increase in unemployment will cause a decrease in inflation.
Answer: C Type: Complex Understanding Page: 115
18. Which of the following is true about Okun's Law?
A) It quantifies the relationship between unemployment and the production possibilities curve.
B) It allows a dollar value to be assigned to the cost of unemployment.
C) It indicates that there is a 2-to-1 relationship between output and unemployment.
D) All of the above.
Answer: D Type: Complex Understanding Page: 115
Use the following to answer questions 19-23:
Figure 6.1
19. According to Figure 6.1, points D, E and F represent:
A) The maximum output that can be produced if there are no constraints on the use of resources and technology.
B) Potential output given the social constraints and limits on the use of resources and technology.
C) The unemployment of resources and technology because of a decrease in demand.
D) The problem of phantom unemployment.
Answer: B Type: Complex Understanding Page: 115
20. Refer to Figure 6.1. As economic output increases and an economy moves toward full employment:
A) Production moves closer to the institutional production-possibilities curve, but not beyond it.
B) Production moves beyond the physical production-possibilities curve.
C) The institutional production-possibilities curve shifts outward but not the physical production-possibilities curve.
D) The physical production-possibilities curve shifts outward but not the institutional production-possibilities curve.
Answer: A Type: Complex Understanding Page: 115
21. When the labor force participation rate increases in the economy in Figure 6.1, ceteris paribus:
A) Production moves closer to the institutional production-possibilities curve, but not beyond it.
B) Production moves beyond the physical production-possibilities curve.
C) The institutional production-possibilities curve shifts outward but not the physical production-possibilities curve.
D) The physical production-possibilities curve shifts outward but not the institutional production-possibilities curve.
Answer: C Type: Complex Understanding Page: 115
22. At which of the following points is inflation likely to be the most significant problem in the economy in Figure 6.1?
A) Any point inside the institutional production-possibilities curve.
B) Point E.
C) Any point between the institutional production-possibilities curve and the physical production-possibilities curve.
D) Point B.
Answer: D Type: Complex Understanding Page: 115
23. When significant cyclical unemployment exists, production for the economy in Figure 6.1 is:
A) Inside the institutional production-possibilities curve.
B) On the institutional production-possibilities curve.
C) Between the institutional production-possibilities curve and the physical production- possibilities curve.
D) On the physical production-possibilities curve.
Answer: A Type: Complex Understanding Page: 115
Use the following to answer questions 24-28:
Figure 6.2
24. According to Figure 6.2, points D, E and F represent:
A) The maximum output that can be produced if there are no constraints on the use of resources and technology.
B) The maximum output that can be produced if new resources and technology are available.
C) Potential output given the social constraints and limits on the use of resources and technology.
D) A lack of jobs for discouraged workers.
Answer: A Type: Complex Understanding Page: 115
25. Refer to Figure 6.2. As unemployment increases and an economy moves away from full employment:
A) Production moves inside the institutional production-possibilities curve.
B) Production moves inside the physical production-possibilities curve toward the institutional production-possibilities curve.
C) The institutional production-possibilities curve shifts inward but not the physical production-possibilities curve.
D) The physical production-possibilities curve shifts inward but not the institutional production-possibilities curve.
Answer: A Type: Complex Understanding Page: 115
26. When the only unemployment that exists in Figure 6.2 is frictional employment, production is:
A) Inside the institutional production-possibilities curve.
B) On the institutional production-possibilities curve.
C) Between the institutional production-possibilities curve and the physical production-possibilities curve.
D) On the physical production-possibilities curve.
Answer: B Type: Complex Understanding Page: 115
27. When the labor force participation rate decreases in the economy in Figure 6.2, ceteris paribus:
A) Production moves inside the institutional production-possibilities curve.
B) Production moves inside the physical production-possibilities curve toward the institutional production-possibilities curve.
C) The institutional production-possibilities curve shifts inward but not the physical production-possibilities curve.
D) Both the physical production-possibilities curve and the institutional production-possibilities curve shift inward.
Answer: C Type: Complex Understanding Page: 115
28. A movement from Point C to Point B for the economy in Figure 6.2 will eventually result in:
A) Full employment.
B) A movement onto the physical production-possibilities curve.
C) An outward shift of the institutional production-possibilities curve, but no change in the physical production-possibilities curve.
D) An outward shift of both the institutional production-possibilities curve and the physical production-possibilities curve.
Answer: D Type: Complex Understanding Page: 115
Use the following to answer questions 29-31:
Figure 6.3
29. Refer to Figure 6.3. A movement from point A to point C is most likely to occur if the:
A) Government relaxes the social constraints on the use of resources.
B) Available technology increases.
C) Available resources increase.
D) Unemployment rate decreases.
Answer: D Type: Complex Understanding Page: 115
30. In Figure 6.3, full employment occurs at:
A) Point A. B) Point C. C) Point F. D) Point H.
Answer: B Type: Basic Understanding Page: 115
31. A movement from Point C to Point F in Figure 6.3 is most likely to occur:
A) With a decrease in the unemployment rate to the full employment level.
B) During an economic emergency such as a war.
C) When the labor force participation rate increases.
D) When the average duration of unemployment decreases.
Answer: B Type: Basic Understanding Page: 115
MEASURING UNEMPLOYMENT
32. Those who work part-time and do not desire full-time employment are referred to as:
A) Employed. B) The phantom unemployed. C) Underemployed. D) Discouraged workers.
Answer: A Type: Definition Page: 115
33. To be officially counted as unemployed, one must be:
A) Fired from previous employment.
B) A participant in a state employment-compensation program.
C) Actively seeking employment and currently not working.
D) Available for only full-time employment.
Answer: C Type: Definition Page: 116
34. The most widely used measure of the unemployment rate is found by:
A) The U.S. Department of Labor in surveys of businesses to determine the number of employees as a percentage of the total labor force.
B) The U.S Census Bureau in monthly surveys to determine if people are working or are willing to work.
C) The U.S. Census Bureau in its census of the population every ten years.
D) The Council of Economic Advisors which summarizes its nationwide surveys in its yearly report to the president.
Answer: B Type: Basic Understanding Page: 116
35. If the population of a country is 180,000 people, its labor force consists of 95,000 people, and 27,000 people are unemployed, the unemployment rate is:
A) 15.0 percent. B) 28.4 percent. C) 67.8 percent. D) 6.7 percent.
Answer: B Type: Analytical Page: 116
36. Suppose that a country has a population of 135 million people, 120 million are in the labor force and 96 million are employed. The unemployment rate is:
A) 20.0 percent. B) 62.5 percent. C) 80.0 percent. D) 71.0 percent.
Answer: A Type: Analytical Page: 116
37. Suppose that in a population of 220 million persons, 115 million are in the labor force and 99 million are employed. The unemployment rate is:
A) 1.1 percent. B) 13.9 percent. C) 45.0 percent. D) 52.3 percent.
Answer: B Type: Analytical Page: 116
38. Based on the information above, what is the unemployment rate?
A) 4.0 percent. B) 1.2 percent. C) 16.7 percent. D) 83.3 percent.
Answer: C Type: Analytical Page: 116
39. Based on the information above, how many more members of the labor force must find jobs for the economy to achieve full employment?
A) 150,000. B) 114,000 C) 30,000. D) 36,000.
Answer: B Type: Analytical Page: 116
Use the following to answer questions 40-41:
Suppose a country has 2 million people, half of whom are in the labor force, with 150,000 unemployed. Full employment occurs at 3 percent.
40. Based on the information above, by what percentage has real output failed to reach its potential according to the revised Okun's Law?
A) 3 percent. B) 6 percent. C) 9 percent. D) 24 percent.
Answer: D Type: Analytical Page: 116
41. Based on the information above, what is the unemployment rate?
A) 3 percent. B) 15 percent. C) 7.5 percent. D) 50 percent.
Answer: B Type: Analytical Page: 116
Use the following to answer questions 42-43:
Suppose a country has 2 billion people, 75 percent of whom are in the labor force, with 90 million unemployed. Full employment occurs at 2 percent.
42. Based on the information above by what percentage has real output failed to reach its potential according to the revised Okun's Law?