Macro Economy Today 13th Edition Schiller Test Bank Download

Macro Economy Today 13th
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Chapter 06
Unemployment
Multiple Choice Questions
1. Which of the following is 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.
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2. Who among the following is included in the labor force?
A. A hardworking homemaker who does not want to be employed outside the

home.
B. A man doing 10 years in prison for armed robbery.
C. The president of Microsoft.
D. A retired commander of the armed forces.
3. 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 that keeps them away from their job.
D. None of the choices are correct.
4. 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 working-age population.
5. When the labor force participation rate is declining, the
A. Unemployment rate is rising faster than the total population rate.
B. Percentage of the working-age population that is outside the labor force is

declining.
C. Percentage of the working-age population that is willing and able to work is

declining.
D. Percentage of the total population that is employed is rising.
6. 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.
7. Production possibilities are the
A. Alternative combinations of output that can be produced using all available

resources and technology.
B. Various production methods that producers can employ.
C. Various types of input that each manufacturing facility can choose to

employ.
D. Percentage of output produced by each worker.
8. As of 2010, approximately what percentage of the U.S. population participated
in the civilian labor force?
A. 30 percent.
B. 40 percent.
C. 50 percent.
D. 60 percent.
9. For the labor force to definitely increase,
A. There must be an increase in total population.
B. There must be an increase in immigration.
C. People must turn from being discouraged workers into people actively
seeking employment.
10. If a nation experiences a year of unusually high immigration that increases the
size of the labor force, we can conclude that the
A. Nation will choose a different point on the production possibilities curve.
B. Nation's production possibilities curve will shift outward.
C. Nation's production possibilities curve will shift inward.
D. Nation's capital per worker will rise.
11. The production possibilities curve
A. Represents the different quantities of goods society can consume while

operating at full employment.
B. Must shift outward every year.
C. Is another name for the aggregate demand curve.
D. Tends to increase as the population grows.
12. Which of the following would not increase the physical production possibilities
curve?
A. Greater constraints for oil drilling companies.
B. Increased availability of factors of production.
C. Increased technology.
13. From 1950 until 2000, the labor force participation rate has
A. Increased for men and increased for women.
B. Decreased for men and decreased for women.
C. Increased for men and decreased for women.
D. Decreased for men and increased for women.
14. The benefits to the United States of outsourcing include all of the following
except
A. Foreign firms insource or send jobs to the United States.
B. U.S. productivity rises, resulting in higher profits at U.S. firms that

outsource.
C. Higher domestic labor cost for U.S. firms.
D. Greater domestic investment by U.S. firms that outsource.
15. If more teenagers stay in school longer rather than dropping out and entering
the labor force,
A. The production possibilities curve shifts outward.
B. The production possibilities curve shifts inward.
C. The production possibilities curve remains unchanged.
D. The unemployment rate goes up.
16. When the economy is below full employment, it is producing
A. On the production possibilities curve.
B. Beyond the production possibilities curve.
C. Inside the production possibilities curve.
17. Unemployment is defined as
A. The active search and inability of labor force participants to find jobs.
B. The active search and inability of citizens to find jobs that utilize their
capabilities.
C. The proportion of the total population that is unemployed.
D. A decrease in the labor force.
18. According to Okun's Law, if unemployment rises by 5 percent while imports

and exports increase at roughly the same rate, the economy will lose output
equal to
A. 1 percent.
B. 2 percent.
C. 5 percent.
D. 10 percent.
19. The observation that a 1 percent increase in unemployment leads to a 2

percent decrease in real output is known as
A. A recession.
B. A Lucas Wedge.
C. Okun's Law.
D. Under allocation of resources.
20. All of the following are true about Okun's Law except
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 negative 2:1 relationship between output and

unemployment.
D. It indicates that GDP is not affected by unemployment.
21. The macro consequence of unemployment is
A. Lost output for the economy.
B. Lost income for the individual worker.
C. A leftward shift in the production possibilities curve.
D. A 1 percent decrease in GDP for every 1 percent decrease in

unemployment.
22. Those that 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.
23. To be officially counted as unemployed, one must be
A. Either not working or working only part-time.
B. Not employed at a full-time job.
C. Actively seeking employment and currently not working.
24. The proportion of the labor force that is unemployed is the
A. Employment index.
B. Underemployed rate.
C. Unemployment rate.
D. Okun's Law.
25. The most widely used measure of the unemployment rate is found by the
A. U.S. Department of Labor in surveys of businesses to determine the

number of employees as a percentage of the total labor force.
B. U.S. Census Bureau in monthly surveys that examine whether people are
working or are willing to work.
C. U.S. Census Bureau in its census of the population every 10 years.
D. Council of Economic Advisers, which summarizes its nationwide surveys in

its yearly report to the president.
26. If the population of a country is 250,000 people, its labor force consists of
145,000 people, 35,000 people are unemployed, 10,000 are unable to work,
and 5,000 are unwilling to work, the unemployment rate is
A. 22.1 percent.
B. 14.0 percent.
C. 24.1 percent.
D. 19.4 percent.
27. Suppose that in a population of 50 million persons, 40 million are in the labor
force, 36 million are employed, 2 million are classified as unable to work, and 1
million are classified as unwilling to work. The unemployment rate is
A. 10.0 percent.
B. 72.0 percent.
C. 8.0 percent.
D. 80.0 percent.
28. Suppose a country has 10 million people. Three-fourths of those individuals
are in the labor force, with 500,000 unemployed. Full employment occurs at 5
percent. Based on this information, what is the unemployment rate?
A. 6.67 percent.
B. 75 percent.
C. 7.5 percent.
D. 5 percent.
29. Suppose a country has 1 billion people. 75 percent of its citizens are in the
labor force, with 90 million unemployed. Full employment occurs at 2 percent.
Based on this information, by what percentage has real output failed to reach
its potential according to the revised Okun's Law?
A. 2 percent.
B. 10 percent.
C. 12 percent.
D. 20 percent.
labor force, with 90 million unemployed. Full employment occurs at 2 percent.
Based on this information, what is the unemployment rate?
A. 12.0 percent.
B. 25.0 percent.
C. 9.0 percent.
D. 8.3 percent.
31.
What was the unemployment rate in 2004 in Table 6.1?
A. 3.9 percent.
B. 75 percent.
C. 3.3 percent.
D. 2.5 percent.
32.
A. 12.7 percent.
B. 72.7 percent.
C. 51.6 percent.
D. 17.5 percent.
33.
What was the labor force participation rate in 2004 in Table 6.1?
A. 18.3 percent.
B. 133.3 percent.
C. 75.0 percent.
D. 77.5 percent.
34.
Based on Table 6.2, what was the labor force participation rate in 1998?
A. 5.88 percent.
B. 8.33 percent.
C. 70.58 percent.
D. 76.47 percent.
35.
Based on Table 6.2, what was the unemployment rate in 1999?
A. 8.42 percent.
B. 10.96 percent.
C. 68.42 percent.
D. 76.84 percent.
36.
A. 77.27 percent.
B. 65.45 percent.
C. 11.81 percent.
D. 18.05 percent.
37.
What is the number of unemployed in Year 1 in Table 6.3?
A. 90 million.
B. 94 million.
C. 106 million.
D. 4 million.
38.
What is the unemployment rate in Year 5 in Table 6.3?
A. 7.4 percent.
B. 6.9 percent.
C. 4.0 percent.
D. 54.0 percent.
39.
What is the labor force participation rate in Year 1 in Table 6.3?
A. 96.4 percent.
B. 3.6 percent.
C. 53.0 percent.
D. 55.0 percent.
40. There is a/an ________________ relationship between educational level and
the unemployment rate.
A. direct relationship
B. positive relationship
C. cyclical relationship
D. inverse relationship
41. Which of the following groups typically has the highest unemployment rate?
A. White teenagers.
B. Black adults.
C. White adult females.
D. Black teenagers.
42. Which of the following groups generally has the lowest unemployment rate?
A. High school dropouts.
B. High school graduates with no further education.
C. College dropouts.
D. College graduates.
43. When an economy enters a recession, the
A. Duration of unemployment rises.
B. Cost of unemployment falls.
C. Number of unemployed falls.
D. Number of discouraged workers falls.
44. All of the following are true when the economy is growing except
A. Duration of unemployment falls.
B. Costs associated with unemployment fall.
C. Unemployment rate falls.
D. Underemployment rises.
45. Which of the following falls into the largest unemployment category during a
recession?
A. A recent college graduate entering the labor force for the first time.
B. A woman who left the labor force to raise children and now wants to return
to work.
C. A factory worker who is laid off because of a temporary plant closing.
D. A teenager looking for his or her first summer job.
46. Of the following reasons for unemployment, which will increase most because
of a recession?
A. Job losers.
B. Reentrants.
C. New entrants.
D. Job leavers.
47. Discouraged workers
A. Do not actively seek employment although they desire to be employed.
B. Are part of the labor force.
C. Are workers who are unhappy in their jobs.
D. Are counted as part of total unemployment.
48. Which of the following is considered a discouraged worker?
A. A professional football player who is forced to play a new position.
B. A professional football player who gets cut after the preseason schedule
has been completed.
C. A professional football coach coming off a 0-16 season.
D. A retired professional football player who tried to make a comeback but

found no one was willing to give him a tryout, so he no longer looks for a
job.
49. After a fruitless two-year search for a job, a former executive gives up and
decides to live off the land in the Rocky Mountains. This former executive is
considered
A. A discouraged worker.
C. One of the phantom unemployed.
D. Underemployed.
50.
What was the unemployment rate in Nationland in 1999?
A. 7.6 percent.
B. 7.1 percent.
C. 5.0 percent.
D. 65.0 percent.
51.
What was the labor force participation rate in Nationland in 2000?
A. 67.0 percent.
B. 65.0 percent.
C. 72.0 percent.
D. 72.7 percent.
52.
If discouraged workers are included in the labor force, what was the
unemployment rate for 1999?
A. 3.0 percent.
B. 9.7 percent.
C. 10.8 percent.
D. 2.8 percent.
53.
A. 18.6 percent.
B. 3.8 percent.
C. 4.3 percent.
D. 15.7 percent.
54. Suppose there are 6 million unemployed workers actively seeking a job. After
a period of time, 1,500,000 of these workers become discouraged and no
longer look for employment. If everything else remains constant, the
unemployment rate will
A. Decrease.
B. Increase.
C. Remain unchanged until the unemployed find a job.
D. Increase initially but decrease when the phantom unemployed receive

unemployment benefits.
55. Individuals who are working part-time while seeking full-time employment are
classified as
A. Unemployed.
B. Underemployed.
C. Discouraged workers.
D. Phantom unemployed.
56. Underemployment is defined as
A. Individuals desiring to work but who are discouraged by the process and
have given up looking.
B. People who have been laid off because of a recession and have little
chance of finding a job.
C. Individuals who are lazy and will not go out looking for a job but say they
are looking.
D. People seeking full-time paid employment but work only part-time or are
employed at jobs below their capability.
57. Underemployment refers to
A. The same thing as unemployment.
B. A person who is lazy and not working hard at her job.
C. A person who is not able to use her full capabilities in her job.
D. A discouraged worker.
58. Part-time workers who desire full-time employment are
A. Underemployed and contribute to the unemployment statistic.
B. Underemployed but do not contribute to the unemployment statistic.
C. Not part of the labor force and do not contribute to the unemployment
statistic.
D. Discouraged workers and contribute to the unemployment statistic.
59. Suppose a student graduates from college with a civil engineering degree and
is now employed to grade papers, answer the phone, and make copies—tasks
that are below the graduate's capabilities. The graduate can best be classified
as
C. Phantom unemployed.
D. Underemployed.
60. The phantom unemployed are
A. People who report that they are actively seeking a job even when they have
little or no intention of finding one.
B. People who want a job but aren't looking because they don't expect to find
one.
C. People who lack the skills to be employed.
D. Workers with very high rates of absenteeism.
61. The official unemployment statistics may exaggerate the significance of

unemployment by including the
A. Underemployed.
B. Phantom unemployed.
C. Discouraged worker.
D. High school dropout.
62. Suppose there are 4 million people in an economy that are classified as
unemployed. After a more thorough investigation, it becomes obvious that
200,000 of these people are actually phantom unemployed. As a result of this
discovery, the unemployment rate will
A. Decrease.
B. Increase.

63. Which of the following groups could increase in size and cause a significantly
higher unemployment rate?
A. Discouraged workers.
B. Underemployed workers.
D. Children under the age of 16.
64. A 30-year-old stay-at-home son tells his parent he is looking for work but
cannot find a job. When the parent finds the son a job, he refuses to take it.
The 30-year-old can best be classified as
C. Structurally unemployed.
D. Underemployed.
65. Which of the following groups would be classified as unemployed when

calculating the unemployment rate?
A. Underemployed workers.
B. Discouraged workers.
C. The phantom unemployed.
D. Individuals who are neither employed nor actively seeking a job.
A. Not part of the labor force because they do not desire to work.
B. Unemployed and cause the unemployment statistic to overstate the level of

unemployment.
C. Discouraged and cause the unemployment statistic to understate the level

of unemployment.
D. Classified as cyclically unemployed.
67. All of the following are considered to be possible side effects of increased
unemployment except
A. Admissions to mental institutions.
B. Fatal heart attacks.
C. Decreased stress levels.
68. When the U.S. unemployment rate decreased in the late 1990s, so did all of
the following except
A. Poverty rate.
B. Income per capita.
C. Child abuse.
69. Studies have shown that unemployment causes
A. Increased expenditure on food.
B. More spending on child care because more mothers go to work.
C. Increased health problems.
D. Little impact since most people receive unemployment benefits.
70. When migrant workers seek employment after the crops have been picked, the
unemployment rate goes up. This situation is an example of
A. Frictional unemployment.
B. Seasonal unemployment.
C. Structural unemployment.
D. Cyclical unemployment.
71. After the harvest, some farmhands lose their jobs. They are considered to be
A. Cyclically unemployed.
C. Frictionally unemployed.
D. Seasonally unemployed.
72. The type of unemployment that increases most when teenagers look for
temporary summer jobs is
B. Structural unemployment.
C. Seasonal unemployment.
73. Which of the following types of unemployment would best characterize a snow
ski instructor's unemployment during the summer months?
A. Structural unemployment.
B. Frictional unemployment.
74. After Christmas, retail sales fall and many clerks are laid off until the following
Christmas. This is an example of which of the following types of
unemployment?
C. Cyclical unemployment.
D. Seasonal unemployment.
75. The type of unemployment that economists generally associate with normal
growth of the labor force and expanding job opportunities in a dynamic
economy is
D. Structural unemployment.
76. Nancy returns to school to study medicine. After graduating, she spends six
months looking for a job. During this period, she is considered
77. Frictional unemployment could result from each of the following except
A. The reallocation of employees to growing industries.
B. The inability of people to find work during certain seasons of the year.
C. The opportunity for people to leave jobs in which they are underemployed.
78. After being fired from a job, some people find that it may take several months
to find a new job in the same type of work. This is an example of which of the
following types of unemployment?
79. Frictional unemployment goes up when
A. A student quits work to return to school at the end of the summer.
B. A corporation transfers a worker to another city.
C. A worker quits one job to search for another in the same line of work.
D. There is inadequate demand for labor.
80. Frictional unemployment can be distinguished from other types of

unemployment in that we assume all of the following except
A. There is an adequate demand for labor to employ the frictionally

unemployed.
B. The frictionally unemployed possess the necessary education and skills to

become employed.
C. Search time is relatively short for frictionally unemployed persons.
D. The skills of the frictionally unemployed are no longer in demand.
81. Samantha recently quit her job at the university because she is looking for
another job for which she is qualified in a small town. Samantha is
D. Not part of the labor force and does not contribute to the unemployment
rate.
82. When there is a mismatch between the skills required for a job and the skills
of job seekers, the unemployment that results is an example of
83. Structural unemployment occurs when
A. Workers do not have the skills required to fill the vacant positions in the job
market.
B. Firms fail in the normal course of business activity.
C. An industry experiences a seasonal downturn.
84. In terms of the musical chairs analogy in the text, which of the following is a
description of structural unemployment?
A. There are too few chairs.
B. There are too many chairs.
C. There are enough chairs, but some are not the right size.
D. There are enough chairs, but it takes time to find one.
85. Tom worked at NASA for 13 years. In the 14th year, his job was automated,
resulting in him losing his job. He looked for a new job for 18 months before
finding a job in a different line of work that paid less. During his 18-month job
search, Tom was considered to be
86. Automobile workers in Detroit who are unemployed because of foreign imports
at the same time that job vacancies exist for coal miners in West Virginia
would most likely be classified as
A. Structurally unemployed.
B. Cyclically unemployed.
87. An inner-city teenager without a high school diploma is unable to find work
because all of the available jobs require a certain minimum reading skill level.
Which of the following best characterizes the teenager's circumstances?
D. Underemployed.
88. Long-term changes in demand that make some goods obsolete are likely to
have their greatest impact on
B. Cyclical unemployment.
C. Frictional unemployment.
89. If workers do not have the skills that are required in the job market, which of
the following will occur?
D. Frictional unemployment.
description of cyclical unemployment?
91. A U.S. worker who loses his or her job in an import industry because product
demand decreases would be classified as, ceteris paribus,
C. Seasonally unemployed.
D. Structurally unemployed.
92. During an economic downturn, consumers spend considerably less on goods

and services. This results in layoffs that are classified as
A. Cyclical.
B. Structural.
C. Frictional.
D. Seasonal.
93. Which of the following unemployment categories is most clearly related to the
rate of growth in real GDP?
A. Structural.
B. Seasonal.
C. Frictional.
D. Cyclical.
94. Which of the following government policies or programs would be most

appropriate to offset cyclical unemployment?
A. Those that stimulate more demand.
B. More job training.
C. Additional job placement services.
D. Additional health services to counter the effects of unemployment.
95. Which of the following government programs would be most appropriate to

counteract cyclical unemployment?
A. Increased job placement services.
B. Greater government expenditures to increase GDP.
C. Year-round school.
D. More job training programs.
96. Full employment in the U.S. economy means that
A. Frictional unemployment has been reduced to zero.
B. The total unemployment rate has been reduced to zero.
C. The economy has reached the lowest level of unemployment compatible

with price stability.
D. Structural unemployment has reached its minimum as a result of increased

spending, and the economy is moving toward the peak of the business
cycle.
97. The lowest level of unemployment compatible with price stability
A. Is referred to as full employment.
B. Is estimated at between 0 and 2 percent unemployment.
C. Allows for some cyclical unemployment.
D. Is equal to the natural rate of unemployment plus the inflation rate.
98. The Employment Act of 1946 set which of the following goals for the
economy?
A. A zero unemployment rate.
B. A zero inflation rate.
C. Lowering cyclical and structural unemployment within reasonable but

nonspecific bounds.
D. Achieving a 4 percent target in seasonal and frictional unemployment.
99. What is the likely consequence of an unemployment rate falling below the rate
at which "full employment" is achieved?
A. The threat of recession.
B. Increased inflationary pressures.
C. An increase in discouraged workers.
100.During which one of the following decades was the goal of 4 percent
unemployment set as an acceptable compromise between our full
employment and inflation goals?
A. 1960s.
B. 1970s.
C. 1980s.
D. 1990s.
101.How have the unemployment components of the natural rate of
unemployment changed over the past 20 years?
A. Frictional unemployment has increased and structural unemployment has

increased.
B. Frictional unemployment has decreased and structural unemployment has

decreased.
C. Frictional unemployment has decreased and structural unemployment has

increased.
D. Frictional unemployment has increased and structural unemployment has

decreased.
102.Why has structural unemployment in the United States increased over the
last 20 years?
A. Rapid technology changes have eliminated the needs for certain skill sets.
B. Companies are increasingly outsourcing certain task to cheaper foreign

markets.
C. Increased trade with other countries has shut down U.S. factories
competing with import industries.
D. All of the choices are correct.
103.The natural rate of unemployment includes
A. Seasonal and cyclical unemployment only.
B. Cyclical and frictional unemployment only.
C. Structural and seasonal unemployment only.
D. Frictional and structural unemployment only.
104.Which of the following was a stated goal of the Humphrey-Hawkins Act?
A. Zero percent unemployment rate.
B. Zero percent inflation rate.
C. 4 percent unemployment rate.
D. 4 percent inflation rate.
105.Unemployment was particularly high during
A. The Great Depression.
B. World War II.
C. The Korean War.
D. The Vietnam War.
106.Unemployment was fairly low during
B. World War II.
C. The 1930s.
D. The recession of 1981-1982.
107.Unemployment was fairly low during all of the following periods except
A. World War II.
B. The Korean War.
C. The late 1990s.
D. The Great Depression.
108.Outsourcing is the
A. Unemployment that is inevitable when jobs leave a country.
B. Relocation of production from domestic companies to foreign countries.
C. Loss of output because of an increase in unemployment.
D. Movement of workers to foreign countries where there are more jobs.
109.All of the following are true about outsourcing of jobs except that it
A. Occurs because labor is cheaper in other countries.
B. Increases specialization.
C. Reduces costs and increases profits for companies.
D. Ultimately leaves the United States worse off.
110.When jobs are outsourced,
A. Unemployment increases significantly.
B. Corporations lose money.
C. The economy begins to collapse.
D. Production possibilities expand.
111.As a result of outsourcing,
A. Domestic workers may become more productive.
B. Profits decrease for domestic companies.
C. GDP definitely decreases.
D. Unemployment must increase in the long run.
112.One cartoon in the text shows a contented rich man saying, "I don't like six-
percent unemployment either. But I can live with it." The point is that
A. Not everyone experiences the effects of unemployment equally.
B. Everyone agrees that unemployment should be the top priority for

government action.
C. No one can avoid unemployment or the effects of unemployment.
D. It is good to be an independent analyst because those types of jobs are

always in demand.
113.According to The New Yorker cartoon, one restaurant patron states that since
he has recently stopped looking for a job, he has helped to lower the
unemployment rate. He is:
A. Wrong in that his action raised the unemployment rate.
B. Right in that he became a discouraged worker.
C. Wrong in that he is still in the labor force.
114.According to an In the News article "Carpentry Work Crashing Down," Labor
demand for carpenters remains low as the economy climbs out of the recent
recession due to
A. Cyclical unemployment from lack of housing demand.
B. Frictional unemployment due to a lumber shortage.
C. Structural unemployment due to a mismatch between workforce skills and

employer needs.
115.Someone 18 years old who is not employed and is not actively seeking work
is considered
A. Not in the labor force.
B. In the labor force.
C. Employed.
D. Unemployed.
116.Suppose the working-age population of Country A is 200 million, the number
employed is 130 million, and the number unemployed is 10 million. What is
the labor force participation rate?
A. 60 percent.
B. 70 percent.
C. 65 percent.
D. 75 percent.
117.An unemployed worker who wants a job but has given up in the search for a
new job is referred to as a/an
A. Unemployed worker.
B. Phantom unemployed worker.
D. Underemployed worker.
118.In the 1960s the Council of Economic Advisers determined that the
acceptable level of unemployment that would be used in determining full
employment was
A. 5.5 percent.
B. 5 percent.
C. 4.5 percent.
D. 4 percent.
119.According to the section "The Economy Tomorrow," outsourcing eliminates
about __________ jobs in the United States each year.
A. 300,000
B. 500,000
C. 3,000,000
D. 5,000,000
120.When unemployed people stop looking for jobs, the
A. Unemployment rate increases and the labor force increases.
B. Unemployment rate decreases and the labor force decreases.
C. Unemployment rate increases and the labor force decreases.
D. Unemployment rate decreases and the labor force increases.
121.When people over 16 years old start looking for jobs, the
122.Jim's job was transferred 800 miles away. Although his employer will let him
keep his job if he goes to the new factory, Jim cannot move. Jim is
C. Cyclically unemployed.
123.According to an In the News article written in 2009, "Unemployment Rate Hits

10.2%, a 26-Year High," the seasonally adjusted unemployment rate was the
highest since
A. 1973.
B. 1983.
C. 1993.
D. 2003.
124.How is foreign trade in inputs similar to trade in outputs?
A. U.S. producers buy (outsource) cheap foreign inputs (labor) while U.S.
consumers buy cheap foreign outputs (U.S. imports).
B. U.S. consumers sell (outsource) cheap foreign inputs (labor) while U.S.
producers sell cheap foreign outputs (U.S. imports).
C. U.S. producers sell (outsource) cheap foreign inputs (labor) while U.S.
125.In the early weeks of a recession, what type of unemployment gets larger?
A. Frictional.
B. Structural.
C. Cyclical.
D. Seasonal.
126.If there is a prolonged recession and technological advances change the skill
sets of some jobs and eliminate others, what type of unemployment gets
larger?
A. Frictional.
B. Structural.
C. Seasonal.
127.If cyclical unemployment is zero, the economy is
A. Outside the production possibilities curve.
B. Inside the production possibilities curve.
C. On the fixed production possibilities curve.
D. On the production possibilities curve that shifts inward.
128.Ceteris paribus, if structural unemployment increases, the economy is
129.Ceteris paribus, if seasonal unemployment increases, the seasonally adjusted

economy is
130.An underemployed worker who is looking for a full-time job is
True / False Questions
131.Most household and volunteer workers are not included in the labor force.
True False
132.If an 18-year-old male is taking college classes full-time and does not have a
job and is not looking for one, he is considered unemployed.
True False
133.The labor force participation rate is the percentage of the labor force that is
actually participating or employed.
True False
134.When workers begin retiring at earlier ages, the production possibilities curve
shifts outward.
True False
135.The updated version of Okun's Law indicates that a 1 percent increase in the
unemployment rate causes a 2 percent decrease in real GDP.
True False
136.When the growth rate of the labor force is faster than the growth rate of the
unemployed, the unemployment rate is falling.
True False
137.The number of unemployed can drop simultaneously with increases in the

unemployment rate.
True False
138.People who get discouraged and no longer seek work are counted as
unemployed.
True False
139.The underemployed are not included among the unemployed because they
are working.
True False
140.Most of the costs of unemployment can be measured in financial terms.
True False
141.It is impossible to find a direct relationship between unemployment and

social problems such as illness, crime, and divorce.
True False
142.Frictional unemployment stems from an insufficient level of demand in the

economy.
True False
143.Cyclical unemployment stems from an insufficient level of demand in the

economy.
True False
144.Full employment means everyone in the labor force has a job.
True False
145.In the Employment Act of 1946, Congress committed the federal government
to pursue a goal of 0 percent unemployment and inflation.
True False
Essay Questions
146.Why does the unemployment rate go down as more people become

discouraged about the economy?
147.According to Okun's Law, how does a 2 percent increase in unemployment
affect the economy?
148.Is the unemployment rate the same for all groups of people in an economy?
Why or why not?
149.Explain how discouraged workers either overstate or understate the
unemployment problem.
150.Explain the costs of unemployment.
151.How can the outsourcing of jobs cause production possibilities to expand?
Chapter 06 Unemployment Answer Key
Multiple Choice Questions
1. Which of the following is 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.
Anyone who is 16 years of age or older, is not in the military or prison, is not
a patient in a hospital, is actively searching for a job, and has a job is
considered to be in the labor force.
AACSB: Reflective Thinking

Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
2. Who among the following is included in the labor force?
A. A hardworking homemaker who does not want to be employed outside

the home.
B. A man doing 10 years in prison for armed robbery.
C. The president of Microsoft.
D. A retired commander of the armed forces.
One has to be employed or actively searching to be considered part of the

labor force.

Blooms: Understand
Difficulty: 1 Easy
3. 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 that keeps them away from their job.
Anyone not employed who is not actively searching for work is considered
not in the labor force.

Blooms: Remember
Difficulty: 2 Medium
4. 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 working-age population.
The labor force participation rate measures the percentage of the

population either employed or unemployed.

Blooms: Remember
Difficulty: 1 Easy
5. When the labor force participation rate is declining, the
A. Unemployment rate is rising faster than the total population rate.
B. Percentage of the working-age population that is outside the labor force

is declining.
C. Percentage of the working-age population that is willing and able to work

is declining.
D. Percentage of the total population that is employed is rising.
A lower labor force participation rate means a smaller fraction of the

population is employed or unemployed.

Blooms: Understand
6. Jack graduated from college last month, but he has not yet started looking
for a job. Jack is
D. Not part of the labor force and is not counted in the unemployment rate.
If one is not actively seeking work, then one is not considered unemployed
or part of the labor force.
AACSB: Analytic
Blooms: Apply
7. Production possibilities are the
A. Alternative combinations of output that can be produced using all

available resources and technology.
B. Various production methods that producers can employ.
C. Various types of input that each manufacturing facility can choose to

employ.
D. Percentage of output produced by each worker.
The production possibilities represent the different possible production

amounts given our fixed resources.

Blooms: Remember
Difficulty: 1 Easy
8. As of 2010, approximately what percentage of the U.S. population
participated in the civilian labor force?
A. 30 percent.
B. 40 percent.
C. 50 percent.
D. 60 percent.
As of 2010, approximately 50 percent of the U.S. population participated in

the civilian labor force.

Blooms: Understand
Difficulty: 1 Easy
9. For the labor force to definitely increase,
A. There must be an increase in total population.
B. There must be an increase in immigration.
C. People must turn from being discouraged workers into people actively
seeking employment.
Usually an increase in population or immigration brings about an increase in

the labor force. However, if this population or immigration increase is from
people under 16 years old, then the labor force has not increased. The labor
force definitely increases if discouraged workers who are out of the labor
force enter the labor force as active job seekers.

Blooms: Remember
10. If a nation experiences a year of unusually high immigration that increases
the size of the labor force, we can conclude that the
A. Nation will choose a different point on the production possibilities curve.
B. Nation's production possibilities curve will shift outward.
C. Nation's production possibilities curve will shift inward.
D. Nation's capital per worker will rise.
Production possibilities will increase whenever there is an increase in

resources.

Blooms: Analyze
11. The production possibilities curve
A. Represents the different quantities of goods society can consume while

operating at full employment.
B. Must shift outward every year.
C. Is another name for the aggregate demand curve.
D. Tends to increase as the population grows.
The production possibilities curve will shift outward as the population grows
due natural factors and immigration.

Blooms: Understand
Difficulty: 1 Easy
12. Which of the following would not increase the physical production
possibilities curve?
A. Greater constraints for oil drilling companies.
B. Increased availability of factors of production.
C. Increased technology.
If the government imposed a ban on offshore drilling, production would

decline, resulting in an inward shift of the production possibilities curve.

Blooms: Understand
13. From 1950 until 2000, the labor force participation rate has
A. Increased for men and increased for women.
B. Decreased for men and decreased for women.
C. Increased for men and decreased for women.
D. Decreased for men and increased for women.
The labor force participation rate for men has decreased due to men living
long enough to retire. The labor force participation rate for women has
increased because the opportunity cost of remaining an unpaid homemaker
as opposed to a labor force participant has significantly increased.

Blooms: Understand
Difficulty: 1 Easy
14. The benefits to the United States of outsourcing include all of the following
except
A. Foreign firms insource or send jobs to the United States.
B. U.S. productivity rises, resulting in higher profits at U.S. firms that

outsource.
C. Higher domestic labor cost for U.S. firms.
D. Greater domestic investment by U.S. firms that outsource.
Outsourcing tends to be a net positive for the United States. It allows our
firms to operate more profitably and invest more domestically; and foreign
firms send jobs to the United States, offsetting some of our outsourced
jobs.

Blooms: Understand
Topic: THE HISTORICAL RECORD
15. If more teenagers stay in school longer rather than dropping out and
entering the labor force,
A. The production possibilities curve shifts outward.
B. The production possibilities curve shifts inward.
C. The production possibilities curve remains unchanged.
D. The unemployment rate goes up.
Reducing resources such as labor due to more schooling will decrease the
production possibilities curve.
AACSB: Analytic
Blooms: Apply
16. When the economy is below full employment, it is producing
A. On the production possibilities curve.
B. Beyond the production possibilities curve.
C. Inside the production possibilities curve.
Unemployed resources above the natural rate of unemployment result in

society producing at a point below the production possibilities curve.

Blooms: Understand
Difficulty: 1 Easy
17. Unemployment is defined as
A. The active search and inability of labor force participants to find jobs.
B. The active search and inability of citizens to find jobs that utilize their
capabilities.
C. The proportion of the total population that is unemployed.
D. A decrease in the labor force.
One is considered to be unemployed when one is without a job and actively

seeking work.

Blooms: Remember
Difficulty: 1 Easy
18. According to Okun's Law, if unemployment rises by 5 percent while imports
and exports increase at roughly the same rate, the economy will lose output
equal to
A. 1 percent.
B. 2 percent.
C. 5 percent.
D. 10 percent.
For every 1 percent increase in unemployment, Okun's Law forecasts a 2

percent decrease in real GDP.
AACSB: Analytic
Blooms: Analyze
Difficulty: 3 Hard
19. The observation that a 1 percent increase in unemployment leads to a 2
percent decrease in real output is known as
A. A recession.
B. A Lucas Wedge.
C. Okun's Law.
D. Under allocation of resources.
Okun's Law is a guide to how much the economy will suffer in lost real
output when unemployment rises.

Blooms: Remember
Difficulty: 1 Easy
20. All of the following are true about Okun's Law except
A. It quantifies the relationship between unemployment and the production

B. It allows a dollar value to be assigned to the cost of unemployment.
C. It indicates that there is a negative 2:1 relationship between output and

unemployment.
D. It indicates that GDP is not affected by unemployment.
Okun's Law explores the relationship between changes to unemployment

and changes to real GDP.
AACSB: Analytic
Blooms: Apply
21. The macro consequence of unemployment is
A. Lost output for the economy.
B. Lost income for the individual worker.
C. A leftward shift in the production possibilities curve.
D. A 1 percent decrease in GDP for every 1 percent decrease in

unemployment.
The dollar value of the decline in output due to unemployment is a

measurable macro consequence.

Blooms: Understand
Difficulty: 1 Easy
22. Those that 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.
Unless one is out of work and actively seeking work, one will be classified
as employed.

Blooms: Remember
Difficulty: 1 Easy
Topic: MEASURING UNEMPLOYMENT
23. To be officially counted as unemployed, one must be
A. Either not working or working only part-time.
B. Not employed at a full-time job.
C. Actively seeking employment and currently not working.
Being without a job is insufficient to be considered as unemployed; one

must also be actively seeking a job.

Blooms: Remember
Difficulty: 3 Hard
24. The proportion of the labor force that is unemployed is the
A. Employment index.
B. Underemployed rate.
C. Unemployment rate.
D. Okun's Law.
The number unemployed divided by the labor force equals the

unemployment rate—the fraction of the labor force that is unemployed.

Blooms: Remember
Difficulty: 1 Easy
25. The most widely used measure of the unemployment rate is found by the
A. U.S. Department of Labor in surveys of businesses to determine the

number of employees as a percentage of the total labor force.
B. U.S. Census Bureau in monthly surveys that examine whether people are
working or are willing to work.
C. U.S. Census Bureau in its census of the population every 10 years.
D. Council of Economic Advisers, which summarizes its nationwide surveys

in its yearly report to the president.
The Census Bureau is responsible for sampling the population of the United
States to find useful information such as unemployment figures.

Blooms: Understand
Difficulty: 1 Easy
26. If the population of a country is 250,000 people, its labor force consists of
145,000 people, 35,000 people are unemployed, 10,000 are unable to work,
and 5,000 are unwilling to work, the unemployment rate is
A. 22.1 percent.
B. 14.0 percent.
C. 24.1 percent.
D. 19.4 percent.
The unemployment rate is determined by taking the number of unemployed

and dividing it by the number of people in the labor force.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
27. Suppose that in a population of 50 million persons, 40 million are in the
labor force, 36 million are employed, 2 million are classified as unable to
work, and 1 million are classified as unwilling to work. The unemployment
rate is
A. 10.0 percent.
B. 72.0 percent.
C. 8.0 percent.
D. 80.0 percent.
The number of unemployed people divided by the number of people in the

labor force yields the unemployment rate.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
28. Suppose a country has 10 million people. Three-fourths of those individuals
are in the labor force, with 500,000 unemployed. Full employment occurs at
5 percent. Based on this information, what is the unemployment rate?
A. 6.67 percent.
B. 75 percent.
C. 7.5 percent.
D. 5 percent.
Taking the number of unemployed people and dividing it by the number of

people in the labor force will give you the unemployment rate.
AACSB: Analytic
Blooms: Apply
labor force, with 90 million unemployed. Full employment occurs at 2
percent. Based on this information, by what percentage has real output
failed to reach its potential according to the revised Okun's Law?
A. 2 percent.
B. 10 percent.
C. 12 percent.
D. 20 percent.
Okun's Law tells us the amount in percentage terms by which GDP falls for
every 1 percent increase in unemployment. In this case, unemployment is
12 percent, which is 10 percent higher than full employment. Therefore, the
GDP is twice that percentage short of potential GDP, or 20 percent.
AACSB: Analytic
Blooms: Analyze
labor force, with 90 million unemployed. Full employment occurs at 2
percent. Based on this information, what is the unemployment rate?
A. 12.0 percent.
B. 25.0 percent.
C. 9.0 percent.
D. 8.3 percent.
The unemployment rate can be found by dividing the number of people who
are unemployed by the number of people in the labor force: (90 million/750
million) * 100.
AACSB: Analytic
Blooms: Analyze
31.
A. 3.9 percent.
B. 75 percent.
C. 3.3 percent.
D. 2.5 percent.
If one divides the number of unemployed people by the number of people in

the labor force, the answer will be the unemployment rate: (5 million/150
million) * 100.
AACSB: Analytic
Blooms: Apply
32.
A. 12.7 percent.
B. 72.7 percent.
C. 51.6 percent.
D. 17.5 percent.
The unemployment rate is equal to the number of unemployed people

divided by the number of people in the labor force: (35 million/200 million) *
100.
AACSB: Analytic
Blooms: Apply
33.
What was the labor force participation rate in 2004 in Table 6.1?
A. 18.3 percent.
B. 133.3 percent.
C. 75.0 percent.
D. 77.5 percent.
The labor force participation rate is the fraction of the population in the
labor force: (150 million/200 million) * 100.
AACSB: Analytic
Blooms: Apply
34.
A. 5.88 percent.
B. 8.33 percent.
C. 70.58 percent.
D. 76.47 percent.
One can find the labor force participation rate by dividing the labor force by
the population: {(60 + 5)/85} * 100.
AACSB: Analytic
Blooms: Apply
35.
Based on Table 6.2, what was the unemployment rate in 1999?
A. 8.42 percent.
B. 10.96 percent.
C. 68.42 percent.
D. 76.84 percent.

labor force is the unemployment rate: {8/( 8 + 65)} * 100.
AACSB: Analytic
Blooms: Apply
36.
A. 77.27 percent.
B. 65.45 percent.
C. 11.81 percent.
D. 18.05 percent.
The labor force participation rate is equal to the labor force divided by the
population: {(72 + 13)/110} * 100.
AACSB: Analytic
Blooms: Apply
37.
What is the number of unemployed in Year 1 in Table 6.3?
A. 90 million.
B. 94 million.
C. 106 million.
D. 4 million.
The number of unemployed people can be found by subtracting the number

employed from the number in the labor force: (110 - 106).
AACSB: Analytic
Blooms: Analyze
38.
What is the unemployment rate in Year 5 in Table 6.3?
A. 7.4 percent.
B. 6.9 percent.
C. 4.0 percent.
D. 54.0 percent.

labor force equals the unemployment rate: {(145 - 135)/145} * 100.
AACSB: Analytic
Blooms: Analyze
39.
What is the labor force participation rate in Year 1 in Table 6.3?
A. 96.4 percent.
B. 3.6 percent.
C. 53.0 percent.
D. 55.0 percent.
One can find the labor force participation rate by dividing the labor force by
the population: (110/200) * 100.
AACSB: Analytic
Blooms: Analyze
40. There is a/an ________________ relationship between educational level and
the unemployment rate.
A. direct relationship
B. positive relationship
C. cyclical relationship
D. inverse relationship
Workers with higher levels of education typically remain unemployed for

shorter periods than their less educated counterparts.
AACSB: Analytic
Blooms: Analyze
Difficulty: 1 Easy
41. Which of the following groups typically has the highest unemployment
rate?
A. White teenagers.
B. Black adults.
C. White adult females.
D. Black teenagers.
Blacks and teenagers are usually the groups that have higher
unemployment rates.

Blooms: Understand
Difficulty: 1 Easy
42. Which of the following groups generally has the lowest unemployment
rate?
A. High school dropouts.
B. High school graduates with no further education.
C. College dropouts.
D. College graduates.
The higher the level of education attained, the lower the unemployment rate
will be for that group of workers, ceteris paribus.

Blooms: Understand
Difficulty: 1 Easy
43. When an economy enters a recession, the
A. Duration of unemployment rises.
B. Cost of unemployment falls.
C. Number of unemployed falls.
D. Number of discouraged workers falls.
Unemployment usually lasts longer in recessions than during economic

expansions.

Blooms: Understand
Difficulty: 1 Easy
44. All of the following are true when the economy is growing except
A. Duration of unemployment falls.
B. Costs associated with unemployment fall.
C. Unemployment rate falls.
D. Underemployment rises.
Typically unemployment figures improve during economic expansions.

Blooms: Understand
45. Which of the following falls into the largest unemployment category during a
recession?
A. A recent college graduate entering the labor force for the first time.
B. A woman who left the labor force to raise children and now wants to
return to work.
C. A factory worker who is laid off because of a temporary plant closing.
D. A teenager looking for his or her first summer job.
During recessions, cyclical unemployment (as in the plant closing) rises.

Blooms: Understand
Difficulty: 1 Easy
46. Of the following reasons for unemployment, which will increase most
because of a recession?
A. Job losers.
B. Reentrants.
C. New entrants.
D. Job leavers.
Layoffs due to insufficient demand in the economy, also known as cyclical

unemployment, lead to a greater amount of layoffs than during an economic
expansion.

Blooms: Understand
Difficulty: 1 Easy
47. Discouraged workers
A. Do not actively seek employment although they desire to be employed.
B. Are part of the labor force.
C. Are workers who are unhappy in their jobs.
D. Are counted as part of total unemployment.
Discouraged workers distort the true estimate of our nation's

unemployment rate because they are not working and not actively seeking
work. They would work if offered a job.

Blooms: Remember
Difficulty: 1 Easy
48. Which of the following is considered a discouraged worker?
A. A professional football player who is forced to play a new position.
B. A professional football player who gets cut after the preseason schedule
has been completed.
C. A professional football coach coming off a 0-16 season.
D. A retired professional football player who tried to make a comeback but

found no one was willing to give him a tryout, so he no longer looks for a
job.
When unemployed workers halt their job search, they become discouraged
workers and move out of the labor force.

Blooms: Understand
49. After a fruitless two-year search for a job, a former executive gives up and
decides to live off the land in the Rocky Mountains. This former executive is
considered
C. One of the phantom unemployed.
D. Underemployed.
Discouraged workers are not actively seeking employment.

Blooms: Remember
50.
What was the unemployment rate in Nationland in 1999?
A. 7.6 percent.
B. 7.1 percent.
C. 5.0 percent.
D. 65.0 percent.
The unemployment rate is simply the number of people who are

unemployed divided by the labor force: 5/(65 + 5).
AACSB: Analytic
Blooms: Apply
51.
What was the labor force participation rate in Nationland in 2000?
A. 67.0 percent.
B. 65.0 percent.
C. 72.0 percent.
D. 72.7 percent.
The labor force participation rate is simply the labor force divided by the
population: (10 + 70)/110.
AACSB: Analytic
Blooms: Apply
52.
A. 3.0 percent.
B. 9.7 percent.
C. 10.8 percent.
D. 2.8 percent.
By including discouraged workers, this new unemployment figure may give a

better estimate of the actual unemployment rate: (2 + 5)/(2 + 5 + 65).
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
53.
A. 18.6 percent.
B. 3.8 percent.
C. 4.3 percent.
D. 15.7 percent.
By including discouraged workers, this new unemployment figure may give a

better estimate of the actual unemployment rate: (3 + 10)/(3 + 10 + 70).
AACSB: Analytic
Blooms: Apply
54. Suppose there are 6 million unemployed workers actively seeking a job.
After a period of time, 1,500,000 of these workers become discouraged and
no longer look for employment. If everything else remains constant, the
unemployment rate will
A. Decrease.
B. Increase.

The official unemployment rate can mask actual unemployment.
AACSB: Analytic
Blooms: Apply
55. Individuals who are working part-time while seeking full-time employment
are classified as
A. Unemployed.
B. Underemployed.
C. Discouraged workers.
D. Phantom unemployed.
This might be someone who is teaching part-time but seeking a full-time

teaching job while working the part-time job.

Blooms: Remember
Difficulty: 1 Easy
56. Underemployment is defined as
A. Individuals desiring to work but who are discouraged by the process and
have given up looking.
B. People who have been laid off because of a recession and have little
chance of finding a job.
C. Individuals who are lazy and will not go out looking for a job but say they
are looking.
D. People seeking full-time paid employment but work only part-time or are
employed at jobs below their capability.
This would include someone, for example, with a law degree who is
temporarily selling insurance until he is hired by a law firm.

Blooms: Remember
Difficulty: 1 Easy
57. Underemployment refers to
A. The same thing as unemployment.
B. A person who is lazy and not working hard at her job.
C. A person who is not able to use her full capabilities in her job.
D. A discouraged worker.
Underemployment is usually higher during recessions than during economic

expansions.

Blooms: Remember
Difficulty: 1 Easy
58. Part-time workers who desire full-time employment are
A. Underemployed and contribute to the unemployment statistic.
B. Underemployed but do not contribute to the unemployment statistic.
C. Not part of the labor force and do not contribute to the unemployment
statistic.
D. Discouraged workers and contribute to the unemployment statistic.
By excluding underemployment of workers, this is another way that the

official unemployment figures disguise the full extent of the unemployment
problem.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
59. Suppose a student graduates from college with a civil engineering degree
and is now employed to grade papers, answer the phone, and make
copies—tasks that are below the graduate's capabilities. The graduate can
best be classified as
D. Underemployed.
The official unemployment figures are distorted by underemployed workers

and tend to paint a better picture than is present in reality.

Blooms: Understand
A. People who report that they are actively seeking a job even when they
have little or no intention of finding one.
B. People who want a job but aren't looking because they don't expect to
find one.
C. People who lack the skills to be employed.
D. Workers with very high rates of absenteeism.
The phantom unemployed, being counted as truly unemployed, actually

make the official unemployment rate overstate the true extent of
unemployment.

Blooms: Remember
Difficulty: 1 Easy
61. The official unemployment statistics may exaggerate the significance of
unemployment by including the
A. Underemployed.
D. High school dropout.
The phantom unemployed do not actively seek work although they report
that they are actively seeking work.

Blooms: Remember
Difficulty: 1 Easy
62. Suppose there are 4 million people in an economy that are classified as
unemployed. After a more thorough investigation, it becomes obvious that
200,000 of these people are actually phantom unemployed. As a result of
this discovery, the unemployment rate will
A. Decrease.
B. Increase.

The phantom unemployed are one of the few categories that actually cause
the official numbers to overstate true unemployment.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
63. Which of the following groups could increase in size and cause a
significantly higher unemployment rate?
A. Discouraged workers.
B. Underemployed workers.
D. Children under the age of 16.
The phantom unemployed do count toward the unemployment figures. But

they are not very motivated to seek work.

Blooms: Understand
Difficulty: 3 Hard
64. A 30-year-old stay-at-home son tells his parent he is looking for work but
cannot find a job. When the parent finds the son a job, he refuses to take it.
The 30-year-old can best be classified as
D. Underemployed.
When one is not actively seeking work and not too excited about finding it,
one may be considered phantom unemployed.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-03 The major types of unemployment.
65. Which of the following groups would be classified as unemployed when
calculating the unemployment rate?
A. Underemployed workers.
B. Discouraged workers.
C. The phantom unemployed.
D. Individuals who are neither employed nor actively seeking a job.
The phantom unemployed count toward the unemployed and artificially

inflate the official rate of unemployment.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
A. Not part of the labor force because they do not desire to work.
B. Unemployed and cause the unemployment statistic to overstate the level

of unemployment.
C. Discouraged and cause the unemployment statistic to understate the

level of unemployment.
D. Classified as cyclically unemployed.
The phantom unemployed are not very eager to find work, yet they are
technically searching for work.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
67. All of the following are considered to be possible side effects of increased
unemployment except
A. Admissions to mental institutions.
B. Fatal heart attacks.
C. Decreased stress levels.
Rising unemployment seems to increase stress levels.
AACSB: Analytic
Blooms: Apply
Learning Objective: 06-02 The socioeconomic costs of unemployment.
Topic: THE HUMAN COSTS
68. When the U.S. unemployment rate decreased in the late 1990s, so did all of
the following except
A. Poverty rate.
B. Income per capita.
C. Child abuse.
Poverty rates tend to fall when unemployment declines.
AACSB: Analytic
Blooms: Apply
69. Studies have shown that unemployment causes
A. Increased expenditure on food.
B. More spending on child care because more mothers go to work.
C. Increased health problems.
D. Little impact since most people receive unemployment benefits.
There are many nonmonetary costs that come with unemployment.

Blooms: Remember
Difficulty: 1 Easy
70. When migrant workers seek employment after the crops have been picked,
the unemployment rate goes up. This situation is an example of
C. Structural unemployment.
Certain types of work take place during the appropriate season. As a result,
unemployment tends to rise and fall in sync with the seasons.

Blooms: Understand
Topic: DEFINING FULL EMPLOYMENT
71. After the harvest, some farmhands lose their jobs. They are considered to
be
Seasonal unemployment occurs when the appropriate production season

changes and work is no longer needed until the following year.

Blooms: Apply
72. The type of unemployment that increases most when teenagers look for
temporary summer jobs is
Seasonal unemployment arises when an industry needs less labor because

the work is seasonal.

Blooms: Understand
73. Which of the following types of unemployment would best characterize a
snow ski instructor's unemployment during the summer months?
Seasonal unemployment comes and goes with changes in the seasons.

Blooms: Understand
74. After Christmas, retail sales fall and many clerks are laid off until the
following Christmas. This is an example of which of the following types of
unemployment?
Some workers lose their jobs when the seasons change and work is no
longer available.
AACSB: Analytic
Blooms: Apply
75. The type of unemployment that economists generally associate with normal
growth of the labor force and expanding job opportunities in a dynamic
economy is
D. Structural unemployment.
There is always a certain amount of unemployment from job seekers

looking for actual jobs that they are qualified for in the economy. A good
example is when Jane gets a job in another town. Her husband Bob, who is
a highly qualified tax accountant, will be frictionally unemployed until he
finds a job in their new location.

Blooms: Remember
Difficulty: 1 Easy
76. Nancy returns to school to study medicine. After graduating, she spends six
months looking for a job. During this period, she is considered
Frictionally unemployed workers do not usually stay unemployed because

they have skills that are needed by employers, but it takes some time to find
the best match for the worker and the employer.

Blooms: Apply
77. Frictional unemployment could result from each of the following except
A. The reallocation of employees to growing industries.
B. The inability of people to find work during certain seasons of the year.
C. The opportunity for people to leave jobs in which they are

underemployed.
The inability to find work during certain seasons of the year is known as
seasonal unemployment.
AACSB: Analytic
Blooms: Apply
78. After being fired from a job, some people find that it may take several
months to find a new job in the same type of work. This is an example of
which of the following types of unemployment?
Frictional unemployment is normal in the economy and does not tend to last
long because the worker has skills that are in demand.

Blooms: Understand
Difficulty: 1 Easy
79. Frictional unemployment goes up when
A. A student quits work to return to school at the end of the summer.
B. A corporation transfers a worker to another city.
C. A worker quits one job to search for another in the same line of work.
Time spent searching between jobs in the same line of work leads to
frictional unemployment.

Blooms: Understand
80. Frictional unemployment can be distinguished from other types of
unemployment in that we assume all of the following except
A. There is an adequate demand for labor to employ the frictionally

unemployed.
B. The frictionally unemployed possess the necessary education and skills

to become employed.
C. Search time is relatively short for frictionally unemployed persons.
D. The skills of the frictionally unemployed are no longer in demand.
If the skills of the unemployed worker were no longer in demand, the worker
would be considered structurally unemployed.

Blooms: Understand
81. Samantha recently quit her job at the university because she is looking for
another job for which she is qualified in a small town. Samantha is
D. Not part of the labor force and does not contribute to the unemployment
rate.
A frictionally unemployed worker has skills that will transfer to his or her
new employer.
AACSB: Analytic
Blooms: Apply
82. When there is a mismatch between the skills required for a job and the
skills of job seekers, the unemployment that results is an example of
Structural unemployment is a serious matter because the worker does not

have skills that employers are looking for.

Blooms: Remember
Difficulty: 1 Easy
83. Structural unemployment occurs when
A. Workers do not have the skills required to fill the vacant positions in the
job market.
B. Firms fail in the normal course of business activity.
C. An industry experiences a seasonal downturn.
Structural unemployment can persist for a long time because the skills
possessed by the unemployed are no longer in demand.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
description of structural unemployment?
Structural unemployment does not go away; many times the worker will
need to be retrained for a new job.

Blooms: Remember
85. Tom worked at NASA for 13 years. In the 14th year, his job was automated,
resulting in him losing his job. He looked for a new job for 18 months before
finding a job in a different line of work that paid less. During his 18-month
job search, Tom was considered to be
Tom lost his job because his skills were no longer needed; as such, he was
considered structurally unemployed.

Blooms: Apply
Difficulty: 3 Hard
86. Automobile workers in Detroit who are unemployed because of foreign
imports at the same time that job vacancies exist for coal miners in West
Virginia would most likely be classified as
A. Structurally unemployed.
Structural unemployment exists when change makes certain jobs

obsolescent.

Blooms: Remember
87. An inner-city teenager without a high school diploma is unable to find work
because all of the available jobs require a certain minimum reading skill
level. Which of the following best characterizes the teenager's
circumstances?
D. Underemployed.
The individual does not possess any skills that are desired by current
employers.
AACSB: Analytic
Blooms: Apply
88. Long-term changes in demand that make some goods obsolete are likely to
have their greatest impact on
B. Cyclical unemployment.
C. Frictional unemployment.
For example, when the car replaced the horse-drawn carriage, many
workers producing horseshoes lost their jobs with little hope of replacing
them with a comparable job.

Blooms: Understand
Difficulty: 1 Easy
89. If workers do not have the skills that are required in the job market, which
of the following will occur?
D. Frictional unemployment.
Structural unemployment is serious because it may be very hard for the

displaced worker to find a good job.

Blooms: Understand
Difficulty: 1 Easy
description of cyclical unemployment?
Cyclical unemployment becomes a serious problem during recessions as

companies downsize due to a temporary decrease in product demand.

Blooms: Understand
91. A U.S. worker who loses his or her job in an import industry because
product demand decreases would be classified as, ceteris paribus,
C. Seasonally unemployed.
D. Structurally unemployed.
Structural unemployment arises because (1) the skill set of the worker does
not meet the needs of the employer or (2) the job has been moved to a
location where the worker can no longer go, such as through outsourcing.
AACSB: Analytic
Blooms: Apply
92. During an economic downturn, consumers spend considerably less on
goods and services. This results in layoffs that are classified as
A. Cyclical.
B. Structural.
C. Frictional.
D. Seasonal.
Cyclical unemployment arises when buyers during a recession are not

spending enough to support current levels of production.

Blooms: Apply
Difficulty: 1 Easy
93. Which of the following unemployment categories is most clearly related to
the rate of growth in real GDP?
A. Structural.
B. Seasonal.
C. Frictional.
D. Cyclical.
Recessions reduce or eliminate growth in the economy, thereby causing an

increase in cyclical unemployment.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
94. Which of the following government policies or programs would be most
appropriate to offset cyclical unemployment?
A. Those that stimulate more demand.
B. More job training.
C. Additional job placement services.
D. Additional health services to counter the effects of unemployment.
A government stimulus that creates more demand will blunt the effect of
diminished private sector demand.
AACSB: Analytic
Blooms: Apply
95. Which of the following government programs would be most appropriate to
counteract cyclical unemployment?
A. Increased job placement services.
B. Greater government expenditures to increase GDP.
C. Year-round school.
D. More job training programs.
When private sector spending falls, GDP will fall unless government
spending increases to offset the fall in private sector spending.
AACSB: Analytic
Blooms: Apply
96. Full employment in the U.S. economy means that
A. Frictional unemployment has been reduced to zero.
B. The total unemployment rate has been reduced to zero.
C. The economy has reached the lowest level of unemployment compatible

with price stability.
D. Structural unemployment has reached its minimum as a result of

increased spending, and the economy is moving toward the peak of the
business cycle.
Employing more and more resources beyond a normal level of operation

tends to drive up resource prices; full employment means reaching the point
of full resource utilization consistent with price stability. It does not mean
that all available resources are being used.

Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 06-04 The meaning of "full employment."
97. The lowest level of unemployment compatible with price stability
A. Is referred to as full employment.
B. Is estimated at between 0 and 2 percent unemployment.
C. Allows for some cyclical unemployment.
D. Is equal to the natural rate of unemployment plus the inflation rate.
Full employment does not mean that everybody has a job. It means that
there is no tendency for wages and prices to rise as a result of excessive
strain on the labor market.

Blooms: Remember
Difficulty: 1 Easy
98. The Employment Act of 1946 set which of the following goals for the
economy?
A. A zero unemployment rate.
B. A zero inflation rate.
C. Lowering cyclical and structural unemployment within reasonable but

nonspecific bounds.
D. Achieving a 4 percent target in seasonal and frictional unemployment.
Low unemployment is an important macroeconomic goal.
AACSB: Analytic
Blooms: Apply
Difficulty: 1 Easy
99. What is the likely consequence of an unemployment rate falling below the
rate at which "full employment" is achieved?
A. The threat of recession.
B. Increased inflationary pressures.
C. An increase in discouraged workers.
Prices tend to increase when scarce resources are sought after by many.

Blooms: Understand
Difficulty: 1 Easy
100. During which one of the following decades was the goal of 4 percent
unemployment set as an acceptable compromise between our full
employment and inflation goals?
A. 1960s.
B. 1970s.
C. 1980s.
D. 1990s.
Originally 4 percent was considered the lowest unemployment rate that was
consistent with price stability.

Blooms: Understand
Difficulty: 1 Easy
101. How have the unemployment components of the natural rate of
unemployment changed over the past 20 years?
A. Frictional unemployment has increased and structural unemployment

has increased.
B. Frictional unemployment has decreased and structural unemployment

has decreased.
C. Frictional unemployment has decreased and structural unemployment

has increased.
D. Frictional unemployment has increased and structural unemployment

has decreased.
Frictional unemployment has decreased due to better communication, and

structural unemployment has increased due to rapid technology changes
and increased trade and outsourcing.

Blooms: Understand
Difficulty: 1 Easy
102. Why has structural unemployment in the United States increased over the
last 20 years?
A. Rapid technology changes have eliminated the needs for certain skill
sets.
B. Companies are increasingly outsourcing certain task to cheaper foreign

markets.
C. Increased trade with other countries has shut down U.S. factories
competing with import industries.
Structural unemployment has increased due to rapid technology changes

and increased trade and outsourcing.

Blooms: Understand
103. The natural rate of unemployment includes
A. Seasonal and cyclical unemployment only.
B. Cyclical and frictional unemployment only.
C. Structural and seasonal unemployment only.
D. Frictional and structural unemployment only.
The natural rate of unemployment does not include seasonal or cyclical

unemployment.

Blooms: Apply
Difficulty: 1 Easy
104. Which of the following was a stated goal of the Humphrey-Hawkins Act?
A. Zero percent unemployment rate.
B. Zero percent inflation rate.
C. 4 percent unemployment rate.
D. 4 percent inflation rate.
The Humphrey-Hawkins Act established 4 percent as the upper level for the
desired level of unemployment.

Blooms: Understand
Difficulty: 1 Easy
105. Unemployment was particularly high during
B. World War II.
C. The Korean War.
D. The Vietnam War.
Severe economic contractions like the Great Depression lead to very high
levels of unemployment.

Blooms: Understand
Difficulty: 1 Easy
106. Unemployment was fairly low during
B. World War II.
C. The 1930s.
D. The recession of 1981-1982.
Economic expansions and war production efforts lead to lower

unemployment rates.

Blooms: Understand
Difficulty: 1 Easy
107. Unemployment was fairly low during all of the following periods except
A. World War II.
B. The Korean War.
C. The late 1990s.
D. The Great Depression.
The Great Depression saw the worst period of unemployment in U.S.

economic history.

Blooms: Understand
108. Outsourcing is the
A. Unemployment that is inevitable when jobs leave a country.
B. Relocation of production from domestic companies to foreign countries.
C. Loss of output because of an increase in unemployment.
D. Movement of workers to foreign countries where there are more jobs.
Sometimes lower prices from domestic companies can be delivered to

domestic consumers through lower production costs achieved in other
countries.

Blooms: Remember
Difficulty: 1 Easy
109. All of the following are true about outsourcing of jobs except that it
A. Occurs because labor is cheaper in other countries.
B. Increases specialization.
C. Reduces costs and increases profits for companies.
D. Ultimately leaves the United States worse off.
The United States benefits through outsourcing by paying lower prices for
foreign factors of production, and job losses are minimal as a fraction of the
overall labor force.

Blooms: Understand
110. When jobs are outsourced,
A. Unemployment increases significantly.
B. Corporations lose money.
C. The economy begins to collapse.
D. Production possibilities expand.
Outsourcing allows the United States to be more efficient with its

resources, thereby allowing greater production possibilities.

Blooms: Understand
Difficulty: 1 Easy
111. As a result of outsourcing,
A. Domestic workers may become more productive.
B. Profits decrease for domestic companies.
C. GDP definitely decreases.
D. Unemployment must increase in the long run.
Buying cheaper imports not only allows consumers to save money, but it
ultimately allows us to produce even more.

Blooms: Understand
Difficulty: 1 Easy
112. One cartoon in the text shows a contented rich man saying, "I don't like six-
percent unemployment either. But I can live with it." The point is that
A. Not everyone experiences the effects of unemployment equally.
B. Everyone agrees that unemployment should be the top priority for

government action.
C. No one can avoid unemployment or the effects of unemployment.
D. It is good to be an independent analyst because those types of jobs are

always in demand.
The costs of unemployment are borne by those who actually lose their jobs.
AACSB: Analytic
Blooms: Apply
113. According to The New Yorker cartoon, one restaurant patron states that
since he has recently stopped looking for a job, he has helped to lower the
unemployment rate. He is:
A. Wrong in that his action raised the unemployment rate.
B. Right in that he became a discouraged worker.
C. Wrong in that he is still in the labor force.
People that looked for work in the last 12 months but did not look for work
in the last month but wanted a job are discouraged workers. They are not in
the labor force and their movement out of the labor force lowers the
unemployment rate.

Blooms: Understand
114. According to an In the News article "Carpentry Work Crashing Down," Labor
demand for carpenters remains low as the economy climbs out of the recent
recession due to
A. Cyclical unemployment from lack of housing demand.
B. Frictional unemployment due to a lumber shortage.
C. Structural unemployment due to a mismatch between workforce skills

and employer needs.
As the economy adjust to new consumer demands, as well as technology

changes, workers with out-of-date skill sets become structurally
unemployed.

Blooms: Understand
Topic: IN THE NEWS
115. Someone 18 years old who is not employed and is not actively seeking work
is considered
A. Not in the labor force.
B. In the labor force.
C. Employed.
D. Unemployed.
Those not in the labor force include anyone who is not working and not
actively seeking work, such as retired people, homemakers, and many
students.
AACSB: Analytic
Blooms: Understand
116. Suppose the working-age population of Country A is 200 million, the number
employed is 130 million, and the number unemployed is 10 million. What is
the labor force participation rate?
A. 60 percent.
B. 70 percent.
C. 65 percent.
D. 75 percent.
The labor force participation rate is the labor force divided by the working-
age population expressed as a percentage: (130 + 10)/200.
AACSB: Analytic
Blooms: Apply
Difficulty: 3 Hard
117. An unemployed worker who wants a job but has given up in the search for a
new job is referred to as a/an
A. Unemployed worker.
B. Phantom unemployed worker.
D. Underemployed worker.
The presence of discouraged workers distorts our official unemployment

figures.
AACSB: Analytic
Blooms: Understand
118. In the 1960s the Council of Economic Advisers determined that the
acceptable level of unemployment that would be used in determining full
employment was
A. 5.5 percent.
B. 5 percent.
C. 4.5 percent.
D. 4 percent.
As unemployment fell lower and lower, the price level rose, so the council
decided 4 percent would be the perfect number for full employment.
AACSB: Analytic
Blooms: Understand
119. According to the section "The Economy Tomorrow," outsourcing eliminates
about __________ jobs in the United States each year.
A. 300,000
B. 500,000
C. 3,000,000
D. 5,000,000
The total number of outsourced jobs averages less than 300,000 per year.
This accounts for only 3-5 percent of total U.S. unemployment, so
outsourcing can't be a major explanation for U.S. unemployment.
AACSB: Analytic
Blooms: Understand
120. When unemployed people stop looking for jobs, the
When people stop looking for work, the "looking for work" portions of both
the numerator and denominator get smaller. Example: 4/(4 + 6) = 40%; 3/(3
+ 6) = 33.3%.
AACSB: Analytic
Blooms: Apply
121. When people over 16 years old start looking for jobs, the
When people start looking for work, the "looking for work" portions of both
the numerator and denominator get larger. Example: 3/(3 + 6) = 33.3%;
4/(4 + 6) = 40 %.
AACSB: Analytic
Blooms: Apply
122. Jim's job was transferred 800 miles away. Although his employer will let him
keep his job if he goes to the new factory, Jim cannot move. Jim is
C. Cyclically unemployed.
Structural unemployment arises from (1) having the wrong skill set or (2)
having the right skill set but being unable to get to your job.

Blooms: Understand
123. According to an In the News article written in 2009, "Unemployment Rate
Hits 10.2%, a 26-Year High," the seasonally adjusted unemployment rate
was the highest since
A. 1973.
B. 1983.
C. 1993.
D. 2003.
To solve this, you must read the article.

Blooms: Understand
Topic: IN THE NEWS
124. How is foreign trade in inputs similar to trade in outputs?
A. U.S. producers buy (outsource) cheap foreign inputs (labor) while U.S.
B. U.S. consumers sell (outsource) cheap foreign inputs (labor) while U.S.
producers sell cheap foreign outputs (U.S. imports).
C. U.S. producers sell (outsource) cheap foreign inputs (labor) while U.S.
Outsourcing is basically foreign trade in inputs. You are buying iron ore or
labor from a cheap foreign source.

Blooms: Understand
125. In the early weeks of a recession, what type of unemployment gets larger?
A. Frictional.
B. Structural.
C. Cyclical.
D. Seasonal.
As demand falls off, the economy enters the downward portion of the
business cycle that is characterized by cyclical unemployment.

Blooms: Understand
126. If there is a prolonged recession and technological advances change the
skill sets of some jobs and eliminate others, what type of unemployment
gets larger?
A. Frictional.
B. Structural.
C. Seasonal.
As the economy remains in the valley shadows of a prolonged recession, old

skill sets of unemployed workers begin to deteriorate as new skill sets are
being required for new technologies. As such, structural unemployment will
expand until workers update their skill sets.

Blooms: Understand
127. If cyclical unemployment is zero, the economy is
At the natural rate of unemployment (frictional + structural), the economy is

on the production possibilities curve. This is also where cyclical
unemployment is zero. If cyclical unemployment is above zero, the economy
moves inside the production possibilities curve.

Blooms: Understand
128. Ceteris paribus, if structural unemployment increases, the economy is

on the production possibilities curve. If any part of the natural rate of
unemployment increases, the production possibilities curve shifts inward.

Blooms: Understand
129. Ceteris paribus, if seasonal unemployment increases, the seasonally
adjusted economy is

on the production possibilities curve. Cyclical unemployment moves an
economy inside the curve. Seasonal unemployment will not affect a
seasonally adjusted economy. That is, the economy is on a fixed production

Blooms: Understand
130. An underemployed worker who is looking for a full-time job is
An underemployed worker is employed.
AACSB: Analytic
Blooms: Apply
True / False Questions
131. Most household and volunteer workers are not included in the labor force.
TRUE
Unless a worker is employed legally by the market and income is reported,

she or he will be excluded from official unemployment figures.

Blooms: Understand
Difficulty: 1 Easy
132. If an 18-year-old male is taking college classes full-time and does not have
a job and is not looking for one, he is considered unemployed.
FALSE
One must be actively seeking work to be considered unemployed.

Blooms: Analyze
133. The labor force participation rate is the percentage of the labor force that is
actually participating or employed.
FALSE
The labor force participation rate is the number of employed workers plus
the number of unemployed workers.

Blooms: Remember
Difficulty: 3 Hard
134. When workers begin retiring at earlier ages, the production possibilities
curve shifts outward.
FALSE
This would cause the production possibilities curve to shift inward.

Blooms: Understand
Difficulty: 1 Easy
135. The updated version of Okun's Law indicates that a 1 percent increase in
the unemployment rate causes a 2 percent decrease in real GDP.
TRUE
Okun's Law shows the relationship between changes in the unemployment

rate and changes in GDP.

Blooms: Understand
Difficulty: 1 Easy
136. When the growth rate of the labor force is faster than the growth rate of the
unemployed, the unemployment rate is falling.
TRUE
This is because the denominator is growing faster than the numerator in the
unemployment calculation.

Blooms: Understand
Difficulty: 1 Easy
137. The number of unemployed can drop simultaneously with increases in the
unemployment rate.
TRUE
This is because the labor force is shrinking, thereby causing people formerly
classified as unemployed to be no longer in the labor force.

Blooms: Understand
Difficulty: 3 Hard
138. People who get discouraged and no longer seek work are counted as
unemployed.
FALSE
These individuals would be classified as discouraged workers.

Blooms: Understand
Difficulty: 1 Easy
139. The underemployed are not included among the unemployed because they
are working.
TRUE
This masks the true unemployment rate.

Blooms: Understand
Difficulty: 1 Easy
140. Most of the costs of unemployment can be measured in financial terms.
FALSE
There are nonmonetary costs borne by the unemployed and their families.

Blooms: Understand
141. It is impossible to find a direct relationship between unemployment and
social problems such as illness, crime, and divorce.
FALSE
Families experience great stress when one or more members are

unemployed, which leads to many domestic and social problems.

Blooms: Understand
142. Frictional unemployment stems from an insufficient level of demand in the

economy.
FALSE
Cyclical unemployment stems from an insufficient level of demand in the

economy.

Blooms: Understand
Difficulty: 1 Easy
143. Cyclical unemployment stems from an insufficient level of demand in the
economy.
TRUE
When spending on goods and services declines, layoffs will occur because
companies cannot maintain the level of production and still earn profit.

Blooms: Understand
Difficulty: 1 Easy
144. Full employment means everyone in the labor force has a job.
FALSE
Full employment is simply the lowest unemployment level possible

consistent with price stability.

Blooms: Understand
Difficulty: 1 Easy
145. In the Employment Act of 1946, Congress committed the federal
government to pursue a goal of 0 percent unemployment and inflation.
FALSE
The Employment Act of 1946 did not specify actual numbers to target for
inflation and unemployment.

Blooms: Understand
Difficulty: 1 Easy
Essay Questions
146. Why does the unemployment rate go down as more people become
discouraged about the economy?
As people become discouraged, they stop looking for jobs and drop out of
the labor force. This decreases both the numerator and denominator by the
same number. However, it reduces the numerator by a bigger percentage
than the denominator, and the unemployment rate falls. Example:
{Look/(Look + Work)} = 4/(4 + 6) = 40%. When people stop looking this
number becomes 3/(3 + 6) = 33.3%.

Blooms: Understand
Difficulty: 3 Hard
147. According to Okun's Law, how does a 2 percent increase in unemployment
affect the economy?
Okun's Law says that 1 percent more unemployment is estimated to equal 2

percent less output. As a result, a 2 percent increase in unemployment
translates into a 4 percent decrease in the amount of output for the
economy.

Blooms: Analyze
Difficulty: 3 Hard
148. Is the unemployment rate the same for all groups of people in an economy?
Why or why not?
No. The unemployment rate is an average for the entire economy, but
unemployment differs across various sectors of the population. Typically
teenagers, minority groups, and those with less education experience higher
levels of unemployment. Unemployment also varies across regions of the
country. One region may be growing and expanding while another region
may be experiencing a downturn. As a result, the unemployment rate can be
lower in one region and higher in another.

Blooms: Analyze
149. Explain how discouraged workers either overstate or understate the
unemployment problem.
Discouraged workers are those who would like a job but have given up the
search. Because they are not actively seeking employment, discouraged
workers are not part of the labor force and are not included in the
unemployment statistic. The existence of discouraged workers tends to
understate the unemployment problem.

Blooms: Analyze
150. Explain the costs of unemployment.
One cost of unemployment is lost output, meaning less production for the
economy. A second cost is the loss of income for the individual. Other costs
such as increased suicides, increased crime, and increased illness are also
consequences of unemployment.

Blooms: Analyze
Difficulty: 3 Hard
151. How can the outsourcing of jobs cause production possibilities to expand?
Businesses choose to outsource jobs or move production to other countries

because labor is cheaper in other countries. The decrease in the cost of
labor allows U.S. firms to earn greater profits. The profits can be used for
new investment. It also allows U.S. workers to focus on more complex tasks
and specialize in what they are best at doing. The end result is higher
productivity.

Blooms: Analyze
Difficulty: 3 Hard

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Multiple Choice Questions

1. Which of the following is included in the labor force?

B. A part-time store clerk who is looking for another job.

C. A person who voluntarily runs a charity.

A. A hardworking homemaker who does not want to be employed outside the

B. A man doing 10 years in prison for armed robbery.

C. The president of Microsoft.

D. A retired commander of the armed forces.

3. People are not part of the labor force when they

B. Are old enough to work but choose not to work.

D. None of the choices are correct.

4. 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 working-age population.

A. Unemployment rate is rising faster than the total population rate.

B. Percentage of the working-age population that is outside the labor force is

C. Percentage of the working-age population that is willing and able to work is

D. Percentage of the total population that is employed is rising.

C. A discouraged worker and is part of the unemployment statistic.

7. Production possibilities are the

A. Alternative combinations of output that can be produced using all available

B. Various production methods that producers can employ.

C. Various types of input that each manufacturing facility can choose to

D. Percentage of output produced by each worker.

9. For the labor force to definitely increase,

A. There must be an increase in total population.

B. There must be an increase in immigration.

D. None of the choices are correct.

A. Nation will choose a different point on the production possibilities curve.

B. Nation's production possibilities curve will shift outward.

C. Nation's production possibilities curve will shift inward.

D. Nation's capital per worker will rise.

A. Represents the different quantities of goods society can consume while

B. Must shift outward every year.

C. Is another name for the aggregate demand curve.

D. Tends to increase as the population grows.

A. Greater constraints for oil drilling companies.

B. Increased availability of factors of production.

D. None of the choices are correct.

A. Increased for men and increased for women.

B. Decreased for men and decreased for women.

C. Increased for men and decreased for women.

D. Decreased for men and increased for women.

A. Foreign firms insource or send jobs to the United States.

B. U.S. productivity rises, resulting in higher profits at U.S. firms that

C. Higher domestic labor cost for U.S. firms.

D. Greater domestic investment by U.S. firms that outsource.

A. The production possibilities curve shifts outward.

B. The production possibilities curve shifts inward.

C. The production possibilities curve remains unchanged.

D. The unemployment rate goes up.

16. When the economy is below full employment, it is producing

A. On the production possibilities curve.

B. Beyond the production possibilities curve.

C. Inside the production possibilities curve.

D. None of the choices are correct.

C. The proportion of the total population that is unemployed.

D. A decrease in the labor force.

18. According to Okun's Law, if unemployment rises by 5 percent while imports