CHAPTER 8. Practise Problems

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1 CHAPTER 8 Practise Problems 1. The labor force is: A) the total of people employed. B) the total population. C) the total of the population of working age. D) the total of people employed and unemployed. 2. To be counted as unemployed, one must: A) have had a job previously. B) be out of work and be actively looking for a job. C) have had a job before and be actively looking for work. D) be actively looking for a job and have at least a high-school diploma or its equivalent. 3. If a country has a working-age population of 200 million, 135 million people with jobs, and 15 million people unemployed and seeking employment, then its unemployment rate is: A) 4%. B) 7.5%. C) 10%. D) 67.5%. 4. If a country has a working-age population of 200 million, 135 million people with jobs, and 15 million people unemployed and seeking employment, then its labor force is: A) 335 million. B) 200 million. C) 155 million. D) 150 million. 5. A person who is not working and is not looking for work is: A) included in the unemployment rate. B) underemployed. C) a member of the labor force who is not working. D) not counted in the unemployment statistics. Page 1

2 6. The labor force is considered to be: A) everyone who is employed. B) everyone who is employed plus everyone who is unemployed. C) the population of the nation. D) those not frictionally unemployed plus all others employed. 7. The percentage of the labor force that is unemployed is the: A) labor force participation rate. B) employment ratio. C) unemployment rate. D) natural employment rate. 8. In order to be officially unemployed, a person must be: A) looking for work in the past four weeks. B) under 55 years old. C) frictionally unemployed. D) structurally unemployed. 9. A survey reveals that on a small island 100 people have jobs, 25 people are looking for jobs, and 45 people are neither working nor looking for work. The unemployment rate on the island is: A) 12.5%. B) 20%. C) 25%. D) 50%. 10. The country of Livonia has an adult population of 100 million; 60% of Livonia's population is employed, but 10% of the people are unemployed. The labor force participation rate in Livonia is: A) 70%. B) 60%. C) 7%. D) 10%. 11. If the rate of unemployment is 10% and the labor force is 130 million, the number of unemployed workers is: A) 10%. B) 13 million. C) 10 million. D) impossible to determine with the above information. Page 2

3 Use the following to answer questions 12-14: 12. (Table: Labor Force Data) Using the data from the accompanying table, suppose the labor force participation rate is 70%. The labor force is equal to: A) 1,200 million. B) 50 million. C) 105 million. D) 400 million. 13. (Table: Labor Force Data) Using the data from the accompanying table, suppose the labor force participation rate is 70%. The number of unemployed adults is: A) 8 million. B) 53 million. C) 103 million. D) 50 million. 14. (Table: Labor Force Data) If the labor force participation rate in this economy is 70 percent, the unemployment rate is: A) 7.6%. B) 5% C) 4%. D) 3%. Use the following to answer questions 15-16: Page 3

4 15. (Table: Labor Force Distribution) Based on the accompanying table, the total population is: A) 486 million. B) 253 million. C) 278 million. D) 283 million. 16. (Table: Labor Force Distribution) Based on the accompanying table, the unemployment rate is: A) 3.85%. B) 10%. C) 4.55%. D) 6.75%. 17. Economists claim that the unemployment rate can understate the true level of unemployment because none of the following groups is included, except: A) discouraged workers. B) marginally attached workers. C) underemployed workers. D) workers without jobs who have looked for work in the last four weeks. 18. Jim has a part-time job and would prefer to have a full-time job but has been unable to find full-time work. Jim is classified as: A) a discouraged worker. B) an underemployed worker. C) an unemployed worker. D) out of the labor force. 19. Which federal agency calculates and reports the official unemployment rate? A) Federal Reserve Bank B) Treasury Department C) Department of Health and Human Services D) Bureau of Labor Statistics 20. During a recession: A) unemployment and the growth rate of real GDP both decrease. B) unemployment decreases and the growth rate of real GDP increases. C) unemployment increases and the growth rate of real GDP decreases. D) there is no relation between unemployment and the growth rate of real GDP. Page 4

5 21. Periods of recession are likely to be marked by: A) rising unemployment. B) constant unemployment. C) increasing employment. D) constant employment. Use the following to answer questions 22-25: Table: Unemployment and Employment Data 22. (Table: Unemployment and Employment Data) According to the accompanying table, the unemployment rate for this economy is: A) 2.9%. B) 4.8%. C) 5%. D) 5.3%. 23. (Table: Unemployment and Employment Data) The labor force in this economy is: A) 170 million. B) 140 million. C) 100 million. D) 98 million. 24. (Table: Unemployment and Employment Data) If marginally attached workers are included, the labor force in this economy is: A) 170 million. B) 103 million. C) 100 million. D) 98 million. Page 5

6 25. (Table: Unemployment and Employment Data) If marginally attached workers are included in the labor force and in the unemployment rate, the unemployment rate in this economy is: A) 8.4%. B) 7.8% C) 5%. D) 3%. 26. Frictional unemployment exists because of all of the following reasons EXCEPT: A) that new jobs are continually being created. B) that some old jobs are always being destroyed. C) that new workers are always entering the labor market. D) for the minimum wage. 27. Ron quit his job in retail management and moved to Florida with his wife, a physician who opened a new practice there. He was not successful in his job search for the next four months. Ron's unemployment is known as: A) structural unemployment. B) cyclical unemployment. C) frictional unemployment. D) seasonal unemployment. 28. The labor supply curve is positively sloped because: A) more people are willing to work at lower wages than at higher wages. B) more people are willing to work at higher wages than at lower wages. C) employers are willing to hire more people at lower wages. D) employers are willing to hire more people at higher wages. 29. All of the following create structural unemployment EXCEPT: A) a government-mandated price ceiling on the price of labor set above the equilibrium wage. B) collective bargaining efforts that secure higher wages for unionized workers than for nonunionized workers. C) offering high wages in order to attract high-quality workers. D) granting Social Security benefits to laid-off workers. Page 6

7 Use the following to answer questions 30-35: Figure: The Minimum Wage 30. (Figure: The Minimum Wage) Look at the accompanying figure on the labor market. Which of the following is a binding minimum wage? A) P1. B) P2. C) P3. D) zero. 31. (Figure: The Minimum Wage) Look at the accompanying figure on the labor market. What is the quantity of labor demanded at a binding minimum wage of P3? A) Q1. B) Q2. C) Q3. D) Q (Figure: The Minimum Wage) Look at the accompanying figure on the labor market. What is the quantity of labor supplied at a binding minimum wage of P3? A) Q1. B) Q2. C) Q3. D) Q4. Page 7

8 33. (Figure: The Minimum Wage) Look at the accompanying figure on the labor market. The binding minimum wage of P3 leads to unemployment of: A) Q3 Q1. B) Q3 Q2. C) Q4 Q1. D) Q4 Q (Figure: The Minimum Wage) Look at the accompanying figure on the labor market. By how much does the quantity of labor supplied rise when the government imposes a binding minimum wage of P3? A) Q4 Q1. B) Q3 Q2. C) Q2 Q1. D) Q4 Q (Figure: The Minimum Wage) Look at the accompanying figure on the labor market. By how much does the quantity of labor demanded fall when the government imposes a binding minimum wage of P3? A) Q4 Q1. B) Q3 Q2. C) Q2 Q1. D) Q4 Q2. Use the following to answer questions 36-38: Figure: The Effect of a Minimum Wage Page 8

9 36. (Figure: The Effect of a Minimum Wage) Suppose the labor market is in equilibrium at E when the government imposes a minimum wage of WF. One problem that may arise is that the quantity of labor supplied would, resulting in structural unemployment. A) decrease to QD B) stay at QE C) increase to QS D) stay at WE 37. (Figure: The Effect of a Minimum Wage) Suppose the labor market is in equilibrium at E when the government imposes a minimum wage of WF. Structural unemployment will equal: A) QS QD. B) QE QD. C) QS QE. D) zero. 38. (Figure: The Effect of a Minimum Wage) Suppose that after some time with a minimum wage of WF, the government abolishes the minimum wage. Employment would: A) decrease to QE. B) increase to QE. C) stay at QE. D) be impossible to determine. 39. Cyclical unemployment: A) rises during a recession. B) falls during a recession. C) rises during an expansion. D) is a part of natural unemployment. 40. The natural level of unemployment contains no unemployment. A) minority B) structural C) frictional D) cyclical Page 9

10 41. In February of 2012, the Bureau of Labor Statistics calculated the unemployment rate to be 8.3%. If frictional unemployment was 3.1% and structural unemployment was 3.2%, then the natural rate of unemployment would be: A) 4.5%. B) 2.0%. C) 1%. D) 5.5%. 42. Over the past year, Eli has been working very hard. His employer has taken notice and is giving Eli a 6% raise in salary. During this past year, overall prices in the economy have increased by 4%. Given this information, Eli's real wage has: A) stayed constant. B) increased by 6%. C) increased by 2%. D) decreased by 4%. Use the following to answer question 43: 43. (Table: The Consumer Price Index (CPI)) According to the accompanying table, the inflation rate between 2011 and 2012 is: A) 10%. B) 3%. C) 1.4%. D) 24.6%. 44. (Table: The Consumer Price Index (CPI)) According to the accompanying table, the consumer price index in 2009 was In 2010, it was What was the rate of inflation from 2009 to 2010? A) 12.2% B) 4.5% C) 2.1% D) 16.7% Page 10

11 45. Shoe-leather costs refer to the costs of: A) the raw material used in production. B) the increased number of transactions as inflation increases. C) living adjustments as inflation increases. D) the raw material used in production, the increased number of transactions as inflation increases, and living adjustments as inflation increases. 46. The costs that arise from the way inflation makes money a less reliable unit of measurement are known as: A) shoe-leather costs. B) menu costs. C) unit-of-account costs. D) medium of exchange costs. 47. Suppose that a country has a progressive income tax code, where taxable income is calculated in nominal terms but the schedule of income tax rates is NOT indexed to inflation. An individual whose income keeps up with inflation will find that over time he or she she will pay: A) the alternative minimum tax. B) a lower percentage of income in taxes over time. C) the same percentage of income in taxes over time. D) a higher percentage of income in taxes over time. 48. Menu costs of inflation are the: A) costs associated with money being a less reliable unit of measurement. B) costs of transactions associated with avoiding the inflation tax. C) costs associated with businesses changing prices. D) revenue the government gets from printing money. 49. Unit-of-account costs refer to the: A) increase in prices during inflation. B) decrease in the value of money during inflation. C) loss of the reliability of money as a relative unit of measurement. D) increased costs of servicing bank accounts during inflation. 50. During rapid price inflation, firms must frequently change prices. The cost of changing listed prices is known as the: A) menu cost. B) real interest rate cost. C) shoe-leather cost. D) unit-of-account cost. Page 11

12 Use the following to answer questions 51-55: Figure: The Labor Market 51. (Figure: The Labor Market) Refer to the accompanying figure on the labor market. The equilibrium wage rate is: A) $16. B) $15. C) $14. D) $ (Figure: The Labor Market) Refer to the accompanying figure on the labor market. The level of employment at the equilibrium wage rate is: A) 80,000. B) 110,000 C) 100,000. D) 90, (Figure: The Labor Market) Refer to the accompanying figure on the labor market. The size of the labor force at equilibrium wage rate is: A) 80,000. B) 110,000. C) 100,000. D) 200,000. Page 12

13 54. (Figure: The Labor Market) Refer to the accompanying figure on the labor market. The unemployment rate at the equilibrium wage rate is: A) 0%. B) 50%. C) 80%. D) 15%. 55. (Figure: The Labor Market) Refer to the accompanying figure on the labor market. What will be the level of employment if firms decide to pay an efficiency wage of $16? A) 80,000 B) 100,000 C) 110,000 D) 200,000 Page 13

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