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# Chapter 26 Unemployment and Its Natural Rate

Test B
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Which of the following is correct? a. Some degree of unemployment is inevitable. b. Other things the same, an increase in the number of people who are unemployed decreases real GD . c. !yclical unemployment is inversely related to short"run economic fluctuations. d. #ll of the above are correct. #\$SW%&' d. #ll of the above are correct. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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#ccording to the -1S, a homema2er is a. employed. b. unemployed. c. not in the labor force. d. -oth b and c are correct. #\$SW%&' c. not in the labor force. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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(he labor force e4uals the a. adult population minus the number of people unemployed. b. number of people employed plus the number of people unemployed. c. number of people who are employed. d. number of people who are unemployed. #\$SW%&' b. number of people employed plus the number of people unemployed. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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(he unemployment rate is computed as the number of unemployed times 166 a. divided by the labor force. b. divided by the number of people employed. c. divided by the adult population. d. times the participation rate. #\$SW%&' a. divided by the labor force. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' ) NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA\$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
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(he total population 8age 19 and over: of ageland is 5; million. Of this total, 5 million are unemployed and 39 million currently hold <obs. What are the rates of unemployment and labor force participation of ageland? a. (he rate of unemployment is 11 percent, and the rate of labor force participation is ;3 percent. b. (he rate of unemployment is 16 percent, and the rate of labor force participation is =7 percent. c. (he rate of unemployment is 16 percent, and the rate of labor force participation is ;3 percent. d. (he rate of unemployment is 11 percent, and the rate of labor force participation is >6 percent. #\$SW%&' c. (he rate of unemployment is 16 percent, and the rate of labor force participation is ;3 percent. () %' * +%)1' % S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )

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## 50 !hapter 09ABnemployment and ,ts \$atural &ate

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#ccording to recent statistics from Spain, the unemployment rate was about 19.>=C and the number of people employed was about 13.7 million. #bout how many people were unemployed? a. 1.;0 million b. 0.0> million c. 0.=9 million d. (he answer cannot be determined from the information provided. #\$SW%&' c. 0.=9 million () %' * +%)1' % S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )
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Suppose the natural rate of unemployment is 9C and the current rate of unemployment is 16C, the cyclical unemployment rate is a. D5C. b. 5C. c. >.9C. d. 19C. e. \$one of the above is correct. #\$SW%&' b. 5C. () %' * +%)1' D S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )
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Since 1>76, the participation rate in the Bnited States a. increased for both men and women. b. decreased for both men and women. c. increased for men, but decreased for women. d. decreased for men, but increased for women. #\$SW%&' d. decreased for men, but increased for women. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' ) NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA\$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
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Studies have found that most a. unemployment at a given point in time is short term. b. spells of unemployment are long. c. spells of unemployment are caused by discouraged wor2ers. d. unemployment at any given point in time is long term. #\$SW%&' d. unemployment at any given point in time is long term. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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!onsider the following sentences. *ost spells of unemployment are short. *ost unemployment observed at any given time is long"term. a. -oth sentences are true. b. -oth sentences are false. c. Only the first sentence is true. d. Only the second sentence is true. #\$SW%&' a. -oth sentences are true. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )

## !hapter 09ABnemployment and ,ts \$atural &ate 53

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!onsider the following sentences. Erictional unemployment results because it ta2es time for wor2ers to search for the <obs that best suit their taste and s2ills. Structural unemployment results because the number of <obs available in some labor mar2ets is insufficient to provide the <obs for everyone who wants one. a. -oth sentences are true. b. -oth sentences are false. c. Only the first sentence is true. d. Only the second sentence is true. #\$SW%&' a. -oth sentences are true. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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Bnemployment insurance a. reduces search effort and lowers unemployment. b. reduces search efforts and raises unemployment. c. increases search effort and raises unemployment. d. increases search effort and decreases unemployment. #\$SW%&' b. reduces search effort and raises unemployment. () %' * +%)1' D S%!(,O\$' 0 O-.%!(,/%' 0 &#\$DO*' ) NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA\$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
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@igher unemployment insurance benefits tend to increase the level of unemployment because the higher benefits a. reduce the opportunity cost of <ob search and hence increase the search time. b. increase the opportunity cost of <ob search and hence increase the search time. c. reduce the opportunity cost of <ob search and hence decrease the search time. d. increase the opportunity cost of <ob search and hence decrease the search time. #\$SW%&' b. increase the opportunity cost of <ob search and hence increase the search time. () %' * +%)1' D S%!(,O\$' 0 O-.%!(,/%' 0 &#\$DO*' )
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Which of the following would increase frictional unemployment? a. a reduction in unemployment insurance b. increases in the world price of oil c. increased information about <ob openings and wor2er ability d. #ll the above are correct. #\$SW%&' b. increases in the world price of oil () %' * +%)1' D S%!(,O\$' 0 O-.%!(,/%' 0 &#\$DO*' )
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,ncreasing the minimum wage would increase a. both frictional and structural unemployment. b. frictional unemployment, but not structural unemployment. c. structural unemployment, but not frictional unemployment. d. neither frictional nor structural unemployment. #\$SW%&' c. structural unemployment, but not frictional unemployment. () %' * +%)1' D S%!(,O\$' 3 O-.%!(,/%' 3 &#\$DO*' )
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#n increase in the minimum wage would a. increase both the 4uantity demanded and the 4uantity supplied of labor. b. decrease both the 4uantity demanded and the 4uantity supplied of labor. c. increase the 4uantity demanded of labor and decrease the 4uantity supplied of labor. d. increase the 4uantity supplied of labor and decrease the 4uantity demanded of labor. #\$SW%&' d. increase the 4uantity supplied of labor and decrease the 4uantity demanded of labor. () %' * +%)1' D S%!(,O\$' 3 O-.%!(,/%' 3 &#\$DO*' )

## 55 !hapter 09ABnemployment and ,ts \$atural &ate

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,f an industry becomes unioniFed, a. both employment and wages in that industry tend to rise. b. wages in that industry tend to rise, while employment in that industry tends to fall. c. wages in that industry tend to fall, while employment in that industry tends to rise. d. both employment and wages in that industry tend to fall. #\$SW%&' b. wages in that industry tend to rise, while employment in that industry tends to fall. () %' * +%)1' D S%!(,O\$' 5 O-.%!(,/%' 5 &#\$DO*' )
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,n Sweden and Denmar2 a. about 1A3 of the wor2ers belong to unions, which is less than in the Bnited States. b. about 1A3 of the wor2ers belong to unions, which is more than in the Bnited States. c. about 3A5 of the wor2ers belong to unions, which is less than in the Bnited States. d. about 3A5 of the wor2ers belong to unions, which is more than in the Bnited States. #\$SW%&' d. about 3A5 of the wor2ers belong to unions, which is more than in the Bnited States. () %' * +%)1' D S%!(,O\$' 5 O-.%!(,/%' 5 &#\$DO*' )
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%fficiency wages a. increase both productivity and unemployment. b. decrease both productivity and unemployment. c. increase productivity and decrease unemployment. d. decrease productivity and increase unemployment. #\$SW%&' a. increase both productivity and unemployment. () %' * +%)1' D S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )
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(om !rown operates a company that produces paintings for motels. (om decides that if he pays his wor2ers more that his profits will increase. Which of the following is a li2ely and logical eGplanation for his decision? a. -y paying higher wages, he will be able to charge more for the paintings his wor2ers produce. b. -y paying higher wages, incompetent wor2ers are less li2ely to apply. c. -y paying higher wages, wor2ers are less li2ely to shir2. d. #ll of the above are correct. #\$SW%&' c. -y paying higher wages, wor2ers are less li2ely to shir2. () %' * +%)1' D S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )
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(he theory of efficiency wages implies that if it became easier to accurately evaluate the wor2ersH abilities, wages a. and unemployment would rise. b. would rise and unemployment would fall. c. would fall and unemployment would rise. d. and unemployment would fall. #\$SW%&' d. and unemployment would fall. () %' * +%)1' D S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )
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#nything that ma2es the efficiency wage rise relative to the mar2et"clearing wage will a. increase both the 4uantity demanded and the 4uantity of labor supplied. b. decrease both the 4uantity demanded and the 4uantity of labor supplied. c. increase the 4uantity demanded and decrease the 4uantity of labor supplied. d. decrease the 4uantity demanded and increase the 4uantity of labor supplied. #\$SW%&' d. decrease the 4uantity demanded and increase the 4uantity of labor supplied. () %' * +%)1' D S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )

## !hapter 09ABnemployment and ,ts \$atural &ate 57

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#mong eGperienced professors the ones with the least s2ills are most li2ely to be searching for <obs and as a result schools are li2ely to be s2eptical of applications from all eGperienced professors. ,f wor2ers have much say in who gets hired, they may find it in their best interest to avoid suggesting the hire of wor2ers that may be superior to them. a. -oth eGamples illustrate adverse selection. b. -oth eGamples illustrate moral haFard. c. (he first eGample illustrates adverse selection, the second illustrates moral haFard. d. (he first eGample illustrates moral haFard, the second illustrates adverse selection. #\$SW%&' c. (he first eGample illustrates adverse selection, the second illustrates moral haFard. () %' * +%)1' D S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )
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Which of the following would reduce the natural rate of unemployment? a. (he ,nternet provides more readily available information about available <obs. b. !ongress increases the minimum wage. c. Bnion membership increases. d. #ll of the above are correct. #\$SW%&' a. (he ,nternet provides more readily available information about available <obs. () %' * +%)1' ! S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )
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Which of the following laws would increase the natural rate of unemployment? a. !ongress abolishes the minimum wage. b. !ongress passes laws that ma2e it harder to find out about <ob candidatesH past <ob history. c. !ongress passes a law that ma2es all states adopt right"to"wor2 laws. d. #ll of the above are correct. #\$SW%&' b. !ongress passes laws that ma2e it harder to find out about <ob candidatesH past <ob history. () %' * +%)1' ! S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )

## !opyright ? @arcourt, ,nc.

#\$SW%&' d. #ll of the above are correct. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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#\$SW%&' c. not in the labor force. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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#\$SW%&' b. number of people employed plus the number of people unemployed. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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#\$SW%&' a. divided by the labor force. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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#\$SW%&' c. (he rate of unemployment is 16 percent, and the rate of labor force participation is ;3 percent. () %' * +%)1' % S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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## #\$SW%&' b. 5C. () %' * +%)1' D S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )

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#\$SW%&' d. decreased for men, but increased for women. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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#\$SW%&' d. unemployment at any given point in time is long term. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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#\$SW%&' a. -oth sentences are true. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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#\$SW%&' a. -oth sentences are true. () %' * +%)1' D S%!(,O\$' 1 O-.%!(,/%' 1 &#\$DO*' )
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#\$SW%&' b. reduces search effort and raises unemployment. () %' * +%)1' D S%!(,O\$' 0 O-.%!(,/%' 0 &#\$DO*' )
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#\$SW%&' b. increase the opportunity cost of <ob search and hence increase the search time. () %' * +%)1' D S%!(,O\$' 0 O-.%!(,/%' 0 &#\$DO*' )
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#\$SW%&' b. increases in the world price of oil () %' * +%)1' D S%!(,O\$' 0 O-.%!(,/%' 0 &#\$DO*' )

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#\$SW%&' c. structural unemployment, but not frictional unemployment. () %' * +%)1' D S%!(,O\$' 3 O-.%!(,/%' 3 &#\$DO*' )
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#\$SW%&' d. increase the 4uantity supplied of labor and decrease the 4uantity demanded of labor. () %' * +%)1' D S%!(,O\$' 3 O-.%!(,/%' 3 &#\$DO*' )
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#\$SW%&' b. wages in that industry tend to rise, while employment in that industry tends to fall. () %' * +%)1' D S%!(,O\$' 5 O-.%!(,/%' 5 &#\$DO*' )
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#\$SW%&' d. about 3A5 of the wor2ers belong to unions, which more than in the Bnited States. () %' * +%)1' D S%!(,O\$' 5 O-.%!(,/%' 5 &#\$DO*' )
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#\$SW%&' a. increase both productivity and unemployment. () %' * +%)1' D S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )
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#\$SW%&' c. -y paying higher wages, wor2ers are less li2ely to shir2. () %' * +%)1' D S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )
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#\$SW%&' d. and unemployment would fall. () %' * +%)1' D S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )
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#\$SW%&' d. decrease the 4uantity demanded and increase the 4uantity of labor supplied. () %' * +%)1' D S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )
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#\$SW%&' c. (he first eGample illustrates adverse selection, the second illustrates moral haFard. () %' * +%)1' D S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )
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#\$SW%&' a. (he ,nternet provides more readily available information about available <obs. () %' * +%)1' ! S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )
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#\$SW%&' b. !ongress passes laws that ma2e it harder to find out about <ob candidatesH past <ob history. () %' * +%)1' ! S%!(,O\$' 7 O-.%!(,/%' 7 &#\$DO*' )