112) The supply of labor curve has a ________ slope because as the real wage rate rises,
________.
A) negative; irms hire fewer workers
B) positive; the opportunity cost of leisure rises
C) positive; the opportunity cost of leisure falls
D) negative; households work more hours
E) positive; irms ofer more jobs
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
113) The real wage rate is $35 an hour. At this wage rate there are 100 billion labor hours
supplied and 200 billion labor hours demanded. There is a
A) shortage of 300 billion hours of labor.
B) shortage of 100 billion hours of labor.
C) surplus of 100 billion hours of labor.
D) surplus of 300 billion hours of labor.
E) shortage of 200 billion hours of labor.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
114) When the labor market is in equilibrium, real GDP ________ potential GDP.
A) is greater than
B) is equal to
C) is less than
D) might be greater than, less than, or equal to
E) is not comparable to
Skill: Level 1: Deinition
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
41
115) Compared to the U.S. production function, the European production function is
A) higher.
B) lower.
C) the same.
D) lower than the U.S. production function at low levels of employment and higher than the
U.S. production function at high levels of employment.
E) higher than the U.S. production function at low levels of employment and lower than the
U.S. production function at high levels of employment.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Relective thinking
8.2 The Natural Unemployment Rate
1) The unemployment rate at full employment is
A) zero.
B) the natural unemployment rate.
C) equal to the rationed rate of unemployment.
D) undeined because the economy is never at full employment.
E) equal the amount of unemployment caused by job search.
Skill: Level 1: Deinition
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
2) Which of the following explain the natural rate of unemployment?
i. job search
ii. the Okun Gap
iii. the production function
A) i and iii
B) i only
C) iii only
D) ii and iii
E) i and ii
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
42
3) The natural unemployment rate is the result of
A) bad government policies.
B) insuicient demand for labor.
C) job search and job rationing.
D) the Lucas Wedge.
E) the Okun Gap.
Skill: Level 1: Deinition
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
4) Suppose job search has decreased over the last several years. This decrease could be a
result of
i. a change in unemployment beneits.
ii. a positive structural change.
iii. a higher inlation rate.
A) ii only
B) i only
C) i and ii
D) ii and iii
E) i and iii
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
5) The increase in the average unemployment rate in the 1970s was the result of
A) the reduction of overly generous unemployment beneits in the 1970s.
B) an increase in the birth rate in the early 1970s.
C) an increase in the birth rate in the late 1940s and early 1950s.
D) higher real wage rates.
E) repeated increases in the minimum wage.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
43
6) A newspaper headline reads “A New Wave of Workers Enters the Job Market!” This wave
of young, new entrants to the labor market is likely to lead to
A) an increase in the natural unemployment rate.
B) a decrease in the unemployment rate.
C) no efect on the unemployment rate.
D) a decrease in the country’s potential GDP.
E) a decrease in the natural unemployment rate but an increase in the actual
unemployment rate.
Skill: Level 3: Using models
Section: Checkpoint 8.2
Status: Old
AACSB: Written and oral communication
7) Which of the following increases frictional and/or structural unemployment?
i. more young workers entering the labor force
ii. more generous unemployment beneits
iii. a structural slump with some industries dying
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii. and iii
Skill: Level 3: Using models
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
8) The length of time an unemployed person searches for a job is likely to increase as
A) the working age population gets older.
B) the birth rate declines.
C) new technologies make workers more productive.
D) unemployment beneits become more generous.
E) job rationing decreases.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
44
9) If the amount paid as unemployment beneits decreases, the opportunity cost of job
search
A) rises and people would stay unemployed longer.
B) is not afected because unemployment beneits do not change job availability.
C) rises and people stay unemployed for a shorter time.
D) falls and people stay unemployed for a shorter time.
E) falls and people stay unemployed for a longer time.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
10) More generous unemployment beneits ________ the opportunity cost of looking for a
new job and therefore ________ the job search process
A) lower; extend
B) lower; shorten
C) raise; extend
D) raise; shorten
E) lower; does not change
Skill: Level 1: Deinition
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
11) The natural unemployment rate is higher if
A) unemployment beneits become more generous.
B) there is a decrease in the working-age population.
C) there are fewer two-income households.
D) many of the new jobs created require skills possessed by the available labor.
E) eiciency wages are lower.
Skill: Level 1: Deinition
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
45
12) The lower the amount of unemployment beneits citizens receive, the
A) higher the opportunity cost of job search.
B) lower the opportunity cost of job search.
C) the higher the natural unemployment rate.
D) the longer people search for jobs.
E) higher the wage people must be ofered before they accept a job.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
13) The length of time people spend in search of a job increases if
A) the population ages.
B) unemployment beneits increase.
C) the criteria necessary to qualify for unemployment beneits increases.
D) there is a sudden change in technology.
E) the minimum wage is decreased.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
14) France is considering implementing policies that will reduce the duration of job search.
A possible option is for France to
A) increase the minimum wage.
B) help negotiate higher union beneits for employed workers.
C) reduce unemployment beneits.
D) require all residents between the ages of 19 and 26 to obtain a part-time or full-time job.
E) Both answers A and B are correct.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
46
15) If we compare the Canadian natural unemployment rate to the U.S. natural
unemployment rate, we ind that for most years since 1980
A) they are essentially the same because we have a lot in common.
B) the Canadian rate is higher, possibly the result of higher unemployment beneits in
Canada for most of those years.
C) the U.S. rate is higher, possibly the result of greater job search within a larger country.
D) the Canadian rate is higher, possibly the result of higher unemployment beneits in the
United States for most of those years.
E) The U.S. rate is higher, possibly the result of more structural change occurring in the
United States.
Skill: Level 3: Using models
Section: Checkpoint 8.2
Status: Revised
AACSB: Relective thinking
16) Structural change inluences the unemployment rate and such structural change is
created by changes in
A) real GDP.
B) the seasons.
C) technology.
D) population.
E) the minimum wage.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
17) Job rationing occurs when the real wage rate is
A) below the equilibrium wage rate so there is an excess supply of labor.
B) above the equilibrium wage rate so there is a shortage of labor.
C) equal to the equilibrium wage rate so there is no excess supply of labor.
D) above the equilibrium wage rate so there is an excess supply of labor.
E) Both answers A and D are correct because whenever the real wage rate is above or
below the equilibrium wage rate, there is an excess supply of labor.
Skill: Level 1: Deinition
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
47
18) Which of the following creates job rationing?
A) The real wage rate is below the equilibrium level.
B) The real wage rate is above the equilibrium level.
C) The real wage rate is equal to the equilibrium level.
D) Job search decreases.
E) An increase in unemployment beneits.
Skill: Level 1: Deinition
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
19) Job rationing occurs when the real wage is ________ the equilibrium level and there is a
________ of labor.
A) above; shortage
B) above; surplus
C) below; shortage
D) below; surplus
E) equal to; shortage
Skill: Level 1: Deinition
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
20) Which of the following can result in job rationing?
i. minimum wage
ii. union wage
iii. diminishing returns
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
Skill: Level 1: Deinition
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
48
21) Suppose the full-employment equilibrium real wage rate is $11 per hour while the
actual real wage rate is $12 per hour. If the actual real wage rate does not change, then
A) job rationing will occur.
B) job search will decline.
C) a positive Okun Gap will occur.
D) the production function will shift downward.
E) job rationing will decrease.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
22) Eiciency wages, above equilibrium minimum wage rates, and higher union wages are
likely to
A) increase the natural unemployment rate.
B) increase cyclical unemployment.
C) reduce the equilibrium real wage rate.
D) increase the equilibrium real wage rate.
E) decrease the natural unemployment rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
23) The presence of eiciency, minimum and union wages
A) can explain job rationing because they lower the natural unemployment rate.
B) can explain job rationing because they raise the real wage rate above equilibrium.
C) can explain job rationing because they lower the real wage rate below equilibrium.
D) does not afect job rationing because they afect only the amount of job search.
E) cannot explain job rationing because they are a natural part of the economy.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
49
24) Eiciency wages are
A) mandated by law.
B) set below the equilibrium level of the real wage.
C) ofered by irms who want to reduce turnover in the labor force.
D) special wages ofered to teenagers.
E) the result of demographic change.
Skill: Level 1: Deinition
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
25) An eiciency wage
A) is set above the equilibrium real wage rate to induce greater work efort.
B) is set below the equilibrium real wage rate to reduce labor costs.
C) increases the supply of labor and therefore increases potential GDP.
D) increases the demand for labor and therefore increases potential GDP.
E) reduces frictional unemployment.
Skill: Level 1: Deinition
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
26) An eiciency wage is designed to
A) induce more work efort.
B) keep the minimum wage from rising.
C) keep the minimum wage from falling.
D) to induce more employment.
E) decrease the need for workers to search for jobs.
Skill: Level 1: Deinition
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
50