Chapter 06 Test Bank

Student: ___________________________________________________________________________

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.

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.
D. None of the choices are correct.

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.
D. None of the choices are correct.

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.
D. None of the choices are correct.

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.
D. None of the choices are correct.

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.

30. 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, 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.

What was the unemployment rate in 2006 in Table 6.1?

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.

Based on Table 6.2, what was the labor force participation rate in 2000?

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 of the labor force 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 current 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
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.
B. Structurally unemployed.
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.

If discouraged workers are included in the labor force, what was the unemployment rate for 2000?

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
A. A discouraged worker.
B. Structurally unemployed.
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.
C. Remain unchanged until the unemployed find a job.
D. Increase initially but decrease when the phantom unemployed receive unemployment benefits.

63. Which of the following groups could increase in size and cause a significantly higher unemployment rate?
A. Discouraged workers.
B. Underemployed workers.
C. Phantom unemployed.
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
A. A discouraged worker.
B. Phantom unemployed.
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.

66. The phantom unemployed are

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 human costs of increased unemployment except
A. Admissions to mental institutions.
B. Fatal heart attacks.
C. Decreased stress levels.
D. None of the choices are correct.

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.
D. None of the choices are correct.
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.
B. Structurally unemployed.
C. Frictionally unemployed.
D. Seasonally unemployed.

72. When there's a shortage in the number of jobs available when teenagers look for summer jobs, the type of
unemployment that arises is called
A. Frictional unemployment.
B. Structural unemployment.
C. Seasonal unemployment.
D. Cyclical 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.
C. Seasonal unemployment.
D. Cyclical 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?
A. Structural unemployment.
B. Frictional 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
A. Frictional unemployment.
B. Seasonal unemployment.
C. Cyclical unemployment.
D. Structural unemployment.

76. Nancy returns to school to study medicine. After graduating and the economy is not in a recession, she spends six
months looking for a job. During this period, she is considered
A. Cyclically unemployed.
B. Structurally unemployed.
C. Frictionally unemployed.
D. Seasonally unemployed.

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.
D. None of the choices are correct.

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, even when the economy is not in a recession. This is an example of which of the following types of
unemployment?
A. Structural unemployment.
B. Frictional unemployment.
C. Cyclical unemployment.
D. Seasonal 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
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 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
A. Frictional unemployment.
B. Structural unemployment.
C. Cyclical unemployment.
D. Seasonal unemployment.

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.
D. There is inadequate demand for labor.

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.
th
85. Tom worked at NASA for 13 years. In the 14 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
A. Cyclically unemployed.
B. Structurally unemployed.
C. Frictionally unemployed.
D. Seasonally unemployed.

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.
C. Frictionally unemployed.
D. Seasonally unemployed.

87. A 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 he is not proficient in. Which of the following best characterizes the
teenager's circumstances?
A. A discouraged worker.
B. Structurally unemployed.
C. Phantom unemployed.
D. Underemployed.
88. Long-term changes in demand that make some goods obsolete (possibly due to technological advancement) are
likely to have their greatest impact on
A. Structural unemployment.
B. Cyclical unemployment.
C. Frictional unemployment.
D. Seasonal unemployment.

89. If workers do not have the skills that are required in the job market, which of the following will occur?
A. Structural unemployment.
B. Seasonal unemployment.
C. Cyclical unemployment.
D. Frictional unemployment.

90. In terms of the musical chairs analogy in the text, which of the following is a description of cyclical 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.

91. A U.S. worker who loses his or her job in an import industry because the good is no longer produced would be
classified as, ceteris paribus,
A. Frictionally unemployed.
B. Cyclically unemployed.
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.
D. None of the choices are correct.

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 tasks 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 1980s.

106. Unemployment was fairly low during

A. The Great Depression.
B. World War II.
C. The 1930s.
D. The recession of 1981

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.
D. None of the choices are correct.

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.
D. None of the choices are correct.

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.
C. Discouraged 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
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.

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
A. Frictionally unemployed.
B. Structurally unemployed.
C. Cyclically unemployed.
D. Seasonally 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. consumers buy cheap foreign outputs
(U.S. imports).
D. All of the choices are correct.

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, at the same time, technological advances change the skill sets of some
jobs and eliminate others, what type of unemployment gets larger?
A. Frictional.
B. Structural.
C. Seasonal.
D. None of the choices are correct.

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
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.

129. Ceteris paribus, if seasonal unemployment increases, the seasonally adjusted 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.

130. An underemployed worker who is looking for a full-time job is

A. A discouraged worker.
B. Phantom unemployed.
C. Structurally unemployed.
D. None of the choices are correct.

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
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 two economic costs, and two human costs of unemployment.

151. How can the outsourcing of jobs cause production possibilities to expand?
 Chapter 06 Test Bank Key
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

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.
Anyone not employed who is not actively searching for work is considered not in the labor force.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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 working population either employed or
unemployed and can be expressed by the equation: (Employed+Unemployed)/(Labor Force).

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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
and can be expressed by the equation: (Employed+Unemployed)/(Labor Force).

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.
To be considered in the labor force one must be 16 years of age or older, and either working for pay or
actively seeking paid employment. As Jack is not seeking work, he's not considered unemployed and thus not
part of the labor force.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.
D. None of the choices are correct.
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.
D. None of the choices are correct.
If the government imposed a ban on offshore drilling, production would decline, resulting in an inward shift of
the production possibilities curve.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
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 consequently lead to a decrease in the population
who are in the labor force, thus decreasing the production possibilities curve.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.
When an economy is below full employment, it is not utilizing its resources to the full extent. Thus,
unemployed resources are above the natural rate of unemployment resulting in society producing at a point
below the production possibilities curve.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: 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.
According to Okun's Law, there is a negative 2:1 relationship between unemployment and real GDP. For
every 1 percent increase in unemployment, Okun's Law forecasts a 2 percent decrease in real GDP.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.
Okun's Law explores the relationship between changes to unemployment and changes to real GDP.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
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.
D. None of the choices are correct.
Being without a job is insufficient to be considered as unemployed; one must also be actively seeking a job.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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. Recall that unemployed/labor force = unemployment rate.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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. Unemployment rate = unemployed/labor force = 35,000/145,000 = 24.1%.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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. Thus, the number of unemployed is Labor force- employed (40-36=4). And because unemployment is
unemployed divided by the labor force, we can calculate: Unemployment rate = unemployed/labor force = (4/
40) = 10%.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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. Unemployment rate = unemployed/labor force = (500,000/7,500,000) = 6.67%.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.
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.
[Unemployment rate = unemployed/labor force = (90,000,000/750,000,000) = 12%.]Therefore, the GDP is
twice that percentage short of potential GDP, or 20 percent.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
30. 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, 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 Accessibility:

Keyboard Navigation Blooms:
Analyze Difficulty: 03 Hard

Learning Objective: 06-01 How unemployment is measured.

Topic: MEASURING UNEMPLOYMENT
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.
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
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
32.

What was the unemployment rate in 2006 in Table 6.1?

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
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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 working age population in the labor force: (150
million/200 million) * 100.

AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.
One can find the labor force participation rate by dividing the labor force by the population: {(60 + 5)/85} * 100.

AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.
The number of unemployed people divided by the number of people in the labor force is the unemployment
rate: {8/( 8 + 65)} * 100.
AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
36.

Based on Table 6.2, what was the labor force participation rate in 2000?

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
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.
The number of unemployed people divided by the number of people in the labor force equals the
unemployment rate: {(145 - 135)/145} * 100.

AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
40. There is a/an ________________ relationship between educational level of the labor force 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
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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</i>.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
44. All of the following are true when the economy is growing except
A. Duration of unemployment falls.
B. Costs associated with current unemployment fall.
C. Unemployment rate falls.
D. Underemployment rises.
Typically unemployment figures improve during economic expansions.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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, and therefore are not included in the labor force. They would work if
offered a job.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING 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
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.
B. Structurally unemployed.
C. One of the phantom unemployed.
D. Underemployed.
Discouraged workers are not actively seeking employment.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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 which is
the number of unemployed plus the number of employed: 5/(65 + 5).

AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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 *100 as the
answer is given as a percent rather than a proportion.

AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.
By including discouraged workers this new unemployment figure may give a better estimate of the actual
unemployment rate because it includes all the people that would like to work: (2 + 5)/(2 + 5 + 65)*100 as the
answer is given as a percent rather than a proportion.

AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
53.

If discouraged workers are included in the labor force, what was the unemployment rate for 2000?

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 because it includes all the people that would like to work: (3 + 10)/(3 + 10 + 70) *100 as the
answer is given as a percent rather than a proportion.

AACSB: Analytic
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.
The official unemployment rate can mask actual unemployment. As the unemployment rate is calculated by
dividing the number of unemployed by the labor force, when a portion of the unemployed leave the labor
force, the numerator shrinks, causing the unemployment rate to decrease.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.
Underemployment describes a worker whose value of human capital, or production possibilities is not being
used to the full-potential. Thus labor resources aren't being fully utilized. Such as an individual working part-
time but seeking a full-time position, or an individual who has a degree in engineering but is working as a
waiter.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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
A. A discouraged worker.
B. Structurally unemployed.
C. Phantom unemployed.
D. Underemployed.
The official unemployment figures are distorted by underemployed workers and tend to paint a better picture
than is present in reality.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.
The phantom unemployed, being counted as truly unemployed, actually make the official unemployment rate
overstate the true extent of unemployment.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.
Underemployed workers and discouraged workers are not included in the labor force and are not
considered unemployed. Phantom workers are considered unemployed and describe individuals who are
not actively seeking work, although they report that they are.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.
C. Remain unchanged until the unemployed find a job.
D. Increase initially but decrease when the phantom unemployed receive unemployment benefits.
As the phantom unemployed are included in calculating the unemployment rate, after discovering the number
of phantom unemployed workers, this number will subtracted from the number of unemployed and will
consequently lead to a decrease in the unemployment rate. The phantom unemployed are one of the few
categories that actually cause the official numbers to overstate true unemployment.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
63. Which of the following groups could increase in size and cause a significantly higher unemployment rate?
A. Discouraged workers.
B. Underemployed workers.
C. Phantom unemployed.
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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
A. A discouraged worker.
B. Phantom unemployed.
C. Structurally unemployed.
D. Underemployed.
When one is not actively seeking work and not too excited about finding it, one may be considered phantom
unemployed.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: MEASURING 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
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
66. The phantom unemployed are
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
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
67. All of the following are considered to be human costs of increased unemployment except
A. Admissions to mental institutions.
B. Fatal heart attacks.
C. Decreased stress levels.
D. None of the choices are correct.
Rising unemployment seems to increase stress levels and related physical and mental health issues.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
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.
D. None of the choices are correct.
Poverty rates tend to fall when unemployment declines.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-02 The socioeconomic costs of unemployment.
Topic: THE HUMAN COSTS
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 human costs that come with unemployment.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-02 The socioeconomic costs of unemployment.
Topic: THE HUMAN COSTS
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.
Certain types of work take place during the appropriate season. As a result, unemployment tends to rise and
fall in sync with the seasons.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
71. After the harvest, some farmhands lose their jobs. They are considered to be
A. Cyclically unemployed.
B. Structurally unemployed.
C. Frictionally unemployed.
D. Seasonally unemployed.
Seasonal unemployment occurs when the appropriate production season changes and work is no longer
needed until the following year.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
72. When there's a shortage in the number of jobs available when teenagers look for summer jobs, the type of
unemployment that arises is called
A. Frictional unemployment.
B. Structural unemployment.
C. Seasonal unemployment.
D. Cyclical unemployment.
Seasonal unemployment arises when an industry needs less labor because the work is seasonal.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.
C. Seasonal unemployment.
D. Cyclical unemployment.
Seasonal unemployment comes and goes with changes in the seasons.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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?
A. Structural unemployment.
B. Frictional unemployment.
C. Cyclical unemployment.
D. Seasonal unemployment.
Some workers lose their jobs when the seasons change and work specific to the season is no longer available.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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
A. Frictional unemployment.
B. Seasonal unemployment.
C. Cyclical unemployment.
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
76. Nancy returns to school to study medicine. After graduating and the economy is not in a recession, she spends
six months looking for a job. During this period, she is considered
A. Cyclically unemployed.
B. Structurally unemployed.
C. Frictionally unemployed.
D. Seasonally unemployed.
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.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.
D. None of the choices are correct.
Frictional unemployment describes brief period of unemployment experienced by people moving between jobs
or into the labor market. The inability to find work during certain seasons of the year is known as seasonal
unemployment.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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, even when the economy is not in a recession. This is an example of which of the following types of
unemployment?
A. Structural unemployment.
B. Frictional unemployment.
C. Cyclical unemployment.
D. Seasonal unemployment.
Frictional unemployment is normal in the economy and does not tend to last long because the worker has
skills that are in demand.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.
Time spent searching between jobs in the same line of work leads to frictional unemployment.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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
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 does not contribute to the unemployment rate.
A frictionally unemployed worker has skills that will transfer to his or her new employer.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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
A. Frictional unemployment.
B. Structural unemployment.
C. Cyclical unemployment.
D. Seasonal unemployment.
Structural unemployment is a serious matter because the worker does not have skills that employers
are looking for.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.
D. There is inadequate demand for labor.
Structural unemployment can persist for a long time because the skills possessed by the unemployed are
no longer in demand.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.
Structural unemployment does not go away; many times the worker will need to be retrained for a new job.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
th
85. Tom worked at NASA for 13 years. In the 14 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
A. Cyclically unemployed.
B. Structurally unemployed.
142. Frictionally unemployed.
143. Seasonally unemployed.
Tom lost his job because his skills were no longer needed; as such, he was considered structurally
unemployed.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.
C. Frictionally unemployed.
D. Seasonally unemployed.
Structural unemployment exists when change makes certain jobs obsolescent.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
87. A 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 he is not proficient in. Which of the following best characterizes the
teenager's circumstances?
A. A discouraged worker.
B. Structurally unemployed.
C. Phantom unemployed.
D. Underemployed.
The individual does not possess any skills that are desired by current employers.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
88. Long-term changes in demand that make some goods obsolete (possibly due to technological
advancement) are likely to have their greatest impact on
A. Structural unemployment.
B. Cyclical unemployment.
C. Frictional unemployment.
D. Seasonal 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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
89. If workers do not have the skills that are required in the job market, which of the following will occur?
A. Structural unemployment.
B. Seasonal unemployment.
C. Cyclical unemployment.
D. Frictional unemployment.
Structural unemployment is serious because it may be very hard for the displaced worker to find a good job.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
90. In terms of the musical chairs analogy in the text, which of the following is a description of
cyclical 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.
Cyclical unemployment becomes a serious problem during recessions as companies downsize due to a
temporary decrease in product demand as a result there are fewer jobs available (like chairs).

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
91. A U.S. worker who loses his or her job in an import industry because the good is no longer produced would
be classified as, ceteris paribus,
A. Frictionally unemployed.
B. Cyclically unemployed.
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
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.
Cyclical unemployment arises when there is an inadequate level of aggregate demand. When private sector
spending falls, GDP will fall unless government spending increases to offset the fall in private sector spending.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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 and
lead to inflation in an economy; 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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-04 The meaning of "full employment."
Topic: DEFINING 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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-04 The meaning of "full employment."
Topic: DEFINING FULL EMPLOYMENT
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
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-04 The meaning of "full employment."
Topic: DEFINING FULL EMPLOYMENT
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.
D. None of the choices are correct.
As an economy approaches its production possibilities, labor and other recourses become increasingly
scarce, and market participants bid for these remaining resources. In consequence, wages and price start
to rise. Thus, inflationary behavior in the marketplace is an indication that employment is nearing capacity.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-04 The meaning of "full employment."
Topic: DEFINING FULL EMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-04 The meaning of "full employment."
Topic: DEFINING FULL EMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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 tasks 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.
Structural unemployment has increased due to rapid technology changes and increased trade and outsourcing.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-04 The meaning of "full employment."
Topic: DEFINING FULL EMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-04 The meaning of "full employment."
Topic: DEFINING FULL EMPLOYMENT
105. Unemployment was particularly high during
A. The Great Depression.
B. World War II.
C. The Korean War.
D. The 1980s.
Severe economic contractions like the Great Depression lead to very high levels of unemployment.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE HISTORICAL RECORD
106. Unemployment was fairly low
during A. The Great Depression.
B. World War II.
C. The 1930s.
D. The recession of 1981
Economic expansions and war production efforts lead to lower unemployment rates.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE HISTORICAL RECORD
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE HISTORICAL RECORD
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-03 The major types of unemployment.
Topic: THE HISTORICAL RECORD
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 in the short run as a fraction of the overall labor force.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: THE HISTORICAL RECORD
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 by allowing workers to obtain
their comparative advantage, thereby allowing greater production possibilities.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: THE HISTORICAL RECORD
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: THE HISTORICAL RECORD
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
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-02 The socioeconomic costs of unemployment.
Topic: THE HUMAN COSTS
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.
D. None of the choices are correct.
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: MEASURING UNEMPLOYMENT
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.
D. None of the choices are correct.
As the economy adjust to new consumer demands, as well as technology changes, workers with out-of-date
skill sets become structurally unemployed.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
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 over the age of 16
years-old, such as retired people, homemakers, and many students.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.
C. Discouraged worker. D.
Underemployed worker.
The presence of discouraged workers distorts our official unemployment figures as discouraged workers are
not included in the unemployment rate, but are technically not employed in the economy.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-04 The meaning of "full employment."
Topic: DEFINING FULL EMPLOYMENT
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 and only 0.002 percent of all U.S. jobs, so outsourcing can't be a major explanation
for U.S. unemployment.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: THE HISTORICAL RECORD
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.
When people stop looking for work they are defined as a discouraged worker and are no longer included in the
labor force. 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
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: DEFINING FULL EMPLOYMENT
121. When people over 16 years old start 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.
Individuals are considered a part of the labor force if they are age 16 and over, working or actively seeking for
work. 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
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: DEFINING FULL EMPLOYMENT
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
A. Frictionally unemployed.
B. Structurally unemployed.
C. Cyclically unemployed.
D. Seasonally 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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
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. 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. consumers buy cheap foreign
outputs (U.S. imports).
D. All of the choices are correct.
Outsourcing is basically foreign trade in inputs. You are buying iron ore or labor from a cheap foreign source.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
125. In the early weeks of a recession, what type of unemployment gets larger?
A. Frictional.
B. Structural.
C. Cyclical.
D. Seasonal.
Cyclical unemployment describes joblessness that occurs due to an inadequate level of aggregate demand.
As demand falls off, the economy enters the downward portion of the business cycle that is characterized
by cyclical unemployment.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
126. If there is a prolonged recession and, at the same time, technological advances change the skill sets of some
jobs and eliminate others, what type of unemployment gets larger?
A. Frictional.
B. Structural.
C. Seasonal.
D. None of the choices are correct.
As the economy remains in 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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-04 The meaning of "full employment."
Topic: DEFINING FULL EMPLOYMENT
128. Ceteris paribus, if structural unemployment increases, 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.
At the natural rate of unemployment (frictional + structural), the economy is on the production possibilities
curve. If any part of the natural rate of unemployment increases, the production possibilities curve shifts inward.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-04 The meaning of "full employment."
Topic: DEFINING FULL EMPLOYMENT
129. Ceteris paribus, if seasonal unemployment increases, the seasonally adjusted 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.
At the natural rate of unemployment (frictional + structural), the 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 possibilities curve.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-04 The meaning of "full employment."
Topic: DEFINING FULL EMPLOYMENT
130. An underemployed worker who is looking for a full-time job is
A. A discouraged worker.
B. Phantom unemployed.
C. Structurally unemployed.
D. None of the choices are correct.
An underemployed worker is employed.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Learning Objective: 06-03 The major types of unemployment.
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.

AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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 divided by the total population, multiplied by 100.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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 as there are fewer individuals in the
labor force as there were previously.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: THE LABOR FORCE
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
138. People who get discouraged and no longer seek work are counted as unemployed.
FALSE
These individuals would be classified as discouraged workers. Discouraged workers are not counted at being
unemployed.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
139. The underemployed are not included among the unemployed because they are working.
TRUE
This masks the true unemployment rate.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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 such as human costs including social
stress and ill health.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-02 The socioeconomic costs of unemployment.
Topic: THE HUMAN COSTS
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-02 The socioeconomic costs of unemployment.
Topic: THE HUMAN COSTS
144. 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. Frictional unemployment
describes brief periods of unemployment experienced by people moving into the labor market.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-03 The major types of unemployment.
Topic: DEFINING FULL EMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-04 The meaning of "full employment."
Topic: DEFINING FULL EMPLOYMENT
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.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-04 The meaning of "full employment."
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%.

AACSB: Reflective Thinking

Blooms: Understand
Difficulty: 02 Medium
Learning Objective: 06-01 How unemployment is measured.
Topic: DEFINING FULL EMPLOYMENT
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.

AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
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.

AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
Learning Objective: 06-02 The socioeconomic costs of unemployment.
Topic: THE HUMAN COSTS
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.

AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
150. Explain two economic costs, and two human 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.

AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
Learning Objective: 06-02 The socioeconomic costs of unemployment.
Topic: THE HUMAN COSTS
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 (i.e., comparative advantage). The end result is higher productivity.

AACSB: Analytic
Blooms: Analyze
Difficulty: 03 Hard
Learning Objective: 06-01 How unemployment is measured.
Topic: MEASURING UNEMPLOYMENT
 Chapter 06 Test Bank Summary
Category # of Questions
AACSB: Analytic 58
AACSB: Reflective Thinking 93
Accessibility: Keyboard Navigation 132
Blooms: Analyze 14
Blooms: Apply 44
Blooms: Remember 24
Blooms: Understand 69
Difficulty: 01 Easy 24
Difficulty: 02 Medium 69
Difficulty: 03 Hard 58
Learning Objective: 06-01 How unemployment is measured. 87
Learning Objective: 06-02 The socioeconomic costs of unemployment. 8
Learning Objective: 06-03 The major types of unemployment. 43
Learning Objective: 06-04 The meaning of "full employment." 13
Topic: DEFINING FULL EMPLOYMENT 48
Topic: IN THE NEWS 2
Topic: MEASURING UNEMPLOYMENT 56
Topic: THE HISTORICAL RECORD 9
Topic: THE HUMAN COSTS 8
Topic: THE LABOR FORCE 26