Title: Examine causes and types of unemployment
Course: TEST Course

Q: Bill is a construction worker who was laid off because the market for new homes was adversely affected in the recession. Bill’s unemployment experience is referred to as
- structural unemployment.
- frictional unemployment.
- cyclical unemployment.
A: cyclical unemployment.

Q: A contraction in the business cycle is likely to result in which form of unemployment increasing?
- frictional
- Seasonal
- Structural
- Cyclical
A: Cyclical

Q: Cyclical unemployment is caused by the ________ for labor ________ during a recession.
- demand; moving to the right
- supply; moving to the right
- supply; moving to the left
- demand; moving to the left
A: demand; moving to the left

Q: Cyclical unemployment is caused by the ________ for labor ________ during an economy moving from recession to expansion.
- demand; moving to the left
- supply; moving to the right
- supply; moving to the left
- demand; moving to the right
A: demand; moving to the right

Q: In the supply-demand diagram used to represent phenomenon such as cyclical unemployment, the demand (downward-sloping) curve represents ________.
- worker demand for labor
- equilibrium points in the labor market
- firm demand for labor
A: firm demand for labor

Q: In the supply-demand diagram used to represent events such as cyclical unemployment, the supply (upward-sloping) curve represents ________.
- firm supplying labor jobs
- equilibrium points in the labor market
- supply of workers for labor
A: supply of workers for labor

Q: Joseph is an unemployed yard landscaping worker who is trying to find employment as he last had work seven months ago. He is now at a point where he will take any wage even if low to get money to pay the bills. He talks to businesses and landscaping companies on a daily basis but continues to be unable to find work. How would you describe his experience with the correct economic term?
- out of the labor force
- labor shortage
- cyclical unemployment
A: cyclical unemployment

Q: Beth has been unemployed for two months from her accounting job. She has interviewed with a number of other firms, but has not received a job offer. Her debt are increasing and at this point she needs to find a job just to cover her expenses at least. She now begins to look for positions in places that pay lower wages that what she would like. What is Beth’s experience called in economic terms?
- out of the labor force
- involuntary unemployment
- cyclical unemployment
A: cyclical unemployment

Q: When the macroeconomy is experiencing a higher than natural rate of unemployment, it must be because
- potential real GDP is less than current real GDP.
- wages respond instantaneously to labor market shifts.
- wages cannot adjust downward quickly and easily.
A: wages cannot adjust downward quickly and easily.

Q: When prices do not respond quickly to bring forces of supply and forces of demand to the equilibrium point, they are called:
- market prices.
- market structure prices.
- sticky prices.
A: sticky prices.

Q: The idea that firms will get the most for their money when they pay wages higher than the equilibrium wage is called:
- optimal-wage theory.
- equilibrium-wage theory.
- efficiency-wage theory.
A: efficiency-wage theory.

Q: ________ is the idea that firms will get the most for their money when they pay wages higher than the equilibrium wage.
- Optimal-wage theory
- Equilibrium-wage theory
- Efficiency-wage theory
A: Efficiency-wage theory

Q: The idea that only the most efficient workers will depart in response to a wage cut is called ________.
- efficiency-wage theory.
- insider-outsider model.
- adverse selection of wage cuts.
A: adverse selection of wage cuts.

Q: ________ is the idea that only the most efficient workers will depart in response to a wage cut.
- Efficiency-wage theory
- Insider-outsider model
- Adverse selection of wage cuts
A: Adverse selection of wage cuts

Q: The Campus Collective company, which creates unique apps for colleges, has recently lost three large university clients that made up 40% of its total revenue. This has hit the company hard and management finds it necessary to reduce staff or wages. The economy also appears to be headed toward a recession and gaining more clients will most likely be harder to accomplish. Because it is a smaller company everyone knows each other and knows there are tough choices ahead. Management brings up the idea of an across the board wage reduction so that no one be let go, but some employees don’t believe that a wage cut will be equally applied to all. The employees are also not sure if other people working their same jobs in the economy are getting reduced wages. They start to argue against wage reduction and things get a bit heated. Which of the following theories best illustrate this wage stickiness scenario?
- Implicit contract theory
- Insider-outsider model
- Relative wage coordination argument
A: Relative wage coordination argument

Q: The Krisp Kracker company which makes unique kettle chips for restaurants, clubs, and events, has just lost a large client that made up 55% of its total revenue. Management finds it necessary to reduce staff or wages. This comes only three months after hiring 35 new people to support this big client. While there are rumors of wage reductions in the short run, the 100 employees who have been with the company for the past two years are grumbling that they are more valuable that the new hires which should be let go and the wages not reduced. The situation at Krisp Kracker illustrates which wage stickiness theory best?
- Implicit contract theory
- Relative wage coordination argument
- Insider-outsider model
A: Insider-outsider model

Q: Frictional unemployment occurs because in a world of imperfect information, it takes ________ for people to find jobs.
- money
- resources
- time
A: time

Q: Because it takes ________ to find jobs, frictional unemployment occurs because it is a world of imperfect information.
- money
- resources
- time
A: time

Q: A welder who quits his job and moves from Pittsburgh to Madison to try to get a better welding job is said to be ________.
- underemployed.
- cyclically unemployed.
- frictionally unemployed.
A: frictionally unemployed.

Q: Tom graduated from college in June but was still looking for work in August. This is an example of ________.
- structural unemployment.
- cyclical unemployment.
- frictional unemployment.
A: frictional unemployment.

Q: The theory of frictional unemployment suggests that workers in which age group are least likely to be unemployed for a significant period of time?
- under-25 workers
- workers aged 55+
- workers aged 25-54
A: workers aged 25-54

Q: If you are looking at a country that has a relatively high proportion of workers ________, then the theory of frictional unemployment suggests that workers in this age group are the least likely to be unemployed for a significant period of time.
- under-25
- aged 55+
- aged 25-54
A: aged 25-54

Q: Which scenario could you use as an example of frictional unemployment when explaining it to a friend?
- George has a difference of opinion with his boss and the friction grows over time until his boss finds a few mistakes that George has made and fires him.
- A college student working at a copy center finishes his semester of school and quits his job at the copy center and goes traveling through South America for the summer.
- An economics professor living and working in California accepts a new position at a college in New Jersey. She takes two months after finishing her current work to wrap things up and move out East.
A: An economics professor living and working in California accepts a new position at a college in New Jersey. She takes two months after finishing her current work to wrap things up and move out East.

Q: From the following examples, select the example illustrating frictional unemployment.
- Winny is annoyed with her manager at the Tasty Freeze where she has worked all summer. She decides one day just to not go to work anymore and instead goes on a trip with a friend.
- A city has been hit hard in the recession and the largest construction company lets go of 300 construction workers.
- Justin works at an oil rig in Texas. He sees a better opening at a company in North Dakota and applies for the job. After he accepts their offer and quit his job, he takes a month to pack up and move to North Dakota.
A: Justin works at an oil rig in Texas. He sees a better opening at a company in North Dakota and applies for the job. After he accepts their offer and quit his job, he takes a month to pack up and move to North Dakota.

Q: If the print media is taken over by the electronic media, thereby causing employees in the print media industry to be permanently laid off, ________ unemployment would increase.
- cyclical
- frictional
- structural
A: structural

Q: After the success of the Apollo space program, in the mid-1970s NASA budget cuts results in a decrease in the number of jobs for aerospace engineers. This was an example of ________.
- cyclical unemployment.
- frictional unemployment.
- structural unemployment.
A: structural unemployment.

Q: Which form of unemployment suggests workers need to seek education and training and to update their skill sets?
- functional
- cyclical
- structural
A: structural

Q: Which of the following is not an example of structural unemployment?
- Bank teller jobs lost with the introduction of ATMs in the 1980s.
- Telephone operators replaced by computerized systems in the 1970s.
- Loan officers losing jobs during the 2009 recession.
A: Loan officers losing jobs during the 2009 recession.

Q: Which of the following is an example of structural unemployment?
- Bank teller jobs lost when a regional bank was purchased by a national bank.
- Loan officers losing jobs during the 2009 recession.
- Telephone operators replaced by computerized systems in the 1970s.
A: Telephone operators replaced by computerized systems in the 1970s.

Q: With the introduction of robotics to automotive manufacturing, there have been sweeping changes to the automotive assembly line, management and operations at plants. As an example, in a truck manufacturing plant, identify who would most likely be impacted by this technology change and suffer long term structural unemployment?
- A computer programer working the IT department with a bachelors in computer science and 5 years of programming experience.
- The inventory control manager with 5 years experience in managing parts inventory, a Bachelor of Business administration and 2 years of experience using inventory software.
- An assembly line worker with 10 years of screwing together truck panels and a high school diploma.
A: An assembly line worker with 10 years of screwing together truck panels and a high school diploma.

Q: In the early 1980s, a new technology was introduced to banks where customers could withdraw their money without having to enter the bank or keep baking hours. As the first ATMs began to be introduced to more and more banks, it began to have an effect on bank personnel. Thinking about the bank environment, identify who would most likely be impacted by this technology change and suffer long term structural unemployment?
- A mortgage loan officer with a bachelors in accounting and 5 years of loan experience.
- The bank manager with 5 years experience managing branches, a Masters degree in business and 2 years of experience in overseas banking.
- A bank teller with 4 years of relevant work experience and a high school diploma.
A: A bank teller with 4 years of relevant work experience and a high school diploma.

Q: Which types of unemployment exist at all times and determine the natural rate of unemployment?
- structural unemployment and cyclical unemployment
- cyclical and frictional unemployment
- frictional unemployment and structural unemployment
A: frictional unemployment and structural unemployment

Q: There are certain types of unemployment that exist at all times and determine the natural rate of unemployment. Which of the following types fit this description?
- structural unemployment and cyclical unemployment
- cyclical and frictional unemployment
- frictional unemployment and structural unemployment
A: frictional unemployment and structural unemployment

Q: If a nation’s labor force receives a significant influx of young workers:
- the natural rate of unemployment is likely to decrease.
- frictional unemployment will likely decrease to zero.
- the natural rate of unemployment is likely to increase.
A: the natural rate of unemployment is likely to increase.

Q: During the 1970s, mothers entered the labor force in significant numbers, reducing the numbers of stay-at-home moms. The result was:
- the natural rate of unemployment fell.
- frictional unemployment decreased to zero.
- the natural rate of unemployment rose.
A: the natural rate of unemployment rose.

Q: When the economy is at full employment, what is the relationship between real GDP and real potential GDP?
- Real GDP is above real potential GDP.
- Real GDP is below real potential GDP.
- Real GDP is equal to real potential GDP.
A: Real GDP is equal to real potential GDP.

Q: What is the relationship between real GDP and real potential GDP when the economy is at full employment?
- The real GDP is above real potential GDP.
- The real GDP is below real potential GDP.
- The real GDP is equal to real potential GDP.
A: The real GDP is equal to real potential GDP.

Q: In the country of Cardonia, the natural rate of unemployment is 3.5% according to the Ministry of Economics. Last year there was an economic slow down where the actual rate of unemployment increased to 4.5%. Assuming that the unemployment percentages are accurate for Cardonia, what is the likely outcome for the economy of Cardonia?
- The structural rate of unemployment will increase until the natural rate of unemployment equals the current unemployment rate of 4.5%.
- Calculations from the Ministry of Economics are incorrect since by definition the actual rate of unemployment cannot rise above the natural unemployment rate.
- Cardonia’s economy will grow until real GDP is equal to potential real GDP and the unemployment rate equals 3.5%.
A: Cardonia’s economy will grow until real GDP is equal to potential real GDP and the unemployment rate equals 3.5%.

Q: The natural rate of unemployment in the country of Cigan is 4.3% based off of its Department of Economic Statistics on unemployment. This year Cigan’s economy began to improve dramatically and the actual unemployment rate decreased to 3.2%. What is the likely outcome for the economy of Cigan, assuming the unemployment percentages are accurate?
- The structural rate of unemployment will increase until the natural rate of unemployment equals the current unemployment rate of 3.5%.
- Calculations from the Department of Economic Statistics are incorrect since by definition the actual rate of unemployment be below the natural unemployment rate.
- Cigan’s growing economy will slow until real GDP is equal to potential real GDP and the unemployment rate equals 4.3%.
A: Cigan’s growing economy will slow until real GDP is equal to potential real GDP and the unemployment rate equals 4.3%.

Q: During the 1990s worker productivity growth spiked as computers and the internet were introduced to many businesses for the first time. How did this affect the natural unemployment rate?
- Natural unemployment increased as computers replaced workers.
- Natural unemployment was unaffected.
- Natural unemployment decreased as productivity growth outstripped wage growth.
A: Natural unemployment decreased as productivity growth outstripped wage growth.

Q: By the early 2000s, worker productivity growth spiked as more temporary workers were employed as they looked for more permanent work. How did this affect the natural unemployment rate?
- Natural unemployment increased as temps replaced long term workers.
- Natural unemployment was unaffected.
- Natural unemployment decreased as fewer workers were without jobs while looking for more permanent jobs.
A: Natural unemployment decreased as fewer workers were without jobs while looking for more permanent jobs.

Q: All else equal, how will increasing unemployment insurance affect the natural rate of unemployment?
- The natural rate of unemployment is likely to decrease.
- The natural rate of unemployment will remain unaffected.
- The natural rate of unemployment is likely to increase.
A: The natural rate of unemployment is likely to increase.

Q: All else equal, how would decreasing unemployment insurance affect the natural rate of unemployment?
- The natural rate of unemployment is likely to increase.
- The natural rate of unemployment will remain unaffected.
- The natural rate of unemployment is likely to decrease.
A: The natural rate of unemployment is likely to decrease.

Q: Which of the following is a commonly cited reason for a decrease in the unemployment rate between the 1980s and today?
- The rise of the internet’s easy access to graphic design software.
- Young millennials entering the workforce in large numbers.
- The aging baby boomer population reaching middle age.
A: The aging baby boomer population reaching middle age.

Q: Which of the following is a commonly cited explanation for persistently high unemployment rates in Europe compares to the United States?
- Less generous unemployment insurance benefits.
- Slower technological growth in Europe compared to the USA.
- Stricter hiring and firing rules for employers.
A: Stricter hiring and firing rules for employers.

Q: You are an economist studying the small country of Mardodus. As you look at the data, you see Mardodus has experienced an influx of updated technology to its manufacturing plants, service industry and the medical field in the last three years. This change boosted the growth of the country’s productivity by 75%, yet you see that wages have been very slow to respond to this growth. As you begin to analyze the natural unemployment rate for this time frame, what do you most likely discover?
- Natural rate of unemployment will increase as the new technology displaces workers in the aforementioned industries.
- Natural rate of unemployment will remain unchanged because frictional and structural unemployment are not affected by productivity growth.
- Natural rate of unemployment will decrease because the productivity growth in the short term has passed up wage growth.
A: Natural rate of unemployment will decrease because the productivity growth in the short term has passed up wage growth.

Q: The fictional country of Yieng has had an influx of updated technology to its manufacturing plants and the medical field in the last three years. This has boosted the growth of the country’s productivity by 75%, but this year the pace has significantly dropped off. Wages were at first slow to respond to the growth, but now have reached new heights. Now that productivity growth has stopped increasing, what do you expect to happen to the natural unemployment rate for this stimed growth period?
- Natural rate of unemployment will decrease as the new technology displaces workers in the aforementioned industries.
- Natural rate of unemployment will remain unchanged because frictional and structural unemployment are not affected by productivity growth.
- Natural rate of unemployment will increase because productivity has decreased, wages are high, and there is a gap between demand and labor supplied.
A: Natural rate of unemployment will increase because productivity has decreased, wages are high, and there is a gap between demand and labor supplied.