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Problem Set 4
Econ 101
1. Currently the nation of Anaca is in a recession and has a population 16 years old and older of 4.5 million citizens. The
labor force participation rate is 65%. The number of employed Anacans is 2.5 million. Show all work including
your formulas.
a. (5) Calculate the number in the labor force.
b. (5) Calculate the number of unemployed workers.
c. (5) Calculate the unemployment rate.
d. (10) Labor analysts in Anaca have found that the natural rate of unemployment in Anaca is 5%. How many
cyclically unemployed workers are there? Define the natural rate of unemployment in your answer.
2. Please explain whether the following workers suffer from Cyclical, Structural, or Frictional Unemployment:
a. A salesperson who quits her job because she did not like how much travel was required.
b. A librarian who has not learned to work with the new computerized cataloging systems.
c. A worker at an internet firm who lost their job during the internet bust with the downturn in the economy.
d. A recent Berea College graduate who is looking for his first job.
- Describe and show with an example how the discouraged worker effect may lead to an understatement of the
unemployment rate. Will this discouraged worker effect be higher during recessions? Why or Why not?
a. Suppose the equilibrium wage in the labor market in Richmond is $6 this summer and the minimum wage is $5?
Would there be a surplus, a shortage or neither? Can you tell?
b. Suppose that in the fall there is an influx of Eastern Kentucky students looking for jobs. Given the minimum wage of
$5 would there be a surplus, a shortage or neither this year? Can you tell?
- Use the information in the table below to answer the following questions. Show all your work (including formulas)
and explain your answers.
August 1997 July 1998
Total Population, 16 years and over 203,364 205,
Total Civilian labor force 137,460 139,
Total Employed 130,865 132,
Women's Labor Force Participation Rate 60.0 60.
Women's Unemployment Rate 4.9 5.
a. What is the overall Labor Force Participation rate for August 1997?
b. What is the overall unemployment rate for July 1998?
Given the information in the table tell me what you think is happening to the unemployment rate for men, and why, that is,
is it increasing, decreasing or staying the same between August 1997 and July 1998?
Multiple choice practice problems(not for quiz):
- The natural rate of unemployment is
a. the unemployment rate related to the business cycle.
b. the unemployment rate when the economy is in a boom.
c. the unemployment rate when the economy is in a recession.
d. the unemployment rate when real and potential GDP are equal.
e. the unemployment rate when real and nominal GDP are equal.
- Cyclical unemployment can best be described as
a. the increase in unemployment above the natural rate during and in the aftermath of recessions.
b. the increase in unemployment when the economy is in a boom.
c. the increase in unemployment when the economy is in a recession.
d. the amount of unemployment when real and potential GDP are equal.
e. the amount of unemployment when real and nominal GDP are equal.
- Frictional unemployment occurs because
a. people have insufficient skills.
b. of economic booms.
c. of recessions.
d. it takes time to find a job.
e. of inflation.
- Structural unemployment occurs because
a. of economic booms.
b. people have insufficient skills.
c. of recessions.
d. it takes time to find a job.
e. of inflation.
- When the unemployment rate is equal to the natural rate, then
a. unemployment will not cause any individual problems.
b. unemployment will not cause any social problems.
c. unemployment will not cause any individual or social problems.
d. the unemployment will still result in social and individual problems.
- According to the Census Bureau definition, which of the following is the best example of an unemployed person?
a. A person looking for work.
b. A person without a job.
c. Any person not working or not working as many hours as they would prefer.
d. Any person without a job while looking for work.
- To be counted as employed, a person
a. need only be in the labor force.
b. needs to be working more than 34 hours per week.
c. needs to be working 1 or more hours per week.
d. needs to be working 10 or more hours per week.
e. needs to be working 20 or more hours per week.
- Which of the following examples best describes a discouraged worker?
a. A 65 year old individual who moves to Florida after retirement.
b. A college student who does not have time to work.
c. An incarcerated 17 year old.
d. A 25 year old who after not being able to find a legitimate job after searching for two years makes his living
selling drugs.
e. A 55 year old who after being laid off from a full-time job is only able to find a job employing her for only 15
hours a week.
- According to Fig. 2, if the real wage equaled W a
a. there would be an excess demand for labor.
b. the amount of unemployment would equal the horizontal difference between A and E
c. the amount of unemployment would equal the horizontal difference between A and F
d. the amount of unemployment would equal the horizontal difference between F and E
- A minimum wage
a. prevents the real wage from increasing to its equilibrium amount.
b. prevents employment from declining to its equilibrium level.
c. prevents employment from increasing to its equilibrium level.
d. can not have any effect on employment.
- When a worker is paid the efficiency wage,
a. the worker is more likely to shirk.
b. the real wage will be less than the equilibrium wage.
c. the quantity demanded for labor will be greater than the equilibrium quantity.
d. the real wage will be greater than the equilibrium wage.
e. job turnovers will increase.
- Which of the following explanations argues that workers already employed, if they have enough power, will prevent
firms from hiring unemployed workers at a lower real wage?
a. the minimum wage explanation
b. the insiders versus outsiders explanation
c. the efficiency wage explanation
d. the job search explanation
- Which of the following explanations argues that the labor market is never in a state of rest?
a. the minimum wage explanation
b. the insiders versus outsiders explanation
c. the efficiency wage explanation
d. the job search explanation
- Which of the following will cause unemployment from job search to decline?
a. Lowering the minimum wage.
b. Reducing unemployment compensation.
c. Reducing the bargaining strength of labor.
d. Reducing the minimum wage.
e. Increasing unemployment compensation.
