Unit 3 1
Unit 3: Introduction to Macroeconomics
Module 4: Unemployment, Inflation, and Economic Fluctuations
Figure 4.1: U.S. unemployment rates (percentage of the civilian labor force), 1950–
2012
1. “Fill in the blank" question: Full employment embodies the highest amount of skilled and
unskilled labor that could be employed within an economy at any given time.
Correct. Full employment is attainable within any economy, but may result in an inflationary period.
2. “Fill in the blank" question: The help wanted index is an indicator of strength or weakness in the
national labor markets, by providing information on how many positions need to be filled.
Correct. When the help wanted index is rising, it means there is a relatively large amount of positions needing to
be filled.
3. True or false. When there is full employment, the number of job seekers is approximately
equal to the number of job vacancies.
Correct. When there is full employment, the number of job seekers is approximately equal to the number of job
vacancies.
4. True or false. Full employment means that everyone in the population is employed.
Correct. Full employment assumes that some level of unemployment is normal (acceptable or desirable) and is
only concerned about unemployment in excess of that amount.
*Frictional and Structural Unemployment
*Cyclical Unemployment
,Unit 3 2
5. True or false. During periods of recession, an economy usually experiences a relatively high
unemployment rate.
Correct. During periods of recession, an economy usually experiences a relatively high unemployment rate. A
recession normally results in layoffs, which increases unemployment.
6. True or false. Natural disasters, such as hurricanes, have wiped out entire industries in
geographic regions, leaving the workforce structurally unemployed.
Correct. Structurally unemployed people usually have skills that are not needed in the market or have a
specialized background or experience that cannot be used in the current market.
7. True or false. A recent college graduate who suddenly becomes available in the job market, but
has yet to find his first job, is an example of cyclical unemployment.
Correct. Frictional unemployment refers to the portion of the unemployment rate that results from labor market
turnovers.
8. "Fill in the blank" question: An auto worker may be laid off during a recession. This is an
example of cyclical unemployment.
Correct. Cyclical unemployment occurs during periods of slow economic growth or during periods of economic
contraction.
9. Which of the following individuals would be considered unemployed? Ans: A construction
worker who has given up looking for work after a period of 18 months without employment
Correct. This is an example of unemployment. A period of 18 months of job searching is considered an
unemployment period.
10. "Fill in the blank" question: Voluntary unemployment, like a labor strike, is an example of
frictional unemployment.
Correct. Frictional unemployment is chosen by the workers. Frictional unemployment would generally be classed
as voluntary unemployment because workers are choosing to remain unemployed rather than get the first job
that comes along.
11. "Fill in the blank" question: John completed his masters degree and waited for 3 months to
get selected by a company as an Assistant Project Manager. This 3-month period of
unemployment is called frictional unemployment.
Correct. Short-term unemployment is called frictional unemployment.
12. Structural unemployment occurs when available workers do not match the jobs available
in terms of skills or location.
Correct. Structural unemployment arises as a result of a mismatch of workers and jobs.
,Unit 3 3
13. Cyclical unemployment occurs when workers are laid off because of a fall in demand
generally or specifically for the products they produce.
Correct. Cyclical unemployment occurs when workers are laid off because of a fall in demand generally or
specifically for the products they produce.
14. True or false. Macroeconomic policies intending to reduce cyclical unemployment try to
create jobs by increasing demand for total output.
Correct. Macroeconomic policies intending to reduce cyclical unemployment try to create jobs by increasing
demand for total output. For example in March 2009 a $800 billion stimulus bill was passed to try and create
jobs. Not all economists agree that these types of policies are effective.
15. True or false. Excess labor in Montana and a shortage of workers in Virginia is an example
of structural unemployment.
Correct. Structural unemployment is a mismatch of workers and jobs.
*Productivity and Employment
Figure 4.2: U.S. productivity index, 1990–2011
*The index of productivity per worker hour in the private sector has increased at an average rate of less than 2%
in the last 20 years. The rapid growth rates of the late 1990s slowed down by 2005 but picked back up slightly by
2010.
*Costs of Unemployment
*Benefits of Unemployment
16. True or false. Each period of unemployment is a lost opportunity to develop skills and
experience that may make a worker more valuable to an employer.
Correct. Unemployment is costly to workers in terms of future earnings.
, Unit 3 4
17. True or false. Unemployment allows for growth in the economy.
Correct. If a business wants to expand, but there are no workers available to hire, the only way the
expanding business can get a new employee is to “steal” the employee away from the existing employer,
which can be done by offering higher pay or benefits.
18. True or false. The system of income distribution in a market economy is not dependent on
employment.
Correct. The system of income distribution in a market economy is very dependent on employment. If
people do not have jobs, they do not earn income.
19. The policy of stealing employees away from jobs by offering them higher salaries doesn’t
lead to more production for the economy. Instead, this policy just rearranges what is produced
and leads to? Ans: inflation.
Correct. Workers who take higher-paying jobs have more money, but more goods and services aren’t
being produced, which leads to inflation.
20. True or false. Full employment means that everyone in the population is employed or even
that 100% of those who are able are willing to take a job.
Correct. One way of defining full employment is to identify some level of unemployment as normal
(acceptable or desirable) and only be concerned about unemployment in excess of that amount.
21. True or false. By definition, an economy is at full employment when 93%–94% of those
who want to work are employed.
Correct. Full employment does not mean that everyone in the population is employed or even that 100%
of those who are able are willing to take a job.
22. True or false. A situation in which all available labor resources are being used in the most
economically efficient way is full employment.
Correct. By this definition, an economy is at full employment when 93%–94% of those who want to
work are employed.
*The Unemployment Rate
*Measuring Unemployment
Unemploymentrate=Unemployedworkers/Laborforce x 100
where the labor force is sum of employed workers and unemployed workers.
23. Based on the following data from the labor department of a country, calculate the country’s
unemployment rate. Ans: 10%
Non-institutionalized civilian labor force = 1,646,303
Unit 3: Introduction to Macroeconomics
Module 4: Unemployment, Inflation, and Economic Fluctuations
Figure 4.1: U.S. unemployment rates (percentage of the civilian labor force), 1950–
2012
1. “Fill in the blank" question: Full employment embodies the highest amount of skilled and
unskilled labor that could be employed within an economy at any given time.
Correct. Full employment is attainable within any economy, but may result in an inflationary period.
2. “Fill in the blank" question: The help wanted index is an indicator of strength or weakness in the
national labor markets, by providing information on how many positions need to be filled.
Correct. When the help wanted index is rising, it means there is a relatively large amount of positions needing to
be filled.
3. True or false. When there is full employment, the number of job seekers is approximately
equal to the number of job vacancies.
Correct. When there is full employment, the number of job seekers is approximately equal to the number of job
vacancies.
4. True or false. Full employment means that everyone in the population is employed.
Correct. Full employment assumes that some level of unemployment is normal (acceptable or desirable) and is
only concerned about unemployment in excess of that amount.
*Frictional and Structural Unemployment
*Cyclical Unemployment
,Unit 3 2
5. True or false. During periods of recession, an economy usually experiences a relatively high
unemployment rate.
Correct. During periods of recession, an economy usually experiences a relatively high unemployment rate. A
recession normally results in layoffs, which increases unemployment.
6. True or false. Natural disasters, such as hurricanes, have wiped out entire industries in
geographic regions, leaving the workforce structurally unemployed.
Correct. Structurally unemployed people usually have skills that are not needed in the market or have a
specialized background or experience that cannot be used in the current market.
7. True or false. A recent college graduate who suddenly becomes available in the job market, but
has yet to find his first job, is an example of cyclical unemployment.
Correct. Frictional unemployment refers to the portion of the unemployment rate that results from labor market
turnovers.
8. "Fill in the blank" question: An auto worker may be laid off during a recession. This is an
example of cyclical unemployment.
Correct. Cyclical unemployment occurs during periods of slow economic growth or during periods of economic
contraction.
9. Which of the following individuals would be considered unemployed? Ans: A construction
worker who has given up looking for work after a period of 18 months without employment
Correct. This is an example of unemployment. A period of 18 months of job searching is considered an
unemployment period.
10. "Fill in the blank" question: Voluntary unemployment, like a labor strike, is an example of
frictional unemployment.
Correct. Frictional unemployment is chosen by the workers. Frictional unemployment would generally be classed
as voluntary unemployment because workers are choosing to remain unemployed rather than get the first job
that comes along.
11. "Fill in the blank" question: John completed his masters degree and waited for 3 months to
get selected by a company as an Assistant Project Manager. This 3-month period of
unemployment is called frictional unemployment.
Correct. Short-term unemployment is called frictional unemployment.
12. Structural unemployment occurs when available workers do not match the jobs available
in terms of skills or location.
Correct. Structural unemployment arises as a result of a mismatch of workers and jobs.
,Unit 3 3
13. Cyclical unemployment occurs when workers are laid off because of a fall in demand
generally or specifically for the products they produce.
Correct. Cyclical unemployment occurs when workers are laid off because of a fall in demand generally or
specifically for the products they produce.
14. True or false. Macroeconomic policies intending to reduce cyclical unemployment try to
create jobs by increasing demand for total output.
Correct. Macroeconomic policies intending to reduce cyclical unemployment try to create jobs by increasing
demand for total output. For example in March 2009 a $800 billion stimulus bill was passed to try and create
jobs. Not all economists agree that these types of policies are effective.
15. True or false. Excess labor in Montana and a shortage of workers in Virginia is an example
of structural unemployment.
Correct. Structural unemployment is a mismatch of workers and jobs.
*Productivity and Employment
Figure 4.2: U.S. productivity index, 1990–2011
*The index of productivity per worker hour in the private sector has increased at an average rate of less than 2%
in the last 20 years. The rapid growth rates of the late 1990s slowed down by 2005 but picked back up slightly by
2010.
*Costs of Unemployment
*Benefits of Unemployment
16. True or false. Each period of unemployment is a lost opportunity to develop skills and
experience that may make a worker more valuable to an employer.
Correct. Unemployment is costly to workers in terms of future earnings.
, Unit 3 4
17. True or false. Unemployment allows for growth in the economy.
Correct. If a business wants to expand, but there are no workers available to hire, the only way the
expanding business can get a new employee is to “steal” the employee away from the existing employer,
which can be done by offering higher pay or benefits.
18. True or false. The system of income distribution in a market economy is not dependent on
employment.
Correct. The system of income distribution in a market economy is very dependent on employment. If
people do not have jobs, they do not earn income.
19. The policy of stealing employees away from jobs by offering them higher salaries doesn’t
lead to more production for the economy. Instead, this policy just rearranges what is produced
and leads to? Ans: inflation.
Correct. Workers who take higher-paying jobs have more money, but more goods and services aren’t
being produced, which leads to inflation.
20. True or false. Full employment means that everyone in the population is employed or even
that 100% of those who are able are willing to take a job.
Correct. One way of defining full employment is to identify some level of unemployment as normal
(acceptable or desirable) and only be concerned about unemployment in excess of that amount.
21. True or false. By definition, an economy is at full employment when 93%–94% of those
who want to work are employed.
Correct. Full employment does not mean that everyone in the population is employed or even that 100%
of those who are able are willing to take a job.
22. True or false. A situation in which all available labor resources are being used in the most
economically efficient way is full employment.
Correct. By this definition, an economy is at full employment when 93%–94% of those who want to
work are employed.
*The Unemployment Rate
*Measuring Unemployment
Unemploymentrate=Unemployedworkers/Laborforce x 100
where the labor force is sum of employed workers and unemployed workers.
23. Based on the following data from the labor department of a country, calculate the country’s
unemployment rate. Ans: 10%
Non-institutionalized civilian labor force = 1,646,303
