Chapter 10.1

Question 1

Unemployment

Answer 1

People of working age who are actively looking for a job but who are not employed

Question 2

Unemployment rate formula

Answer 2

number of employed divided by labor force

Question 3

Reasons why measures of unemployment may be understated

Answer 3

Doesn’t consider discouraged workers
Doesn’t make a distinction between full-time and part-time jobs
Makes no distinction on the type of work done
Doesn’t include people on retraining programs who previously lost their job

Question 4

Reasons why measures of unemployment may be overstated

Answer 4

Don’t include people working in the underground economy

Question 5

In a population, how may unemployment differ by?

Answer 5

Region
Gender
Ethnic group
Age
Occupation and educational attainment

Question 6

Costs of unemployment

Answer 6

A loss of real output
A loss of income for unemployed workers
A loss of tax revenue for the government
Costs to the government of unemployed benefits
Costs to the government of dealing with social problems resulting from unemployment
Larger budget deficit or smaller budget surplus
More unequal distribution of income
Unemployed people may have difficulties finding work in the future
Personal and social costs

Question 7

Types of unemployment

Answer 7

Structural unemployment
Frictional unemployment
Season unemployment
Cyclical unemployment

Question 8

Structural unemployment

Answer 8

Unemployment as a result in changes in demand for particular types of labor skills, changes in geographical location or labor market rigidities

Question 9

Types of labor market rigidities

Answer 9

Minimum wage legislation
Labor union activities and wage bargaining with employers
Employment protection laws
Generous unemployment benefits

Question 10

Labor market rigidity

Answer 10

Factors preventing the forces of supply and demand from operating in the labor market

Question 11

Frictional unemployment

Answer 11

Unemployment that arises when workers are between jobs

Question 12

Seasonal unemployment

Answer 12

Unemployment that arises when the demand for labor in certain industries changes on a seasonal basis because of variations in needs

Question 13

Cyclical unemployment

Answer 13

Unemployment that arises during the downturns of the business cycle, when the economy is in a deflationary gap

Question 14

What is the relationship between the rate of natural unemployment and the types of unemployment?

Answer 14

The natural rate of unemployment is equal to the sum of structural, frictional and season unemployment