Chapter 15

Question 1

In the long run, increases in the labour force are more or less matched by increases in what?

Answer 1

Employment

Question 2

In the short run, the unemployment rate fluctuates considerably because changes in the labour force are not exactly matched by change in what?

Answer 2

Employment

Question 3

In most years enough new jobs are created to offset the number of jobs lost, providing jobs for the growing labour force. This increases what in most years?

Answer 3

Net employment

Question 4

During periods of rapid economic growth the unemployment rate usually what?

Answer 4

It usually falls

Question 5

During recessions or periods of slow growth the unemployment rate usually what?

Answer 5

Rises

Question 6

The actual amount of employment is determined both by what?

Answer 6

The demand for labour and by the supply of labour.

Question 7

What are the 3 main causes of the increase in Canada’s labour force?

Answer 7

1. A rising population, which boosts entry into the labour force of people born 15 to 25 years previously.
2. Increased labour force participation by various groups, especially women.
3. Net immigration of working-age persons.

Question 8

What do the official data not include, making it understate the full effects of recessions on unemployment?

Answer 8

Discouraged workers
Underemployed workers

Question 9

What are the 2 costs associated with unemployment?

Answer 9

Lost output
Personal costs

Question 10

What is NAIRU?

Answer 10

It is the non-accelerating inflation rate of unemployment (this includes frictional and structural unemployment, a.k.a. full employment)

Question 11

What is cyclical unemployment?

Answer 11

It is unemployment not due to frictional or structural factors (real GDP <Y*)

Question 12

In “market-clearing” theories, what does real GDP equal to?

Answer 12

Y*

Question 13

What is the only unemployment in “market-clearing” theories?

Answer 13

Frictional and structural

Question 14

What is the unemployment rate always equal to?

Answer 14

NAIRU

Question 15

What are the 2 causes of the fluctuations in employment and real wages as described by market-clearing theories?

Answer 15

1. Changes in technology that affect the marginal product of labour will lead to changes in the demand for labour.
2. Changes in the willingness of individuals to work will lead to changes in the supply of labour.

Question 16

Whatever unemployment exists must be caused by what?

Answer 16

Frictional or structural causes, the two components of the NAIRU

Question 17

What do market-clearing theories of the labour market assume?

Answer 17

That real wages always adjust to clear the labour market.

Question 18

People who are not working are assumed to have what?

Answer 18

Voluntarily withdrawn from the labour market.

Question 19

Is there involuntary unemployment?

Answer 19

No

Question 20

When the wage rate does not change enough to equate quantity demanded with quantity supplied, there will be unemployment in ___ and labour shortages in ___.

Answer 20

Slumps
Booms

Question 21

Why do wages not quickly adjust to eliminate involuntary unemployment?

Answer 21

1. Long-term employment relationships
2. Menu costs
3. Efficiency wages
4. Union Bargaining

Question 22

When GDP is equal to potential output, the unemployment rate is equal to what? This means that there is only what kind of unemployment?

Answer 22

NAIRU
Frictional and structural

Question 23

What is frictional unemployment?

Answer 23

The normal turnover of labour causes frictional unemployment to persist, even if the economy is at potential output.

Question 24

What is structural unemployment?

Answer 24

The mismatch in skills, industry, or location between available jobs and unemployed workers

Question 25

Greater labour force participation by groups with high unemployment rates increases what?

Answer 25

NAIRU

Question 26

What is hysteresis?

Answer 26

It is the greek word for “lagged effect”, therefore it represents models where a recession causes a significant group to encounter unusual difficulty obtaining their first jobs, they will be slow to acquire important skills. When demand increases again, this group of workers will take longer to find jobs and the NAIRU will be higher than it would have been had there been no recession.

Question 27

In a heavily unionized labour force, people who are currently employed (insiders) may use their bargaining power to prevent what?

Answer 27

New entrants from entering the labour force (outsiders).

Question 28

If outsiders are denied access to the labour market, their unemployment will fail to exert downward pressure on ___, and the NAIRU will tend to ___.

Answer 28

Wages
Rise

Question 29

Canadian labour markets are increasingly affected by changes in demand and supply conditions ___ ___ ___ ___.

Answer 29

Elsewhere in the world

Question 30

As Canadian labour markets require more frequent and larger adjustments to economic events occurring in other parts of the world, the NAIRU will tend to ___.

Answer 30

increase

Question 31

Any government policy that reduces labour market flexibility is likely to ___ the NAIRU.

Answer 31

increase

Question 32

What do advocates of stabilization policy say about how much the government can and should reduce cyclical unemployment?

Answer 32

Advocates of stabilization policy call for expansionary fiscal and monetary policies to reduce persistent recessionary gaps.

Question 33

What do advocates of hands-off approach say about how much the government can and should reduce cyclical unemployment?

Answer 33

Advocates of the hands-off approach rely on normal market adjustments to remove recessionary gaps.

Question 34

Employment insurance (EI) helps people cope, but contributes to ___ unemployment.

Answer 34

search

Question 35

Frictional unemployment is ___.

Answer 35

inevitable

Question 36

Structural unemployment is often drive by ___

Answer 36

technological change

Question 37

What are the 2 approaches to reducing structural unemployment?

Answer 37

1. Resist change
2. Assist adjustment

Question 38

Fiscal and monetary policies generally seek to reduce the most persistent of ___ gaps.

Answer 38

recessionary

Question 39

Social policies (i.e. employment insurance) seek to reduce the sting of ___

Answer 39

Unemployment