Chapter 9

Question 1

Consequences of unemployment

Answer 1

• some productive potential of the economy is not being put to use
• leads to higher rates of depression and lower assessments of self worth

Question 2

What is unemployment

Answer 2

Occurs when someone wants to work but cannot find a job

Question 3

Working age population

Answer 3

The non-institutionalize population aged fifteen and over

Question 4

Labour force

Answer 4

People in the working age population who are either currently working or who would like to work and are trying to find a Job
Labour force = employed + unemployed

Question 5

Unemployment rate

Answer 5

Number of unemployed people divided by the labour force

Question 6

Employment rate

Answer 6

Number of employed divided by the working age population

Question 7

Labour force participation rate

Answer 7

Number of people in the labour force divided by the working age population
Tells is what fraction of the population wants to be working

Question 8

Underemployed

Answer 8

People who have part time jobs but would like to work full time

Question 9

Labour demand curve

Answer 9

Shows the relationship between the total quantity of labour demanded by all the firms in the economy and the wage rate

Question 10

What happens to the labour demand curve when the wage rate decreases

Answer 10

The amount of labour demanded by firms increases

Curve points down

Question 11

What happens to labour when wage rate increases

Answer 11

Increase in the supply of labour (curve points up)

Question 12

Explain equilibrium in labour demand and labour supply curves

Answer 12

Occurs at the intersection of the supply and demand curves

-at equilibrium wage, quantity demanded equals quantity supplied

Question 13

Natural rate of unemployment

Answer 13

The normal level of unemployment that persists in an economy in the long run

Question 14

Three contributors to the natural rate of unemployment

Answer 14

1. Frictional
2. Structural
3. Real-wage (classical) unemployment

Question 15

Frictional Unemployment

Answer 15

Unemployment caused by workers who are changing their location, job, or career

Question 16

Structural Unemployment

Answer 16

Unemployment that results from a mismatch between the skills workers can offer and the skills that are in demand

Question 17

Real-wage or classical unemployment

Answer 17

Captures the effect of wages remaining persistently above the market-clearing level

Question 18

Effect of an economic slowdown

Answer 18

Labour demand curve shifts left

Question 19

Sticky wages

Answer 19

Wages are slow to respond to shifts in the economy

Question 20

Minimum Wage

Answer 20

The lowest wage that a firm is legally allowed to pay its workers

Question 21

Living Wage

Answer 21

The minimum income necessary for a worker to acquire basic need like food, housing, and clothing

Question 22

Result of minimum wage being higher than equilibrium wage

Answer 22

Unemployment would result

Question 23

Result of minimum wage being below equilibrium wage

Answer 23

No effect; called a non-binding minimum wage

Question 24

Labour Unions

Answer 24

Groups of employees who join together to bargain with their employer(s) over salaries, benefits and work conditions

Question 25

Three reasons why wages might be above the market-clearing level

Answer 25

1. Workers are less likely to quit
2. Higher wages encourage workers to work harder and be more productive
3. Higher wages attract better job applicants

So it could be more efficient for a firm to pay workers more than the going wage rate

Question 26

Employment Insurance

Answer 26

Money that is paid by the government to people who are unemployed (EI)