Question

(1) Frictional unemployment occurs because

• A of structural change in the economy.

• B of a downturn in the business cycle.

• C people have insufficient skills.

• D it takes time to find a job.

(2) According to the labor supply and demand model, as the real wage rises

A   workers are willing to provide more labor and employers are willing to provide more jobs.
B   workers are willing to provide less labor and employers are willing to provide fewer jobs.
C   workers are willing to provide more labor and employers are willing to provide fewer jobs.
D   workers are willing to provide less labor and employers are willing to provide more jobs.

(3) All else being equal, an increase in the number of discouraged workers in an economy causes

A   the unemployment rate to decrease.
B   the unemployment rate to increase.
C   an increase in the labor force participation rate.
D   an increase in the employment-to-population ratio.

(4) If the hours worked per employee and the working-age population stay unchanged, then a decrease in the number of employed workers will

A   increase the aggregate work hours.
B   decrease the aggregate work hours.
C   increase or decrease the aggregate work hours, depending on the total population.
D   not affect the aggregate work hours.

Answer 1

Answer 1: Option D.

Frictional Unemployment in the economy occurs because it takes time to find jobs and frictionally unemployed person is unemployed because of searching of new job.

Answer 2: Option C.

As rela wage rate increases, the demand for labor decreases because it becomes costly to hire workers. On the other hand, supply of labor in the labor market increases as workers are willing to provide more labor.

Answer 3: Option A.

The discouraged workers are not considered as a part of the unemployed people and when these workers increase, unemployment rate decreases as they are not willing to work.

Answer 4: Option B.

Since unemployment has increased but hours worked per employee are same, this aggregate number of hours worked will decrease because number of people employed has decreased.