The unemployment rate is calculated by dividing the number of unemployed people by the labor force, not by the adult population.
Correct Answer
True
True. The unemployment rate is unemployed divided by the labor force, times 100. Dividing by the adult population would wrongly include retirees, students and others who are not in the labor force.
Category: Labor Force Calculations
Question 2
A person must be collecting unemployment insurance benefits to be counted as unemployed.
Correct Answer
False
False. Being counted as unemployed depends on being jobless, available and actively looking for work. Collecting unemployment insurance is not required.
Category: Measuring Unemployment
Question 3
Over the long run, the U.S. unemployment rate has not shown a clear upward or downward trend.
Correct Answer
True
True. Unemployment rises in recessions and falls in expansions, but it has not trended steadily up or down over the decades, even as the population and the share of women in paid work grew.
Category: Patterns of Unemployment
Question 4
Retirees who are not looking for work are counted as unemployed.
Correct Answer
False
False. Retirees who are not looking for work are counted as out of the labor force. Only people who are jobless, available and actively searching are counted as unemployed.
Category: Measuring Unemployment
Question 5
People doing informal work they do not report to tax authorities may tell survey takers they are unemployed, which can overstate measured unemployment.
Correct Answer
True
True. Someone earning unreported income from tasks such as yard work or child care may report being unemployed. This is one reason the unemployment rate is an imperfect measure.
Category: Measuring Unemployment
Question 6
During the Great Depression of the 1930s, U.S. unemployment peaked at about 10 percent of the labor force.
Correct Answer
False
False. During the Great Depression, unemployment reached almost 25 percent of the labor force, far higher than in any later recession.
Category: Patterns of Unemployment
Question 7
Workers with a college degree typically have lower unemployment rates than workers without a high school diploma.
Correct Answer
True
True. Unemployment rates fall as education rises. More educated workers tend to have stronger ties to the labor market and skills that employers value.
Category: Patterns of Unemployment
Question 8
Unemployment usually starts falling well before output begins to recover from a recession.
Correct Answer
False
False. Unemployment tends to lag changes in output, so it often keeps rising or stays high for a while after a recovery in output has begun.
Category: Patterns of Unemployment
Question 9
Workers may resist a pay cut partly out of concern about how their pay compares with what other workers earn.
Correct Answer
True
True. Under the relative wage coordination argument, workers might accept a cut if everyone took one, but no easy way exists to coordinate that, so each group resists falling behind others.
Category: Sticky Wages
Question 10
Wages that are sticky downward fall easily but seldom rise.
Correct Answer
False
False. Wages that are sticky downward rise fairly easily but seldom fall, even when demand for labor drops. This is why a recession tends to produce layoffs rather than wage cuts.
Category: Sticky Wages
Question 11
Frictional unemployment can benefit the economy when it leads to better matches between workers and jobs.
Correct Answer
True
True. Time spent searching can pair workers with jobs that fit their skills, which makes both workers and firms more productive.
Category: Types of Unemployment
Question 12
The natural rate of unemployment is fixed and does not change over time.
Correct Answer
False
False. The natural rate reflects economic, social and political conditions, such as the age mix of workers and how easily people find jobs, so it changes as those conditions change.
Category: Natural Rate
Question 13
Education and retraining can reduce structural unemployment by giving workers skills that employers want.
Correct Answer
True
True. Structural unemployment comes from a mismatch between workers' skills and employers' needs. Workers who gain new skills can move into the jobs that are in demand.
Category: Types of Unemployment
Question 14
At full employment, the measured unemployment rate is zero.
Correct Answer
False
False. Full employment means unemployment equals the natural rate, which is above zero because frictional and structural unemployment always exist.
Category: Natural Rate
Question 15
Involuntary unemployment means that people are willing to work at the going wage but cannot find jobs.
Correct Answer
True
True. Involuntary unemployment occurs when the wage is above the level that would clear the market, so some people who would accept work at the going wage cannot find it.
Category: Sticky Wages
Question 16
In a recession, the supply of labor shifts sharply while the demand for labor stays about the same.
Correct Answer
False
False. Over a few months or years the supply of labor changes little. It is the demand for labor that shifts left in a recession as firms expect lower sales.
Category: Sticky Wages
Question 17
Avoiding or shortening recessions is the main way to reduce cyclical unemployment.
Correct Answer
True
True. Cyclical unemployment is caused by the business cycle, so it is reduced by keeping total spending and output from falling, rather than by changing the long-run labor market conditions behind the natural rate.
Category: Types of Unemployment
Question 18
A larger share of young workers in the labor force tends to lower the natural rate of unemployment.
Correct Answer
False
False. Young workers change jobs more often, so a labor force with more young workers tends to have more frictional unemployment and a higher natural rate.
Category: Natural Rate
Question 19
The measured unemployment rate can fall even if no unemployed person finds a job, because discouraged workers leave the labor force.
Correct Answer
True
True. When a jobless person stops searching, both the number unemployed and the labor force fall by one, which lowers the unemployment rate even though no one found work.
Category: Labor Force Calculations
Question 20
Efficiency wage theory holds that paying workers less than the market wage raises their productivity.
Correct Answer
False
False. Efficiency wage theory holds that paying more than the market wage can raise productivity, because better-paid workers tend to work harder and stay longer.
Category: Sticky Wages