Question

1. Which types of unemployment exist at all times and determine the natural rate of unemployment?

A. structural unemployment and cyclical unemployment

B. cyclical and frictional unemployment

C. frictional unemployment and structural unemployment

2. All else equal, how will increasing unemployment insurance affect the natural rate of unemployment?

A. The natural rate of unemployment is likely to decrease.

B. The natural rate of unemployment will remain unaffected.

C. The natural rate of unemployment is likely to increase.

3. Which form of unemployment suggests workers need to seek education and training and to update their skill sets?

A. functional

B. cyclical

C. structural

4. ________ is the idea that firms will get the most for their money when they pay wages higher than the equilibrium wage.

A. Optimal-wage theory

B. Equilibrium-wage theory

C. Efficiency-wage theory

Answer 1

Ans 1: (B) Cyclical and Frictional unemployment. Cyclical unemployment arises due to fluctuations in the business cycle whereas frictional unemployment is workers become unemployed when they switch jobs.

Ans 2: (C) The natural rate of unemployment is likely to increase. As more people buy it, when they do not get the wage rate as per their demand for wages, they will prefer to remain unemployed because they will receive unemployment benefits. This will increase Natural rate of unemployment.

Ans 3: Structural unemployment. When there is changes in the structures of the economy, workers becomes unemployed. This happens because they would not be able to match the skill level required by the firm. So, they need to learn new skill and match the demand of skill level by firms.

Ans 4: (C) Efficiency Wage Theory.