Question

The full-employment unemployment rate for the United States economy is now generally considered to be:
A. 2 percent of the labor force
B. 3 percent of the labor force
C. 4 to 5 percent of the labor force
D. 6 to 7 percent of the labor force

The economy's GDP gap is negative when actual GDP is greater than potential GDP.
A. true
B. false

The level of total spending is the immediate determinant of the:
A. Ratio of private to public goods production
B. Level of real output and employment
C. Size of the labor force
D. Inflation rate

One reason economists argue that the full-employment unemployment rate was higher in the 1980s than today is that:
A. Smaller numbers of women and young workers entered the labor force in the 1980s
B. Larger numbers of white male workers have entered the labor force in the 1980s
C. The work requirements under the new welfare laws moved many people from the ranks of the unemployed to the ranks of the employed
D. Substantial decreases occurred in the minimum wage over this time period

Answer 1

1> C. 4 to 5 percent of the labor force

U.S. Federal Reserve economists currently put the natural rate of unemployment at between 4.1 percent and 4.7 percent. Thus, the correct option is C

2> B. false

If the GDP gap is negative, it means that acutal GDP-potential GDP is negative, so potential GDP must be higher.

3> B. Level of real output and employment

The total spending in the economy is the aggregate demand, so it is the level of real output which closely relates to employment.

4> C. The work requirements under the new welfare laws moved many people from the ranks of the unemployed to the ranks of the employed.

Due to the change in the definition of unemployment, the full-employment unemployment has fallen over time.