Check Your Understanding

1. Question

   Suppose that employment websites enable job-seekers to find suitable jobs more quickly. What effect will this have on the unemployment rate over time? Also suppose that these websites encourage job-seekers who had given up their searches to begin looking again. What effect will this have on the unemployment rate?

   The advent of websites that enable job-seekers to find jobs more quickly will reduce the unemployment rate over time. However, websites that induce discouraged workers to begin actively looking for work again will lead to an increase in the unemployment rate over time.

2. Question

   In which of the following cases would the worker be counted as unemployed? Explain.

   1. Rosa, an older worker, has been laid off and gave up looking for work months ago.

      Not counted as unemployed because not actively looking for work, but counted in broader measures of labor underutilization as a discouraged worker.

   2. Anthony, a schoolteacher, has chosen not to work during his three-month summer break.

      Not counted as unemployed—considered employed because the teacher has a job.

   3. Grace, an investment banker, has been laid off and is currently searching for another position.

      Unemployed: not working, actively looking for work.

   4. Sergio, a classically trained musician, can only find work playing for local parties.

      Not unemployed, but underemployed: working part time for economic reasons. Counted in broader measures of labor underutilization.

   5. Natasha, a graduate student, went back to school because jobs were scarce.

      Not unemployed, but considered “marginally attached.” Counted in broader measures of labor underutilization.

3. Question

   Which of the following are consistent with the observed relationship between growth in real GDP and changes in the unemployment rate? Which are not?

   1. A rise in the unemployment rate accompanies a fall in real GDP.

   2. An exceptionally strong business recovery is associated with a greater percentage of the labor force being employed.

   3. Negative real GDP growth is associated with a fall in the unemployment rate.

      Items (a) and (b) are consistent with the observed relationship between growth in GDP and changes in the unemployment rate. Item (c) is not.