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Chapter 21: Q. 38 (page 525)

Under what condition would a decrease in

unemployment be bad for the economy?

Short Answer

Expert verified

A decrease in unemployment would be bad for the economy when there is an increase in the number of discouraged workers.

Step by step solution

01

Step 1. Unemployment Rate.

The unemployment rate is the percentage of adults who are in the labor force and thus seeking jobs, but who do not have jobs.

02

Step 2. Decrease in Unemployment.

A decrease in unemployment would be bad for the economy when there is an increase in the number of discouraged workers which will lead to a decrease in the labor force. The unemployment rate will fall despite bad economic conditions.

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Most popular questions from this chapter

When would you expect cyclical unemployment to

be rising? Falling?

What happens to the labor force participation rate when employed individuals are reclassified as unemployed? What happens when they are reclassified as discouraged workers?

Assess whether the following would be counted as 鈥渦nemployed鈥� in the Current Employment Statistics survey.

a. A husband willingly stays home with children while his wife works.

b. A manufacturing worker whose factory just closed down.

c. A college student doing an unpaid summer internship.

d. A retiree.

e. Someone who has been out of work for two years but keeps looking for a job.

f. Someone who has been out of work for two months but isn鈥檛 looking for a job.

g. Someone who hates her present job and is

actively looking for another one.

h. Someone who decides to take a part-time job because she could not find a full-time position.

As the baby boom generation retires, the ratio of retirees to workers will increase noticeably. How will this affect the Social Security program? How will this affect the standard of living of the average American?

While unemployment is highly negatively correlated with the level of economic activity, in the real world it responds with a lag. In other words, firms do not immediately lay off workers in response to a sales decline. They wait a while before responding. Similarly, firms do not immediately hire workers when sales pick up. What do you think accounts for the lag in response time?
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