Name: 
 

Chapter 9 - Capital Utilization and Unemployment


True/False
Indicate whether the statement is true or false.
 

 1. 
When the capital utilization rate, tf001-1.jpg, is added to the model the interest rate becomes countercyclical.
 

 2. 
The higher the capital utilization rate,tf002-1.jpg, the greater the depreciation rate of capital, tf002-2.jpg.
 

 3. 
An increase in unemployment insurance payments decreases effective real income while unemployed.
 

 4. 
The duration of unemployment is the number unemployed divided by the labor force.
 

 5. 
Unemployment will exist in an market clearing model, if it takes some search time for workers to find jobs.
 

Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 6. 
The capital utilization rate is:
a.
the rate capital wears out in a particular period.
b.
the depreciation rate.
c.
the percentage of capital used in production.
d.
all of the above.
 

 7. 
When the capital utilization rate, mc007-1.jpg, increases then:
a.
GDP increases.
b.
machines are in use more hours per period.
c.
(hours per period)•(number of machines) increases.
d.
all of the above.
 

 8. 
When the capital utilization rate, mc008-1.jpg, increases then:
a.
GDP decreases.
b.
machines are in use fewer hours per period.
c.
(hours per period)•(number of machines) increases.
d.
all of the above.
 

 9. 
When the capital utilization rate, mc009-1.jpg, increases then:
a.
GDP decreases.
b.
machines are in use more hours per period.
c.
(hours per period)•(number of machines) decreases.
d.
all of the above.
 

 10. 
When the capital utilization rate, mc010-1.jpg, increases then:
a.
GDP increases.
b.
machines are in use fewer hours per period.
c.
(hour per period)•(number of machines) decreases.
d.
all of the above.
 

 11. 
When we allow a capital utilization rate, mc011-1.jpg, less than 100%, then the rate of return form owning capital becomes:
a.
(R/P) - mc011-2.jpg.
b.
(R/P)•mc011-3.jpg - mc011-4.jpg(mc011-5.jpg).
c.
(R/P)•mc011-6.jpg - mc011-7.jpg.
d.
(R/P) - mc011-8.jpg(mc011-9.jpg).
 

 12. 
An owner of capital might set their capital utilization rate below 100% because:
a.
the depreciation rate goes up with the capital utilization rate.
b.
machines wear out faster when used more intensively.
c.
to make time available for maintaining their capital.
d.
all of the above.
 

 13. 
The optimal capital utilization rate, mc013-1.jpg, is that mc013-2.jpg where:
a.
(R/P)•mc013-3.jpg - mc013-4.jpg(mc013-5.jpg) is maximized.
b.
(R/P)•mc013-6.jpg = mc013-7.jpg(mc013-8.jpg)
c.
(R/P)•mc013-9.jpg > mc013-10.jpg(mc013-11.jpg)
d.
(R/P)•mc013-12.jpg < mc013-13.jpg(mc013-14.jpg)
 

 14. 
the net real income from supplying capital services is:
a.
(R/P)•mc014-1.jpgK - mc014-2.jpg(mc014-3.jpg)K.
b.
(R/P)•mc014-4.jpgK + mc014-5.jpg(mc014-6.jpg).
c.
mc014-7.jpg(mc014-8.jpg)K - (R/P)•mc014-9.jpg
d.
(R/P)•mc014-10.jpgK • mc014-11.jpg(mc014-12.jpg)K
 

 15. 
Higher capital utilization rates may raise the user costs of capital because higher utilization rates may imply:
a.
operating at inconvenient times.
b.
paying overtime to employees operating the machines.
c.
operating when complementary services like transporters are unavailable or more expensive.
d.
all of the above.
 

 16. 
Higher capital utilization rates may raise user costs of capital because higher utilization rates may imply:
a.
operating at inconvenient times.
b.
off-peak utility prices.
c.
less highway congestion.
d.
all of the above.
 

 17. 
Higher capital utilization rates may raise user costs of capital because higher utilization rates may imply:
a.
less highway congestion.
b.
off peak utility prices.
c.
operating when complementary services like transportation are unavailable or more expensive.
d.
all of the above.
 

 18. 
Higher capital utilization rates may raise user costs of capital because higher utilization rates may imply:
a.
less highway congestion.
b.
paying overtime to employees operating the machines.
c.
off peak utility prices.
d.
all of the above.
 

 19. 
GDP rises can rise in an expansion due to:
a.
an increase in technology, A, directly increasing GDP.
b.
an increase in technology, A, causing an increase in labor, L and GDP.
c.
an increase in technology, A, causing an increase in the capital utilization rate, the quantity of capital services and GDP.
d.
all of the above.
 

 20. 
The model predicts the capital utilization rate, mc020-1.jpg, is:
a.
acyclical.
b.
procyclical.
c.
countercyclical.
d.
exogenous.
 

 21. 
The model predicts that with a negative shock to technology, the capital utilization rate, mc021-1.jpg, will:
a.
rise as GDP rises.
b.
fall as GDP falls.
c.
rise as GDP falls.
d.
fall as GDP rises.
 

 22. 
After the capital utilization rate, mc022-1.jpg, is included in the model, the interest rate:
a.
is still procyclical.
b.
is still countercyclical.
c.
becomes procyclical.
d.
becomes countercyclical.
 

 23. 
The US data from 1948 to 2006 shows the capital utilization rate, mc023-1.jpg, is:
a.
procyclical as the model predicts.
b.
countercyclical as the model predicts.
c.
procyclical the opposite the model predicts.
d.
countercyclical the opposite as the model predicts.
 

 24. 
The model predicts that with a positive shock to technology the capital utilization rate, mc024-1.jpg, will
a.
fall as GDP falls.
b.
fall as GDP rises.
c.
rise as GDP rises.
d.
rise as GDP falls.
 

 25. 
If the rental price of capital increases, then the capital utilization rate, mc025-1.jpg,:
a.
also increases.
b.
decreases.
c.
remains the same.
d.
depends on whether the substitution rate is greater than the income effect.
 

 26. 
The unemployment rate is:
a.
the number of workers in the labor force unemployed divided by the number of workers employed.
b.
the number of workers employed divide by the number of workers in the labor force unemployed.
c.
the number of workers in the labor force unemployed divided by the labor force.
d.
the labor force divided by the number of workers in the labor force unemployed.
 

 27. 
The vacancy rate in the labor market is:
a.
the number of job openings divided by the number of unemployed people in the labor force.
b.
the number of job openings divided by the number of workers in the labor force.
c.
the ratio of open jobs to filled jobs.
d.
the ratio of open jobs to the total number of jobs that employers want occupied.
 

 28. 
If the labor force is 100 million, there are 95 million people employed, there are 98 million jobs that employers want occupied, then the number of unemployed workers in the labor force is:
a.
5 million.
b.
3 million.
c.
2 million.
d.
none of the above.
 

 29. 
If the labor force is 100 million, there are 95 million people employed, there are 98 million jobs that employers want occupied, then the number of vacancies is:
a.
5 million.
b.
3 million.
c.
2 million.
d.
none of the above.
 

 30. 
If the labor force is 100 million, there are 95 million people employed, there are 98 million jobs that employers want occupied, then the unemployment rate is:
a.
3%.
b.
5%.
c.
5.3%.
d.
none of the above.
 

 31. 
If the labor force is 100 million, there are 95 million people employed, there are 98 million jobs that employers want occupied, vacancy rate is:
a.
5%.
b.
3.2%.
c.
3.1%.
d.
3%.
 

 32. 
If the labor force is 100 million, there are 94 million people employed, there are 99 million jobs that employers want occupied, then the vacancy rate is:
a.
5%
b.
5.1%
c.
5.3%
d.
1%
 

 33. 
One minus the unemployment rate, 1 - u, is:
a.
the vacancy rate.
b.
the labor force.
c.
the employment rate.
d.
the level of employment.
 

 34. 
Unemployment can exist in a market clearing model, if:
a.
there are frictions in the labor market.
b.
it takes some search time for workers to find jobs.
c.
we allow for differences among workers and jobs.
d.
all of the above.
 

 35. 
Unemployment can exist in a market clearing model, if:
a.
the labor market is in disequilibrium.
b.
we allow capital utilization of less than 100%.
c.
we allow for differences among workers and jobs.
d.
all of the above.
 

 36. 
Unemployment can exist in a market clearing model, if:
a.
there are frictions in the labor market.
b.
the labor supply curve is upward sloping
c.
the labor market is in equilibrium.
d.
all of the above.
 

 37. 
Unemployment can exist in a market clearing model, if:
a.
all workers are identical.
b.
it takes some search time for workers to find jobs.
c.
the labor supply curve is upward sloping.
d.
all of the above.
 

 38. 
A worker will accept a job offer, if the real wage offer is above:
a.
the worker’s effective real income when unemployed, mc038-1.jpg.
b.
the wage the worker earned in their last job.
c.
the worker’s reservation wage.
d.
the average wage in the economy.
 

 39. 
An increase in a worker’s effective real income while unemployed,mc039-1.jpg, will cause the worker’s:
a.
real wage offers to increase.
b.
real wage offers to decrease.
c.
real reservation wage to increase.
d.
real reservation wage to decrease.
 

 40. 
We expect that an increase in the effective real income while unemployed mc040-1.jpg,
a.
will reduce the job-finding rate.
b.
will increase the job-finding rate.
c.
increase real wage offers.
d.
decrease real wage offers.
 

 41. 
A decrease in workers’ effective real incomes while unemployed, mc041-1.jpg, will:
a.
lower the job finding rate and raise the expected duration of unemployment.
b.
lower the job finding rate and the expected duration of unemployment.
c.
raise the job finding rate and lower the expected duration of unemployment.
d.
raise the job finding rate and the expected duration of unemployment.
 

 42. 
A negative shock to productivity, A, will:
a.
lower the job finding rate and raise the expected duration of unemployment.
b.
lower the job finding rate and the expected duration of unemployment.
c.
raise the job finding rate and lower the expected duration of unemployment.
d.
raise the job finding rate and the expected duration of unemployment.
 

 43. 
Job separations can be due to:
a.
an adverse shock to the firm’s production function.
b.
the job being temporary from the start like a seasonal job.
c.
a change in a worker’s circumstances such as changing locations.
d.
all of the above.
 

 44. 
Job separations can be due to:
a.
a positive shock to the firm’s production function.
b.
an increase in technology.
c.
a change in a worker’s circumstances such as changing locations.
d.
all of the above.
 

 45. 
Job separations can be caused by:
a.
an adverse shock to the firm’s production function.
b.
foreign competition.
c.
increased technology, A.
d.
all of the above.
 

 46. 
In the Barro model, the natural rate of unemployment is the unemployment rate:
a.
where job findings equal job separations.
b.
job findings are maximized.
c.
the job separation rate equals the job finding rate.
d.
job separations are minimized.
 

 47. 
If the job separation rate is 0.02 and the job finding rate is 0.3, then the natural rate of unemployment is:
a.
6.25%
b.
15%
c.
6.67%
d.
none of the above.
 

 48. 
If the job separation rate is 0.03 and the job finding rate is 0.7, then the natural rate of unemployment is:
a.
4.2%
b.
4.1%
c.
23.3%
d.
none of the above.
 

 49. 
In the Barro model, the natural rate of unemployment is:
a.
positively related to that job separations rate.
b.
zero.
c.
fixed.
d.
positively related to the job finding rate.
 

 50. 
In the Barro model, the natural rate of unemployment is:
a.
negatively related to that job separations rate.
b.
zero.
c.
fixed.
d.
negatively related to the job finding rate.
 

 51. 
In US data vacancies from 1954 to 2006 as measure by the help-wanted index are:
a.
procyclical as the model predicts.
b.
countercyclical as the model predicts.
c.
procyclical the opposite the model predicts.
d.
countercyclical the opposite the model predicts.
 

 52. 
Discouraged workers are:
a.
those that are unemployed.
b.
those that are underemployed.
c.
those who have dropped out of the labor force.
d.
those who are under paid.
 

 53. 
The job-finding rate is:
a.
the number of hires per month divided by the number unemployed.
b.
the number of hires per month divided by the number employed.
c.
the number of hires per month divided by the unemployment rate.
d.
the number of hires per month divided by the employment rate.
 

 54. 
The US data from December 2000 to February 2006 shows that the job finding rate is:
a.
acyclical.
b.
countercyclical.
c.
procyclical.
d.
exogenous.
 

 55. 
The US data from December 2000 to February 2006 shows that the job separation rate is:
a.
acyclical.
b.
countercyclical.
c.
procyclical.
d.
exogenous.
 

Short Answer
 

 56. 
How does the capital utilization enter the production function?
 

 57. 
How does the capital utilization rate affect the depreciation rate and why?
 

 58. 
How can there be unemployment in a market clearing model?
 

 59. 
How does the Barro model define the natural rate of unemployment and what does the natural rate of unemployment depend on.
 

 60. 
What is the reservation wage?
 



 
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