4. Sectoral shifts, frictional unemployment, and job searches Suppose the world

Question

4. Sectoral shifts, frictional unemployment, and job searches

Suppose the world price of steel falls substantially. The demand for labor among steel-producing firms in Pennsylvania will (increase/decrease) . The demand for labor among automobile-producing firms in Michigan, for which steel is an input, will (increase/decrease) . The temporary unemployment resulting from such sectoral shifts in the economy is best described as (seasonal/frictional/structural/cyc unemployment.

Suppose the government wants to reduce this type of unemployment. Which of the following policies would help achieve this goal? Check all that apply.

A) Offering recipients of unemployment insurance benefits a cash bonus if they find a new job within a specified number of weeks

B) Improving a widely used job-search website so that it matches workers to job vacancies more effectively

C) Extending the number of weeks for which unemployed workers are eligible for unemployment insurance benefits from the government

4. Sectoral shifts, frictional unemployment, and job searches

Suppose the world price of steel falls substantially. The demand for labor among steel-producing firms in Pennsylvania will (increase/decrease) . The demand for labor among automobile-producing firms in Michigan, for which steel is an input, will (increase/decrease) . The temporary unemployment resulting from such sectoral shifts in the economy is best described as (seasonal/frictional/structural/cyc unemployment.

Suppose the government wants to reduce this type of unemployment. Which of the following policies would help achieve this goal? Check all that apply.

A) Offering recipients of unemployment insurance benefits a cash bonus if they find a new job within a specified number of weeks

B) Improving a widely used job-search website so that it matches workers to job vacancies more effectively

C) Extending the number of weeks for which unemployed workers are eligible for unemployment insurance benefits from the government

Explanation / Answer

a) The demand for labour due to a decrease in the cost of steel will "decrease", at a lower price the firms will reduce the production and lay off some labour.

b) The demand for labour in the automobile industry will "increase", with a cheaper steel the automobile production will increase and the demand for labour will rise.

c) This is called frictional unemployment.

Government policy should be to implement "A" and "B". both the options are correct.  

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