The full-time unemployment rate cannot be determined with great precis

The full-time unemployment rate cannot be determined with great precision. One thing is certain: it cannot be zero or even close to zero. A zero unemployment rate would mean that no one ever entered or re-entered the labor force, that no one ever quit a job or was laid off, and that for new entrants or re-entrants, the process of searching for a job consumed no time. Moreover, full-time employment cannot be defined as an equality between the number of unemployed persons and the number of unfilled jobs. By this definition, almost any unemployment rate could be consistent with the full-time employment rate.

The customary definition of the full-time U.S. unemployment rate is the lowest rate of unemployment that can be attained without resulting in an accelerated rate of inflation, given the existing economic conditions. However, no one can be sure exactly what the unemployment rate is, based on this definition, since it is not possible to predict exactly how great a change in the rate of inflation will be associated with any given change in the unemployment rate. In the early 1960s, President Kennedy's Council of Economic Advisors (CEA) determined that 4 percent was the best estimate of the full-time U.S. unemployment rate. That rate was based on data collected during the period from mid-1955 to mid-1957, when the U.S. unemployment rate fluctuated around an average of 4.1 percent and the consumer price index advanced at an average rate of 2.5 percent per year. Although a 4-percent U.S. unemployment rate may have been consistent with an acceptably low rate of inflation in the mid-1950s, by the 1960s this proposition had become increasingly doubtful. Our experience since then has been such that those who accept the customary definition of the full-time U.S. unemployment rate now consider 4.5 percent to be the optimal rate under the existing circumstances.

The principal reason for this upward adjustment in the full-time U.S. unemployment rate is the changed composition of the labor force. As the labor force becomes increasingly composed of elderly people and women, the number of workers has increased. Similarly, the number of workers who are now eligible to collect benefits has increased. To the extent that these changes have increased voluntary and involuntary layoff rates and the average length of time unemployed persons spend looking for work, the full-time unemployment rate has risen.

1. According to the passage, all of the following factors must be considered in estimating the full-time unemployment rate EXCEPT

A) the percentage of women in the work force
B) the ratio of the number of unemployed workers to the number of vacant positions
C) the strength of inflationary tendencies in the economic system
D) the number of young people in the job market
E) the availability of financial help for those who are out of work


2. The passage implies that the extension of unemployment insurance to new groups of workers and the lengthening of the period for benefit payments may have encouraged:

I. Layoffs of workers by employers.
II. Abandonment of unsatisfactory jobs by employees.
III. Longer periods of job hunting by unemployed workers.

A) I only
B) I and II only
C) I and III only
D) II and III only
E) I, II, and III


3. The primary purpose of the passage is to

A) define a term
B) correct a misconception
C) suggest a new theory
D) pose a dilemma
E) make a prediction


4. The passage provides information to answer which of the following questions?

A) Why is a zero unemployment rate unlikely ever to be attained?
B) What is the likely future trend of the full-employment unemployment rate?
C) Why has the percentage of younger workers in the job market increased?
D) What rate of inflation is generally considered to be the highest acceptable rate?
E) To what extent do workers tend to quit their jobs as a result of increased unemployment benefits?