Question 1

With the real wage on the vertical axis and the employment rate on the horizontal axis, we know that:

Accepted Answer

A)  the PS curve is downward sloping. 
B)  the WS curve is downward sloping. 
C)  the PS curve is upward sloping. 
D)  the WS curve is horizontal. 
E)  the WS curve is upward sloping. 
A)  the PS curve is downward sloping. 
B)  the WS curve is downward sloping. 
C)  the PS curve is upward sloping. 
D)  the WS curve is horizontal. 
E)  the WS curve is upward sloping.

Question 2

Suppose we wish to examine the determinants of the equilibrium real wage and the equilibrium level of employment. In a graph with the real wage on the vertical axis, and the level of employment on the horizontal axis, the price- setting equation will now be:

Accepted Answer

A)  a horizontal line. 
B)  a downward sloping line. 
C)  kinked at the natural rate of unemployment. 
D)  an upward sloping line. 
E)  a vertical line. 
A)  a horizontal line. 
B)  a downward sloping line. 
C)  kinked at the natural rate of unemployment. 
D)  an upward sloping line. 
E)  a vertical line.

Question 3

Which of the following is not in the labour force?

Accepted Answer

A)  Those who worked full time, but in a family business. 
B)  Those who worked part time at the supermarket. 
C)  Discouraged workers. 
D)  Those temporarily laid off who will be recalled soon. 
E)  The unemployed. 
A)  Those who worked full time, but in a family business. 
B)  Those who worked part time at the supermarket. 
C)  Discouraged workers. 
D)  Those temporarily laid off who will be recalled soon. 
E)  The unemployed.

Question 4

If we know that on average 50% of unemployed leave unemployment each month, then the average duration of unemployment is:

Accepted Answer

A)  2 months. 
B)  12 months. 
C)  1 month. 
D)  6 months. 
E)  More information is needed. 
A)  2 months. 
B)  12 months. 
C)  1 month. 
D)  6 months. 
E)  More information is needed.

Question 5

Based on our understanding of the labour market model, we know that a decrease in the minimum wage will cause:

Accepted Answer

A)  no change in the natural rate of unemployment. 
B)  an increase in the real wage demanded by workers. 
C)  an increase in the natural rate of unemployment. 
D)  no change in the real wage demanded by workers. 
E)  a decrease in the real wage demanded by workers. 
A)  no change in the natural rate of unemployment. 
B)  an increase in the real wage demanded by workers. 
C)  an increase in the natural rate of unemployment. 
D)  no change in the real wage demanded by workers. 
E)  a decrease in the real wage demanded by workers.

Question 6

Based on our understanding of the labour market model, we know that a decrease in the markup will cause:

Accepted Answer

A)  a decrease in the natural rate of unemployment and no change in the real wage. 
B)  a decrease in the natural rate of unemployment and a decrease in the real wage. 
C)  an increase in the equilibrium real wage. 
D)  an increase in the natural rate of unemployment. 
E)  a decrease in the equilibrium real wage. 
A)  a decrease in the natural rate of unemployment and no change in the real wage. 
B)  a decrease in the natural rate of unemployment and a decrease in the real wage. 
C)  an increase in the equilibrium real wage. 
D)  an increase in the natural rate of unemployment. 
E)  a decrease in the equilibrium real wage.

Question 7

For this question, assume that Y = N. Based on our understanding of the labour market model, we know that an increase in the markup will cause:

Accepted Answer

A)  an increase in the natural level of employment. 
B)  no change in the natural level of employment. 
C)  no change in the natural level of output. 
D)  a decrease in the natural level of output. 
E)  an increase in the natural level of output. 
A)  an increase in the natural level of employment. 
B)  no change in the natural level of employment. 
C)  no change in the natural level of output. 
D)  a decrease in the natural level of output. 
E)  an increase in the natural level of output.

Question 8

What is the effect on the PS curve when employers have to pay employment on- costs?

Accepted Answer

A)  A downward movement along the PS curve. 
B)  An upward movement along the PS curve. 
C)  A downward shift in the PS curve. 
D)  No movement in the PS curve. 
E)  An upward shift in the PS curve. 
A)  A downward movement along the PS curve. 
B)  An upward movement along the PS curve. 
C)  A downward shift in the PS curve. 
D)  No movement in the PS curve. 
E)  An upward shift in the PS curve.

Question 9

In the wage- setting relation, the nominal wage increases when:

Accepted Answer

A)  the unemployment rate rises. 
B)  unemployment benefits decrease. 
C)  the level of employment protection decreases. 
D)  the minimum wage decreases. 
E)  the expected price level rises. 
A)  the unemployment rate rises. 
B)  unemployment benefits decrease. 
C)  the level of employment protection decreases. 
D)  the minimum wage decreases. 
E)  the expected price level rises.

Question 10

Assume there is perfect competition in the product market. Given this information, we know that m (in the price setting equation P = (1 + m)W) equals:

Accepted Answer

A)  P. 
B)  0. 
C)  W. 
D)  W/P. 
E)  1. 
A)  P. 
B)  0. 
C)  W. 
D)  W/P. 
E)  1.

Question 11

First, explain what the wage- setting relation represents. Second, explain why it has its particular shape.

Accepted Answer

The wage- setting (WS) relation illustra

Question 12

Based on the data above, the labour force participation rate is:

Accepted Answer

A)  48.4%. 
B)  72.4%. 
C)  56.4%. 
D)  22.4%. 
E)  89.4%. 
A)  48.4%. 
B)  72.4%. 
C)  56.4%. 
D)  22.4%. 
E)  89.4%.

Question 13

The natural rate of unemployment is the rate of unemployment:

Accepted Answer

A)  that occurs when the markup of prices over costs is zero. 
B)  where the markup of prices over costs is equal to its historical value. 
C)  that occurs when the money market is in equilibrium. 
D)  that occurs when both the goods and financial markets are in equilibrium. 
E)  consistent with both the wage- setting and price- setting equations. 
A)  that occurs when the markup of prices over costs is zero. 
B)  where the markup of prices over costs is equal to its historical value. 
C)  that occurs when the money market is in equilibrium. 
D)  that occurs when both the goods and financial markets are in equilibrium. 
E)  consistent with both the wage- setting and price- setting equations.

Question 14

Data on Australian unemployment since the 1960s show:

Accepted Answer

A)  no trend at all, with very little year- to- year movements. 
B)  a moderate downward trend, with much larger year- to- year movements. 
C)  a dramatic downward trend, with much smaller year- to- year movements. 
D)  a dramatic upward trend, with much smaller year- to- year movements. 
E)  a moderate upward trend, with much larger year- to- year movements. 
A)  no trend at all, with very little year- to- year movements. 
B)  a moderate downward trend, with much larger year- to- year movements. 
C)  a dramatic downward trend, with much smaller year- to- year movements. 
D)  a dramatic upward trend, with much smaller year- to- year movements. 
E)  a moderate upward trend, with much larger year- to- year movements.

Question 15

Which of the following represents the participation rate?

Accepted Answer

A)  The ratio of the employed to the civilian population. 
B)  The ratio of the unemployed to the civilian population. 
C)  The ratio of the labour force to the civilian population. 
D)  The ratio of the labour force to the total number of employed and unemployed workers. 
E)  The ratio of the number employed to the size of the labour force. 
A)  The ratio of the employed to the civilian population. 
B)  The ratio of the unemployed to the civilian population. 
C)  The ratio of the labour force to the civilian population. 
D)  The ratio of the labour force to the total number of employed and unemployed workers. 
E)  The ratio of the number employed to the size of the labour force.

Question 16

Based on our understanding of the labour market model, we know that an increase in the markup will cause:

Accepted Answer

A)  a decrease in the natural rate of unemployment. 
B)  an increase in the equilibrium real wage. 
C)  a decrease in the equilibrium real wage. 
D)  both A and C. 
E)  both B and C. 
A)  a decrease in the natural rate of unemployment. 
B)  an increase in the equilibrium real wage. 
C)  a decrease in the equilibrium real wage. 
D)  both A and C. 
E)  both B and C.

Question 17

Suppose the actual unemployment rate decreases. This will cause:

Accepted Answer

A)  a downward shift in the PS curve. 
B)  an upward shift in the PS curve. 
C)  an upward shift in the WS curve. 
D)  a downward shift in the WS curve. 
E)  None of the above. 
A)  a downward shift in the PS curve. 
B)  an upward shift in the PS curve. 
C)  an upward shift in the WS curve. 
D)  a downward shift in the WS curve. 
E)  None of the above.

Question 18

Which of the following statements about wage setting is true?

Accepted Answer

A)  Most workers in Australia have their wages set by collective bargaining. 
B)  Most workers in Australia have their wages set by owner- managers of incorporated enterprises. 
C)  Most workers in Australia have their wages set by awards. 
D)  The minimum wage in Australia is about 75% of the average wage. 
E)  Collective bargaining plays a more important role in Japan and most European countries than in Australia. 
A)  Most workers in Australia have their wages set by collective bargaining. 
B)  Most workers in Australia have their wages set by owner- managers of incorporated enterprises. 
C)  Most workers in Australia have their wages set by awards. 
D)  The minimum wage in Australia is about 75% of the average wage. 
E)  Collective bargaining plays a more important role in Japan and most European countries than in Australia.

Question 19

First, provide a brief explanation of what the unemployment rate measures. Second, explain how changes in each of the components of the unemployment rate can cause changes in the unemployment rate.

Accepted Answer

The unemployment rate measures the perce

Question 20

Graphically illustrate (using the WS and PS relations) and explain the effects of a decrease in the markup on the equilibrium real wage, the natural rate of unemployment, the natural level of employment, and the natural level of output.

Accepted Answer

A decrease in the markup will cause firm

Exam 6: The Labour Market

With the real wage on the vertical axis and the employment rate on the horizontal axis, we know that:

Suppose we wish to examine the determinants of the equilibrium real wage and the equilibrium level of employment. In a graph with the real wage on the vertical axis, and the level of employment on the horizontal axis, the price- setting equation will now be:

Which of the following is not in the labour force?

If we know that on average 50% of unemployed leave unemployment each month, then the average duration of unemployment is:

Based on our understanding of the labour market model, we know that a decrease in the minimum wage will cause:

Based on our understanding of the labour market model, we know that a decrease in the markup will cause:

For this question, assume that Y = N. Based on our understanding of the labour market model, we know that an increase in the markup will cause:

What is the effect on the PS curve when employers have to pay employment on- costs?

In the wage- setting relation, the nominal wage increases when:

Assume there is perfect competition in the product market. Given this information, we know that m (in the price setting equation P = (1 + m)W) equals:

First, explain what the wage- setting relation represents. Second, explain why it has its particular shape.

Based on the data above, the labour force participation rate is:

The natural rate of unemployment is the rate of unemployment:

Data on Australian unemployment since the 1960s show:

Which of the following represents the participation rate?

Based on our understanding of the labour market model, we know that an increase in the markup will cause:

Suppose the actual unemployment rate decreases. This will cause:

Which of the following statements about wage setting is true?

First, provide a brief explanation of what the unemployment rate measures. Second, explain how changes in each of the components of the unemployment rate can cause changes in the unemployment rate.

Graphically illustrate (using the WS and PS relations) and explain the effects of a decrease in the markup on the equilibrium real wage, the natural rate of unemployment, the natural level of employment, and the natural level of output.

A Tour of the World

A Tour of the Book

The Goods Market

Financial Markets

Goods and Financial Markets: the Islm Model

Putting All Markets Together: the Asad Model

The Phillips Curve, the Natural Rate of Unemployment and Inflation

The Crisis

The Facts of Growth

Saving, Capital Accumulation and Output

Technological Progress and Growth

Technological Progress: the Short, the Medium and the Long Run

Expectations: the Basic Tools

Financial Markets and Expectations

Expectations, Consumption and Investment

Expectations, Output and Policy

Openness in Goods and Financial Markets

The Goods Market

Output, the Interest Rate and the Exchange Rate

Exchange Rate Regimes

Should Policy-Makers Be Restrained

Fiscal Policy: a Summing up

Monetary Policy: a Summing up

Epilogue: the Story of Macroeconomics

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