Question 1

A beneficial oil-price shock increases labor demand.What happens to current employment and the real wage rate?

Accepted Answer

A) Both employment and the real wage rate would increase. 
B) Both employment and the real wage rate would decrease. 
C) Employment would increase and the real wage would decrease. 
D) Employment would decrease and the real wage would increase. 
A) Both employment and the real wage rate would increase. 
B) Both employment and the real wage rate would decrease. 
C) Employment would increase and the real wage would decrease. 
D) Employment would decrease and the real wage would increase.

Question 2

In the U.S.economy in 1991,real GDP was 4861.4 (in billions of 1987 dollars),the capital stock was 13,806.2 (in billions of 1987 dollars),and employment was 118.4 (in millions of workers).In 1992 the numbers were: real GDP 4986.3,capital stock 14,040.8,employment 119.2.Suppose the production function in both years is Y = AK0.25N0.75.
(a)Calculate total factor productivity for 1991 and 1992.
(b)How much did total factor productivity grow from 1991 to 1992?
(c)Calculate the percent increase in real output between 1991 and 1992.
(d)Suppose tax incentives had raised the capital stock in 1992,making it 10% higher,to 15,444.9.If employment didn't change,what would have been the percent increase in real output between 1991 and 1992?
(e)Instead of the increase in the capital stock in part d,suppose employment was 10% higher in 1992,making it 131.1.With the capital stock fixed at 14,040.8,what would have been the increase in real output between 1991 and 1992?

Accepted Answer

(a)1991: 12.49; 1992: 12.70
(b

Question 3

According to Okun's Law,if the natural rate of unemployment is 5% and the actual unemployment rate is 4%,what is the level of full-employment output if output equals $10,125 billion?

Accepted Answer

A) $10,328 billion 
B) $10,226 billion 
C) $10,025 billion 
D) $9926 billion 
A) $10,328 billion 
B) $10,226 billion 
C) $10,025 billion 
D) $9926 billion

Question 4

What two factors should you equate in deciding how many workers to employ?

Accepted Answer

A) The marginal product of labor and the marginal product of capital 
B) The marginal product of labor and the real wage rate 
C) The marginal product of labor and the real interest rate 
D) The marginal product of capital and the real wage rate 
A) The marginal product of labor and the marginal product of capital 
B) The marginal product of labor and the real wage rate 
C) The marginal product of labor and the real interest rate 
D) The marginal product of capital and the real wage rate

Question 5

The marginal product of labor

Accepted Answer

A) is measured by the slope of the production function relating capital to employment. 
B) is larger when the labor supply is relatively larger. 
C) is smaller when the labor supply is relatively smaller. 
D) decreases as the number of workers already employed increases. 
A) is measured by the slope of the production function relating capital to employment. 
B) is larger when the labor supply is relatively larger. 
C) is smaller when the labor supply is relatively smaller. 
D) decreases as the number of workers already employed increases.

Question 6

Suppose a firm's hourly marginal product of labor is given by MPN = A (200 - N).
(a)If A = 0.2 and the real wage rate is $10 per hour,how much labor will the firm want to hire?
(b)Suppose the real wage rate rises to $20 per hour.How much labor will the firm want to hire?
(c)With the real wage rate at $10 per hour,how much labor will the firm want to hire if A rises to 0.5?

Accepted Answer

(a)The firm will hire labor such that w

Question 7

The fact that the production function relating output to capital becomes flatter as we move from left to right means that

Accepted Answer

A) the marginal product of labor is positive. 
B) the marginal product of capital is positive. 
C) there is diminishing marginal productivity of labor. 
D) there is diminishing marginal productivity of capital. 
A) the marginal product of labor is positive. 
B) the marginal product of capital is positive. 
C) there is diminishing marginal productivity of labor. 
D) there is diminishing marginal productivity of capital.

Question 8

A decrease in the real wage would result in a

Accepted Answer

A) movement along the labor demand curve, causing an increase in the number of workers hired by the firm. 
B) shift of the labor demand curve, causing an increase in the number of workers hired by the firm. 
C) movement along the labor demand curve, causing a decrease in the number of workers hired by the firm. 
D) shift of the labor demand curve, causing a decrease in the number of workers hired by the firm. 
A) movement along the labor demand curve, causing an increase in the number of workers hired by the firm. 
B) shift of the labor demand curve, causing an increase in the number of workers hired by the firm. 
C) movement along the labor demand curve, causing a decrease in the number of workers hired by the firm. 
D) shift of the labor demand curve, causing a decrease in the number of workers hired by the firm.

Question 9

Suppose the economy's production function is Y = AK0.3N0.7.When K = 1000,N = 50,and A = 15,what is Y?

Accepted Answer

A) 1842 
B) 6106 
C) 750,000 
D) 123 
A) 1842 
B) 6106 
C) 750,000 
D) 123

Question 10

A technological breakthrough in using photons for computers will increase the productivity of those working with computers a hundredfold.You would expect this breakthrough to shift the

Accepted Answer

A) marginal product of labor curve up and to the right, raising the quantity of labor demanded at any given real wage. 
B) marginal product of labor curve down and to the left, reducing the quantity of labor demanded at any given real wage. 
C) labor supply curve up, reducing the quantity of labor demanded at any given real wage. 
D) labor supply curve down, raising the quantity of labor demanded at any given real wage. 
A) marginal product of labor curve up and to the right, raising the quantity of labor demanded at any given real wage. 
B) marginal product of labor curve down and to the left, reducing the quantity of labor demanded at any given real wage. 
C) labor supply curve up, reducing the quantity of labor demanded at any given real wage. 
D) labor supply curve down, raising the quantity of labor demanded at any given real wage.

Question 11

Suppose the marginal product of labor in the economy is given by MPN = 0.002(16,000 - N),while the supply of labor is 1000 + 1000w.
(a)Find the market-clearing real wage rate and level of employment.
(b)What happens to the wage rate and employment if wealth rises,reducing the supply of labor to 500 + 1000w?
(c)What happens to the wage rate and employment if after wealth has risen as in part (b),there is a productivity shock that increases the marginal product of labor to MPN = 0.0025(16,000 - N)?

Accepted Answer

(a)The market-clearing real wage rate eq

Question 12

The city of Hope has a labor force of 1000.Twenty people lose their jobs each month and remain unemployed for exactly one month before finding jobs.On January 1,May 1,and September 1 of each year 50 people lose their jobs for a period of four months before finding new jobs.
(a)What is the unemployment rate in any given month?
(b)How many unemployment spells are there in a year?
(c)What is the average duration of an unemployment spell?
(d)On any given date,how many people are undergoing short spells,and how many are undergoing long spells?

Accepted Answer

(a)70/1000 = 7%
(b)Short spells: 20 each

Question 13

How would each of the following events affect the level of employment and the real wage rate? Explain which curves in the labor market diagram would be affected and show your work.
(a)The stock market falls sharply.
(b)A war destroys a substantial amount of a country's physical capital.
(c)A new law reduces immigration of workers into the country.

Accepted Answer

(a)Lower wealth shifts the labor supply

Question 14

The city of Hope has a labor force of 1000.Twenty people lose their jobs each month and remain unemployed for exactly one month before finding jobs.On January 1,May 1,and September 1 of each year,50 people lose their jobs for a period of four months before finding new jobs.What is the unemployment rate in any given month?

Accepted Answer

A) 2% 
B) 3% 
C) 5% 
D) 7% 
A) 2% 
B) 3% 
C) 5% 
D) 7%

Question 15

A favorable supply shock would

Accepted Answer

A) shift the production function up and decrease marginal products at every level of employment. 
B) shift the production function down and decrease marginal products at every level of employment. 
C) shift the production function down and increase marginal products at every level of employment. 
D) shift the production function up and increase marginal products at every level of employment. 
A) shift the production function up and decrease marginal products at every level of employment. 
B) shift the production function down and decrease marginal products at every level of employment. 
C) shift the production function down and increase marginal products at every level of employment. 
D) shift the production function up and increase marginal products at every level of employment.

Question 16

According to Okun's law,an increase in the unemployment rate will cause ________ in the level of employment and ________ in the level of output.

Accepted Answer

A) an increase; an increase 
B) an increase; a decrease 
C) a decrease; an increase 
D) a decrease; a decrease 
A) an increase; an increase 
B) an increase; a decrease 
C) a decrease; an increase 
D) a decrease; a decrease

Question 17

An increase in the number of workers hired by a firm could result from

Accepted Answer

A) a decrease in the marginal product of labor. 
B) a decrease in the marginal revenue product of labor. 
C) an increase in the real wage. 
D) a decrease in the real wage. 
A) a decrease in the marginal product of labor. 
B) a decrease in the marginal revenue product of labor. 
C) an increase in the real wage. 
D) a decrease in the real wage.

Question 18

Suppose the marginal product of labor in the economy is given by MPN = 200 - 0.5 N,while the supply of labor is 100 + 4w.
(a)Find the market-clearing real wage rate.
(b)What happens if the government imposes a minimum wage of 40? Is there involuntary unemployment?
(c)What happens if the government imposes a minimum wage of 60? Is there involuntary unemployment?

Accepted Answer

(a)The market-clearing real wage rate eq

Question 19

An adverse oil-price shock reduces labor demand.What happens to current employment and the real wage rate?

Accepted Answer

A) Both employment and the real wage rate would increase. 
B) Both employment and the real wage rate would decrease. 
C) Employment would increase and the real wage would decrease. 
D) Employment would decrease and the real wage would increase. 
A) Both employment and the real wage rate would increase. 
B) Both employment and the real wage rate would decrease. 
C) Employment would increase and the real wage would decrease. 
D) Employment would decrease and the real wage would increase.

Question 20

Cyclical unemployment arises when

Accepted Answer

A) unskilled or low-skilled workers find it difficult to obtain desirable, long-term jobs. 
B) labor must be reallocated from industries that are shrinking to areas that are growing. 
C) workers must search for suitable jobs and firms must search for suitable workers. 
D) output and employment are below full-employment levels. 
A) unskilled or low-skilled workers find it difficult to obtain desirable, long-term jobs. 
B) labor must be reallocated from industries that are shrinking to areas that are growing. 
C) workers must search for suitable jobs and firms must search for suitable workers. 
D) output and employment are below full-employment levels.

A beneficial oil-price shock increases labor demand.What happens to current employment and the real wage rate?

According to Okun's Law,if the natural rate of unemployment is 5% and the actual unemployment rate is 4%,what is the level of full-employment output if output equals $10,125 billion?

What two factors should you equate in deciding how many workers to employ?

The marginal product of labor

The fact that the production function relating output to capital becomes flatter as we move from left to right means that

A decrease in the real wage would result in a

Suppose the economy's production function is Y = AK^0.3^N^0.7^.When K = 1000,N = 50,and A = 15,what is Y?

A technological breakthrough in using photons for computers will increase the productivity of those working with computers a hundredfold.You would expect this breakthrough to shift the

A favorable supply shock would

According to Okun's law,an increase in the unemployment rate will cause in the level of employment and in the level of output.

An increase in the number of workers hired by a firm could result from

An adverse oil-price shock reduces labor demand.What happens to current employment and the real wage rate?

Cyclical unemployment arises when

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Exam 3: Productivity, output, and Employment

A beneficial oil-price shock increases labor demand.What happens to current employment and the real wage rate?

According to Okun's Law,if the natural rate of unemployment is 5% and the actual unemployment rate is 4%,what is the level of full-employment output if output equals $10,125 billion?

What two factors should you equate in deciding how many workers to employ?

The marginal product of labor

The fact that the production function relating output to capital becomes flatter as we move from left to right means that

A decrease in the real wage would result in a

Suppose the economy's production function is Y = AK0.3N0.7.When K = 1000,N = 50,and A = 15,what is Y?

A technological breakthrough in using photons for computers will increase the productivity of those working with computers a hundredfold.You would expect this breakthrough to shift the

A favorable supply shock would

According to Okun's law,an increase in the unemployment rate will cause ________ in the level of employment and ________ in the level of output.

An increase in the number of workers hired by a firm could result from

An adverse oil-price shock reduces labor demand.What happens to current employment and the real wage rate?

Cyclical unemployment arises when

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Consumption, saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Suppose the economy's production function is Y = AK^0.3^N^0.7^.When K = 1000,N = 50,and A = 15,what is Y?

According to Okun's law,an increase in the unemployment rate will cause in the level of employment and in the level of output.