Exam 14: The Labor Market in the Macroeconomy

Based on the classical view of the labor market, explain the characteristics of the aggregate supply curve.

Define the natural rate of unemployment.

Assume that wages are sticky in a downward direction. Show with the use of a graph what will happen when there is a decrease in labor demand.

-Using the above graph, if the labor market is initially in equilibrium at a wage rate of $8 and suddenly people start to value leisure more highly what will happen in the labor market?

If aggregate demand increases and expectations regarding inflation remain constant, what impact if any does this have on the short-run Phillips curve?

What is the labor demand curve?

Explain the efficiency wage theory. Why would a firm be willing to pay an efficient wage?

What are minimum wage laws?

Figure 29.1 -Using Figure 29.1 explain what is happening to the right of NAIRU.

-If there is no trade-off between inflation and unemployment what would that imply about the shape of the Phillips curve?

Intel Corporation, a major manufacturer of microchips, saw the demand for its product drop by 25%. Even though the demand for its product decreased, Intel did not cut the wages of its non-unionized workers. What is this an example of?

What school of thought would be consistent with the following statement: "Anyone who is willing to work at the current market wage but is unable to find work is unemployed."

What sequence of events results from an increase in aggregate demand? Explain the impact on the price level, inventories, output and employment.

Explain how explicit contracts might help explain sticky wages. Also, briefly explain why workers and firms would enter explicit contracts.

What would the Phillips curve look like if every year there was a regular shift in the aggregate supply curve to the left but with no corresponding change in the aggregate demand curve, that is, aggregate demand remained constant.

-Using the above graph, if labor becomes less productive what can we expect will happen in the labor market?

Classical economists argue that when the labor market is in equilibrium, those people who are not working are those who have CHOSEN not to work at that market wage. Why might an individual choose not to work at the market wage? Do you agree with the classical view of the labor market? Why or why not?

Use the Economics in Practice titled "Long Recession Ignites Debate on Jobless Benefits" to answer the following question. What was at the heart of the debate concerning extending the unemployment benefits during the 2008 recession? What does the empirical evidence seem to suggest?

If firms set wage rates on the basis of imperfect information and overestimate worker productivity, what is the likely impact on wages and the unemployment rate?

Compare and contrast the impact of minimum wages on high skilled workers and teenage workers.