Deck 4: Labour Supply Over the Life Cycle

Question 1

All of the following are theoretical determinants of retirement except:

A) wealth and earnings.
B) availability of public pensions.
C) laws specifying mandatory retirement.
D) health and the nature of work.
E) None of choices are correct.

Answer 1

E

Question 2

Which of the following variables is likely to have the least effect on fertility decisions?

A) the income of the family
B) the price of goods and services that are associated with child bearing
C) the cost of having a child
D) the tastes and preferences of the consumer
E) None of choices are correct.

Answer 2

A

Question 3

Which of the following is NOT associated with occupational/employer sponsored pension plans?

A) earnings based plans
B) universal retirement benefits
C) defined benefit plans
D) defined contribution plans
E) None of the choices are correct.

Answer 3

B

Question 4

Which of the following factors is the most important in determining whether the substitution effect emanating from a wage change is significant?

A) Whether or not leisure is a normal good.
B) Whether the wage change is anticipated or unanticipated.
C) Whether income effect is present.
D) Whether the wage change is temporary or permanent.
E) Whether lifetime earnings are high or low.

Question 5

According to some empirical research, the introduction of the birth control pills:

A) reduced fertility rate in the 1960s for married women, but did not lead them to acquire more education.
B) delayed fertility for young women and increased labour supply in 1960s
C) reduced fertility rate in 1960s for single women, thus inducing them to acquire more education
D) reduced fertility rate in the 1960s for married women, thus inducing them to acquire more education
E) delayed fertility for married women but did not increase their labour supply in 1960s

Question 6

Which of the following is NOT correct?

A) OAS is a demogrant.
B) The retirement test has been eliminated in the Canadian pension plan.
C) GIS is a part of the universal old age pension program.
D) CPP/QPP is financed by the general tax revenue.
E) Employer sponsored occupational pensions cover about one third of the labour force in Canada.

Question 7

In the framework of the household production model, if there is an increase in the wage rate, the primary impact that we would expect is:

A) a substitution effect away from the production of the time-intensive commodity.
B) a rise in fertility.
C) a substitution effect away from the production of the goods-intensive commodity.
D) an increase in early retirement.
E) an intertemporal substitution effect.

Question 8

What is probably the MOST important reason that the rate of fertility declines as the level of education increases?

A) More family planning services and knowledge become available.
B) The opportunity cost of bearing children in terms of foregone income increases.
C) Children may not be normal goods. Better educated family may buy more of other goods and services when income rises.
D) The costs of rising children are higher for better educated women.
E) The cost of education becomes cheaper for most of the women.

Question 9

Consider the labour supply responsiveness to wage changes of various natures. In what order would we expect this elasticity to be, from the largest response to the smallest response?

A) permanent wage change, evolutionary wage change, transitory wage change
B) evolutionary wage change, transitory wage change, permanent wage change
C) transitory wage change, permanent wage change, evolutionary wage change
D) evolutionary wage change, permanent wage change, transitory wage change
E) transitory wage change, evolutionary wage change, permanent wage change

Question 10

Which of the following is a cohort effect?

A) When person A is born 10 years after person B, and this person has different preferences regarding leisure and income than person A because of the age difference
B) When person A is born 10 years after person B, and this person has different preferences regarding leisure and income than person A because they were born in different societies
C) When person A has similar preferences regarding leisure and income despite of geographical differences
D) When person A is born in the same year as person B, and this person has different preferences regarding leisure and income than person A
E) When person A has different preferences regarding leisure and income because of geographical differences

Question 11

What is the primary impact that is expected from an anticipated evolutionary wage change over the life cycle?

A) income effect dominating the substitution effect
B) substitution effect dominating the income effect
C) inter-temporal income response
D) inter-temporal substitution response
E) None of the answer choices are correct.

Question 12

Fertility rate is lower in the higher income families and wealthier countries because:

A) Potential earnings of women are higher for higher income families and wealthier countries.
B) Education level is higher for higher income families.
C) The cost of living is higher for higher income families and wealthier countries.
D) Children are not normal good.
E) Cost of raising children is higher in higher income families.

Question 13

What is the substitution evolutionary wage change?

A) A forward-thinking consumer will work less when the returns to doing so are highest.
B) A forward-thinking consumer will work more when the returns to doing so are lowest.
C) A forward-thinking consumer will buy more leisure because it is a normal good and he/she has received a raise.
D) A forward-thinking consumer will work more when the returns to doing so are highest.
E) A forward-thinking consumer will buy less leisure because it is a normal good and he/she has received a raise.

Question 14

Which of the following is not a pension plan in Canada?

A) the universal old age security program
B) the guaranteed income supplement plan
C) an employer-sponsored retirement program
D) the CPPprogram
E) None of choices are correct.

Question 15

The 'tax-back' feature of the guaranteed income supplement means that:

A) The payments are reduced by a certain fraction of every dollar that is earned by working.
B) The employer has to pay a tax on the amount of this benefit that is awarded to its employees.
C) Individuals will receive a refund on their tax return when they reach retirement age.
D) Individuals lose much of their Canada Pension plan benefit if they receive this supplement.
E) The payments are increased by a certain fraction of every dollar that is earned by working.

Question 16

All of the following variables play an important role in the household production model except:

A) the wage rate of the worker
B) the price of raw food (or inputs to the time-intensive good)
C) the time required for preparation of time-intensive goods
D) non-labour income.
E) the price of processed food (a goods-intensive commodity)

Question 17

The effect of the retirement test, according to which pensions are clawed back, is to:

A) improve equity between workers and retirees.
B) discourage recipients from working.
C) increase the funds flowing into the fund.
D) increase reliance of private pensions.
E) raise the supply of labour.

Question 18

The empirical research on the reasons for the incredible increase in the labour force participation rate for women shows that:

A) Improved education facilities for women were responsible for the increase in the participation rate.
B) Better working conditions for women in a broader array of occupations were responsible for the increase in the participation rate.
C) Rising wages for women were responsible for the increase in the participation rate.
D) Falling fertility rates among women were responsible for the increase in the participation rate.
E) Macroeconomic conditions were responsible for the increase in the participation rate.

Question 19

Which of the following cannot apply to an unanticipated wage increase?

A) evolutionary
B) permanent
C) transitory
D) temporary
E) None of the answer choices are correct.

Question 20

Which of the following is NOT a life-cycle phenomenon?

A) childbearing decisions
B) retirement decisions
C) fertility decisions of women
D) schooling decisions
E) All of these labour supply choices are life-cycle in nature

Question 21

Which of the following expressions illustrates the point that lifetime consumption (over a two-period framework) should equal lifetime earnings? Assume that the rate of interest is zero. C denotes consumption, W denotes wages, H denotes hours, and the subscript denotes the periods.

A) C1 + W1H1 = C2 + W2H2
B) C1 * C2 = W1H1 + W2H2
C) C1 * C2 = W1 (H1 + H2)
D) C1 + C2 = W1H1 + W2H2
E) C1 + C2 = W1 (H1 + H2)

Question 22

Fill in the blanks of the following statement. Individuals plan out their given their environment.

A) short run labour supply; permanent labour market
B) lifetime labour supply; retirement
C) lifetime labour supply; working
D) expected earnings; expected lifetime labour market
E) lifetime labour supply; expected lifetime labour market

Question 23

In order to estimate the pure cohort effect, we need to:

A) isolate cohort effects from age effects only
B) isolate cohort effects from age effects and macroeconomic business cycle effects
C) isolate cohort effects from time effects only
D) isolate cohort effects from macroeconomic business cycle effects and time effects
E) isolate cohort effects from macroeconomic business cycle effects only

Question 24

Based on the household production model, which of the following will lead to a definite increase in leisure?

A) a decrease in the preparation time
B) better food quality
C) a decrease in the price of raw food
D) an increase in the wage rate
E) a decrease in the price of precooked food

Question 25

The basic theme of this chapter is labour supply in a dynamic setting. Explain the basic difference in approach between analyzing labour supply behaviour in a static setting, in which decisions are made for a relatively short time frame (such as number of hours to supply each day or number of weeks to supply each year), and analyzing labour supply behaviour in a dynamic setting, with decisions made for a much longer time horizon stretching many years into the future.
• Explain intuitively, without getting bogged down in technical details, the basic workings of the dynamic, life-cycle models of labour supply. What are the major elements and predictions? In particular, compare the labour supply response that one would expect from a transitory, unanticipated wage increase and an evolutionary, anticipated wage increase.
• How does the decision to have children fit into a dynamic setting with intertemporal decisions? What economic factors are thought to affect fertility decisions? To what extent does the empirical evidence support these theoretical predictions? Why might governments be concerned about childbearing behaviour at all?

Question 26

What is the difference between the static labour supply framework and the dynamic one?

A) The static framework refers only to the individual's labour supply choices, while for the dynamic framework the spouse's decisions are taken into account.
B) The static framework refers to the short run, while the dynamic one refers to the long-run.
C) Events in one time period can have repercussions for labour supply choices in another time period in the dynamic framework but not in the static framework.
D) The static framework refers to the long run, while the dynamic one refers to the short run.
E) The dynamic framework pertains to the present time frame, while the static framework pertains to the entire life-cycle