Deck 7:The Economy at Full Employment

Question 1

Table 7.1

Assume the stock of capital is held constant.
Refer to Table 7.1. Output is increasing at

A) an increasing rate.
B) a constant rate.
C) a diminishing rate.
D) a negative rate.

Answer 1

a diminishing rate.

Question 2

The downward sloping labor demand curve demonstrates that as the ________ increases the ________ decreases.

A) real wage; amount of labor supplied
B) real wage; amount of labor hired
C) nominal wage; amount of labor supplied
D) nominal wage; amount of labor hired

Answer 2

real wage; amount of labor hired

Question 3

One of the necessary conditions for the classical model to be true is that

A) wages and prices are fully flexible.
B) wages and prices are partly flexible.
C) wages and prices will not change.
D) wages were flexible and prices are fixed.

Answer 3

wages and prices are fully flexible.

Question 4

When developing classical models, there is an assumption that wages and prices will remain fixed relative to changes in supply and demand.

Question 5

When an economy is at full employment, the unemployment rate is zero percent.

Question 6

________ unemployment arises from a mismatch of skills and jobs.

A) Cyclical
B) Frictional
C) Structural
D) Inflationary

Question 7

Investments made "today" in machines, equipment and buildings do not have an immediate effect on total capital stock.

Question 8

By providing workers with more machines, equipment and buildings to use in the production of goods, production would decrease.

Question 9

Describe the relationship demonstrated by a production function.

Question 10

Table 7.1

Assume the stock of capital is held constant.
Table 7.1 exemplifies the principle of

A) real vs. nominal costs.
B) marginal costs.
C) diminishing returns.
D) full employment equilibrium.

Question 11

The term "classical" refers to an economic theory which states that over a relatively short period of time, wages and prices will adjust quickly to bring the economy back to full employment.

Question 12

When considering a two-input production function, one of which is increasing while the other is fixed, at some point called the point of diminishing returns, output will increase at a decreasing rate.

Question 13

Table 7.1

Assume the stock of capital is held constant.
Refer to Table 7.1. As labor inputs increase from 5 to 6, output

A) increases by 16 units.
B) increases by 98 units.
C) increases at a negative rate.
D) increases by 12 units.

Question 14

Purchasing additional equipment for more people to use or share in a production environment usually results in a

A) more expensive level of output.
B) higher level of output.
C) backlog of production.
D) worker sharing his or her load.

Question 15

What assumptions are made concerning wages and prices in a classical economic model?

Question 16

The ________ curve shows a(n)________ relationship between the real wage and the number of workers who are willing to work.

A) labor demand; positive
B) labor demand; direct
C) labor supply; positive
D) labor supply; inverse

Question 17

If the real wage rises,

A) the marginal cost of labor falls.
B) firms will hire additional labor.
C) the marginal benefit of the worker increases.
D) firms will hire less labor.

Question 18

________ unemployment rises and falls with economic fluctuations.

A) Cyclical
B) Frictional
C) Structural
D) Inflationary

Question 19

________ unemployment occurs naturally in the labor market as workers search for jobs.

A) Cyclical
B) Frictional
C) Structural
D) Inflationary

Question 20

Consider a two-input production function, one of which is increasing while the other is fixed. At the point of diminishing returns, output will

A) increase at an increasing rate.
B) increase at a decreasing rate.
C) decrease at an increasing rate.
D) decrease at a decreasing rate.

Question 21

Suppose the stock of capital remains constant. By adding more labor, perhaps a second work shift, output

A) decreases.
B) increases.
C) remains the same.
D) becomes more costly.

Question 22

As the result of an increase in the price of capital, the demand for labor would ________, the supply of labor would ________, and the quantity of labor hired would ________.

A) decrease; decrease; decrease
B) decrease; remain the same; decrease
C) increase; remain the same; decrease
D) decrease; increase; remain the same

Question 23

If the supply of labor ________, real wages rise and the amount of labor employed ________.

A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question 24

A wage rate that is adjusted for changes in the price level is known as the

A) real wage.
B) nominal wage.
C) minimum wage.
D) functional wage.

Question 25

In equilibrium, the quantity of labor demanded is ________ the quantity of labor supplied.

A) greater than
B) less than
C) equal to
D) the primary determinant of

Question 26

As more efficient capital equipment becomes available, the demand for labor will ________, the real wage will ________, and the quantity of labor hired will ________.

A) increase; increase; increase
B) increase; remain the same; increase
C) increase; remain the same; decrease
D) increase; decrease; remain the same

Question 27

If a firm decreases its capital stock, real wages will likely ________ and the equilibrium quantity of labor will likely ________.

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

Question 28

As the result of a decrease in capital, the demand for labor would ________, the supply of labor would ________, and the real wage would ________.

A) decrease; decrease; decrease
B) decrease; remain the same; decrease
C) decrease; remain the same; increase
D) decrease; increase; remain the same

Question 29

The marginal benefit of a worker to a firm is the value of the extra output that results when

A) some workers are laid off and the remaining workers become more productive.
B) an additional worker is hired.
C) workers get paid for working overtime.
D) work is outsourced to a foreign country.

Question 30

Firms consider the ________ wage when considering whether to hire additional units of labor.

A) nominal
B) real
C) minimum
D) normal

Question 31

If a firm increases its capital stock, real wages will likely ________ and the equilibrium quantity of labor will likely ________.

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

Question 32

An increase in a firm's capital stock ________ in the marginal benefit of hiring labor.

A) will cause an increase
B) will cause a decrease
C) will cause no change
D) may cause an increase, a decrease, or no change

Question 33

As firms reduce their stock of capital, labor demand ________ and labor supply ________.

A) increases; increases
B) decreases; decreases
C) increases; stays the same
D) decreases; stays the same

Question 34

If the supply of labor ________, real wages fall and the amount of labor employed ________.

A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question 35

An increase in the demand for labor means that

A) the demand for labor increases as a result of an increase in the real wage rate.
B) the demand for labor increases as a result of a decrease in the real wage rate.
C) the demand for labor increases at any real wage rate.
D) the supply of labor must also be increasing.

Question 36

The labor supply and demand most directly affect the level of ________ in an economy.

A) people attending colleges
B) people requiring retraining
C) employment
D) welfare benefits

Question 37

If the demand for labor ________, real wages fall and the amount of labor employed ________.

A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question 38

The marginal principle states that one should

A) increase the level of an activity if the marginal benefit exceeds its marginal cost.
B) decrease the level of an activity if the marginal cost exceeds the marginal benefit.
C) if possible pick the level at which the marginal benefit equals the marginal cost.
D) all of the above

Question 39

The labor demand curve is downward sloping because as the real wage ________ the amount of labor hired ________.

A) rises; increases
B) falls; increases
C) falls; decreases
D) rises; remains constant

Question 40

If the demand for labor ________, real wages rise and the amount of labor employed ________.

A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases

Question 41

If the government liberalizes immigration policies, the demand for labor will ________, the real wage will ________, and the quantity of labor hired will ________.

A) remain the same; decrease; decrease
B) increase; decrease; remain the same
C) remain the same; increase; decrease
D) remain the same; decrease; increase

Question 42

The main effect of a decrease in labor demand that arises from a decrease in capital stock is

A) shifts in unemployment.
B) a need for fewer immigrant workers.
C) lower real wages.
D) companies make fewer profits.

Question 43

If the government stops granting temporary work permits to foreign nationals, the demand for labor will ________, the supply of labor will ________, and the quantity of labor hired will ________.

A) remain the same; increase; decrease
B) increase; decrease; remain the same
C) increase; decrease; decrease
D) remain the same; decrease; decrease

Question 44

A decrease in the demand for labor will ________ real wages and ________ employment.

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

Question 45

Suppose that workers decrease their taste for leisure, and thus require less time away from work. What is likely to happen to wages and the quantity of labor hired?

A) wages increase, quantity of labor hired increases
B) wages increase, quantity of labor hired decreases
C) wages decrease, quantity of labor hired increases
D) wages decrease, quantity of labor hired decreases

Question 46

Which of the following would result in a higher real wage rate and a greater level of employment in the United States?

A) an increase in the U.S. population
B) more liberal U.S. immigration policies
C) an increase in the supply of capital in the United States
D) all of the above

Question 47

Suppose that workers develop a greater taste for leisure, and thus require more time away from work. What is likely to happen to wages and the quantity of labor hired?

A) wages increase, quantity of labor hired increases
B) wages increase, quantity of labor hired decreases
C) wages decrease, quantity of labor hired increases
D) wages decrease, quantity of labor hired decreases

Question 48

Suppose the equilibrium quantity of labor hired decreases and the equilibrium real wage rate increases. All else constant, this situation will also result in

A) higher output prices.
B) lower output prices.
C) fewer benefits for those still unemployed.
D) more government outlay for the unemployed.

Question 49

Figure 7.1

Refer to Figure 7.1. Start from initial equilibrium. If firms increase their capital stock, the new real wage could be ________ and the new amount of labor employed could be ________.

A) Z; A
B) Z; C
C) X; A
D) X; C

Question 50

A decrease in the supply of labor will ________ real wages and ________ employment.

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

Question 51

Figure 7.1

Refer to Figure 7.1. In equilibrium, the real wage is ________ and the amount of labor employed is ________.

A) Z; C
B) Y; C
C) X; C
D) Y; B

Question 52

What is the fundamental principle that economists use when evaluating the costs and benefits of production?

A) supply and demand principle
B) marginal principle
C) cost of goods principle
D) production principle

Question 53

Which of the following factors is likely to increase the amount of available labor and decrease the real wages of workers?

A) consumers demanding more goods
B) a large number of factory closings
C) a high influx of immigration
D) in increase in the supply of capital stock

Question 54

If firms have more capital, it is ________ for workers.

A) harmful
B) beneficial
C) ineffective
D) unimportant

Question 55

Figure 7.1

Refer to Figure 7.1. Start from initial equilibrium. If the economy experiences increased immigration, the new real wage could be ________ and the new amount of labor employed could be ________.

A) Z; C
B) Y; A
C) X; C
D) Z; A

Question 56

Figure 7.1

Refer to Figure 7.1 . Start from initial equilibrium. If firms reduce their capital stock, the new real wage could be ________ and the new amount of labor employed could be ________.

A) Z; C
B) Y; C
C) X; C
D) X; A

Question 57

An increase in the supply of labor will ________ real wages and ________ employment.

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

Question 58

An increase in the demand for labor will ________ wages and ________ employment.

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

Question 59

As a result of an increase in the enforcement of illegal immigration laws, the demand for labor will ________, the supply of labor will ________, and the real wage will ________.

A) remain the same; decrease; increase
B) increase; decrease; remain the same
C) remain the same; increase; decrease
D) decrease; increase; remain the same

Question 60

When there is a decrease in labor supply, real wages are likely to

A) remain the same.
B) increase.
C) decrease.
D) allow less leisure time.

Question 61

The marginal principle dictates that marginal cost should equal marginal benefit.

Question 62

There is an inverse relationship between the amount of labor supplied and real wages.

Question 63

Suppose that we observe that wages are falling while output is increasing. Holding the demand for output constant, what might cause this to happen?

Question 64

When firms increase capital stock, the productivity of their workers increases.

Question 65

Increased immigration is likely to lead to the labor demand curve shifting to the right.

Question 66

Suppose the government raises the minimum wage in the economy. All else constant, how will this affect the quantity of labor demanded and the quantity of labor supplied?

Question 67

Increases in the real wage will lead workers to supply more hours of labor.

Question 68

Suppose bad weather in Florida unexpectedly results in a much smaller citrus crop than had been projected. This would tend to cause the labor supply curve for citrus pickers to

A) shift to the right, causing the labor demand curve to shift to the right.
B) shift to the left, causing the labor demand curve to shift to the left.
C) remain unchanged, and the wage rate would tend to increase.
D) remain unchanged, and the wage rate would tend to decrease.

Question 69

Recall the Application about the level of real wages for laborers in England from 1350 to 1550 to answer the following question(s). In 1348, the bubonic plague, also known as the Black Death, arrived in England from Asia and caused a long decline in total population through the 1450s.
According to this Application, economist Thomas Malthus observed that social maladies such as the Black Death would temporarily ________ living standards until ________ living standards led to increased population growth.

A) raise; lower
B) raise; higher
C) lower; lower
D) lower; higher

Question 70

Draw a graph illustrating a labor market in equilibrium. Illustrate and explain the effect of an increase in the capital stock.

Question 71

Suppose bad weather in Florida unexpectedly results in a much smaller citrus crop than had been projected. The reduction in the supply of Florida citrus fruit would tend to

A) increase the supply of California citrus fruit.
B) decrease the price of California citrus fruit.
C) increase the price of Florida citrus fruit.
D) shift the supply curve for Florida citrus fruit down and to the right.

Question 72

Recall the Application about the level of real wages for laborers in England from 1350 to 1550 to answer the following question(s). In 1348, the bubonic plague, also known as the Black Death, arrived in England from Asia and caused a long decline in total population through the 1450s.
According to this Application, the decline in population caused by the Black Death resulted in ________ real wages and ________ total output.

A) higher; less
B) higher; more
C) lower; less
D) lower; more

Question 73

The nominal wage is the wage rate adjusted for changes in the price level.

Question 74

Suppose the government cracks down on illegal immigration. How will this affect the demand and supply of labor.

Question 75

Suppose bad weather in Florida unexpectedly results in a much smaller citrus crop than had been projected. This would cause the ________ labor to pick citrus fruit in Florida to ________.

A) demand for; increase
B) demand for; decrease
C) supply of; increase
D) supply of; decrease

Question 76

Explain the difference between nominal wages and real wages.

Question 77

Recall the Application about the level of real wages for laborers in England from 1350 to 1550 to answer the following question(s). In 1348, the bubonic plague, also known as the Black Death, arrived in England from Asia and caused a long decline in total population through the 1450s.
According to this Application, the decline in population resulting from the Black Death caused the ________ curve for labor to shift to the ________.

A) demand; right
B) demand; left
C) supply; right
D) supply; left

Question 78

Suppose bad weather in Florida unexpectedly results in a much smaller citrus crop than had been projected. This would tend to cause the labor demand curve for citrus pickers to shift to the

A) right, increasing wages.
B) right, decreasing wages.
C) left, increasing wages.
D) left, decreasing wages.

Question 79

An increase in the amount of capital in the economy will shift the demand curve for labor to the left.

Question 80

Labor market equilibrium occurs at a real wage where the demand for labor exceeds the supply of labor.