Principles of Macroeconomics_ Case Fair3

7/30/2019 Principles of Macroeconomics_ Case Fair3

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Principles of Macroeconomics, 9e - TB1 (Case/Fair/Oster)Chapter14

1


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TheLaborMarketin theMacroec

onomy

14.1


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TheLaborMarket:BasicCon

cepts


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1


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The functioning of the labor market primarily affects the shape of theA)


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aggregate demand curve.B)


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money demand curve.C)


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aggregate supply curve.D)


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planned investment curve.Answer:


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CDiff: 1Topic:


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ConceptualAACSB:


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ReflectiveThinking

2)


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adjustable unemployment.B)


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structural unemployment.C)


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frictional unemployment.D)


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cyclical unemployment.Answer:


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BDiff: 1Topic:


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The LaborMarket: BasicConcepts

Skill:


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Definition

3)


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The type of unemployment that arises during recessions is known asA)


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cyclical unemployment.C)


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structural unemployment.D)


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frictional unemployment.Answer:


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BDiff: 1Topic:


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Skill:


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Definition

4)


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Thetype of

unemployment that is most likely to arise as a result of technological changes is

A)


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cyclical unemployment.B)


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seasonal unemployment.C)


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frictional unemployment.D)


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structural unemployment.Answer:


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Skill:


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Definition


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5)


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If youhear a

person saying "I lost my job because I was replaced by a machine," you shouldconclude that this person is ________ unemployed.

A)


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structurallyC)


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seasonallyAnswer:


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BDiff: 1Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

6)


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cyclicallyB)


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structurallyC)


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frictionallyD)


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ADiff: 1Topic:


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Skill:


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ConceptualAACSB:


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those people training for a job.C)


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those people who formerly worked and are now retired.D)


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Skill:


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Definition

8)


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The unemployment rate isA)


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the number unemployed divided by the number employed.C)


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ADiff: 1Topic:


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Skill:


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10%.B)


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20%.C)


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25%.D)


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BDiff: 2Topic:


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AnalyticAACSB:


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Employ ment tends to rise whenA)


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aggregate output falls.B)


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unemployme nt rises.C)


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aggregate output rises.D)


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labor productivity falls.Answer:


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CDiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

2


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True/F

alse

1)


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If ahouseh

old member is not in the labor force, it is because he or she has decided his or hertime is more valuable in nonmarket activities.Answer:


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TRUEDiff: 1Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

2)


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If a person is not employed but is looking for work, she is in the labor force.Answer:


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TRUEDiff: 1Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

3)


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Friction al unemployment is the type that arises due to recessions.Answer:


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FALSEDiff: 1Topic:


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Skill:


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Structur al unemployment arises when the economy changes making some jobs obsolete.Answer:


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Skill:


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Definition


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5)


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Cyclical unemployment is that which rises in recessions and shrinks during expansions.Answer:


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TRUEDiff: 1Topic:


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Skill:


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Definition

6)


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Theunempl

oyment rate will never be zero because the economy is dynamic and alwayschanging.Answer:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

7)


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The unemployment rate is the fraction of the labor force without a job.Answer:


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TRUEDiff: 1Topic:


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Skill:


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Definition

14.2


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TheClassicalView oftheLabor

Market


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MultipleC

hoice

1)


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Change s in the ________ market affect the shape of the short run aggregate supply curve.A)


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laborC)


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goodsD)


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financialAnswer:


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ConceptualAACSB:


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ReflectiveThinking

2)


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According to

Classical economists, the only types of unemployment that exist in an economy are

A)


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structural and frictional unemployment.B)


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cyclical and frictional.C)


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seasonal and cyclical.D)


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frictional and seasonal.Answer:


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ADiff: 1Topic:


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The ClassicalView of theLabor Market

Skill:


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Fact


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3)


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interest rates always change to insure equilibrium in the money market.Answer:


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Skill:


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Fact

Refer to the information provided in Figure 14.1 below to answer the questionsthat follow.

Figure 14.1

4)


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the labor supply curve to shift to the left ofS.B)


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Skill:


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AnalyticAACSB:


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50Answer:


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Refer toFigure

14.1. The demand for labor falls from D to D'. If firms enter into social, or implicit,contracts with workers not to cut wages, then the wage rate will remain at $10 and

A)


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labor supply will decrease to restore the market to equilibrium.Answer:


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to reduce employee turnover.D)


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DDiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking


Figure 14.2

8)


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9; 210C)


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6; 180Answer:


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BDiff: 1Topic:


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Skill:


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Analytic Skills


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9)


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surplus; 150B)


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shortage; 150C)


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surplus; 120Answer:


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AnalyticAACSB:


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Analytic Skills

10)


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BDiff: 2Topic:


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Skill:


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Analytic Skills

11)


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ADiff: 2Topic:


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Skill:


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Refer toFigure

14.2. Which of the following can change the equilibrium wage rate from $9 to $6?

A)


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The value of what firms produce increases.C)


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Refer toFigure

14.2. Which of the following can change the equilibrium wage rate from $9 to $15?

A)


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the value of what firms produce increases.Answer:


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ADiff: 2Topic:


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Skill:


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Which of the following may shift the labor demand curve?A)


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DDiff: 1Topic:


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Which of the following may shift the labor supply curve?A)


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an increase in worker productivityB)


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a decrease in the value people place on their timeC)


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an increase in the price of the output of the firmD)


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an increase in the corporate tax rateAnswer:


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BDiff: 1Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

16)


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Which of the following may shift the labor supply curve?A)


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an increase in the value people place on their timeC)


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an increase in the price of the output of the firmD)


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an increase in the corporate tax rateAnswer:


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BDiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking


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17)


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Anincreas

e in the productivity of workers shifts the labor ________ curve to the ________.

A)


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supply; leftB)


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supply; rightC)


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demand; rightD)


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CDiff: 1Topic:


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ConceptualAACSB:


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ReflectiveThinking

18)


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A decrease in worker productivityA)


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reduces the demand for labor.B)


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increases the demand for labor.C)


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reduces the supply of labor.D)


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increases the supply of labor.Answer:


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ADiff: 1Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

19)


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Martinis notemploy

ed. The value Martin places on his leisure time is $30 an hour. Martin looks for a joband all the offers he has are for less than $30 an hour. Martin should supply

A)


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exactly 40 hours per week in the labor market.B)


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between 0 and 20 hours per week in the labor market.C)


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between 20 and 40 hours per week in the labor market.D)


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0 hours in the labor market.Answer:


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DDiff: 2Topic:


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Skill:


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AnalyticAACSB:


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Analytic Skills

20)


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Lisa iscurrentl

y not employed. She places a value of $12 an hour on her time in nonmarketactivities. If Lisa is offered a job paying $17 an hour,

A)


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she shouldsupply 0

hours in the labor market and allocate all of her time to nonmarket activities.

B)


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she shouldsupply a

positive number of hours in the labor market and allocate no time tononmarket activities.

C)


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she shouldsupply a

positive number of hours in the labor market and to nonmarket activities.

D)


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she isindifferent

between supplying hours to the labor market and using her time in nonmarketactivities.

Answer:


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CDiff: 2Topic:


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Skill:


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AnalyticAACSB:


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Analytic Skills


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21)


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Doug iscurrentl

y not employed. He places a value of $16 an hour on his time in nonmarketactivities. If Doug is offered a job paying $12 an hour,

A)


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he should supply 0 hours in the labor market.B)


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he shouldsupply a

positive number of hours in the labor market and allocate no time tononmarket activities.

C)


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he isindifferent

between supplying hours to the labor market and using his time in nonmarketactivities.

D)


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ADiff: 2Topic:


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Skill:


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AnalyticAACSB:


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Analytic Skills

22)


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John is contemplating whether he should take a job offered to him. John shouldA)


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not take the job if the value of his leisure is less than the wage rate the job pays.B)


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not take the job if the value of his leisure is greater than the wage rate the job pays.C)


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not take the job if taking the job implies he will enjoy less leisure.D)


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take the job if taking the job implies he will enjoy more leisure.Answer:


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BDiff: 2Topic:


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Skill:


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AnalyticAACSB:


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Analytic Skills

23)


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A newpolicy is

implemented that guarantees every adult an annual income of $10,000 whetherthey work or not. This will most likely shift the

A)


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labor supply curve to the left.C)


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labor supply curve to the right.D)


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labor demand curve to the left.Answer:


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BDiff: 2Topic:


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Skill:


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AnalyticAACSB:


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Analytic Skills

24)


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Thegovern

ment lowers the marginal income tax rates so that after-tax wages are increased.This most likely will shift the labor

A)


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supply curve to the right.B)


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supply curve to the left.C)


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demand curve to the right.D)


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demand curve to the left.Answer:


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ADiff: 2Topic:


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Skill:


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ReflectiveThinking


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25)


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If a newgovern

mental policy increases unemployment benefits, we would expect the labor________ curve to shift to the ________.

A)


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supply; rightB)


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demand; rightC)


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supply; leftD)


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

26)


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One ofthe

tenets of the classical view of the labor market is that the wage adjustments thatare necessary to clear the labor market

A)


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occur very infrequently.B)


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occur quickly.C)


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don't occur.D)


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occur slowly.Answer:


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BDiff: 2Topic:


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Skill:


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Fact

27)


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If firmsstart

offering more employment benefits, such as more stock options and a better dentalplan, we would expect the labor ________ curve to shift to the ________.

A)


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demand; rightB)


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demand; leftC)


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supply; rightD)


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supply; leftAnswer:


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CDiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

28)


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a horizontal (or almost horizontal)B)


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a downward- slopingC)


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an upward- slopingD)


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a vertical (or almost vertical)Answer:


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DDiff: 1Topic:


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Skill:


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Fact


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29)


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Classica l economists believe that the aggregate supply curve is vertical becauseA)


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wages are flexible and they always change to clear the labor market.B)


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the labor market is always in equilibrium.C)


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people whoare not

working are those who have chosen not to work at the prevailing wage rate.

D)


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all of the aboveAnswer:


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DDiff: 1Topic:


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Skill:


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Fact

30)


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According to

the Classical theory, an expansionary monetary policy ________ the price level and________ output in the long run.

A)


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increases; doesn't changeC)


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increases; increasesD)


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doesn't change; doesn't changeAnswer:


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BDiff: 1Topic:


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Skill:


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Fact

31)


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Assumethat the

percentage of the labor force covered by labor contracts that set wages for apredetermined period of time increases. This will tend to

A)


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increase the effectiveness of both monetary and fiscal policy to change output.C)


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increase theeffectivenes

s of fiscal policy, but decrease the effectiveness of monetary policy to changeoutput.

D)


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Skill:


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AnalyticAACSB:


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Analytic Skills

32)


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Accordi ng to the classical economists, those who are not workingA)


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have chosen not to work at the market wage.B)


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are too productive to be hired at the current wage.C)


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are unable to find a job at the current wage rate.D)


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have givenup looking

for a job, but would accept a job at the current wage if one were offered tothem.

Answer:


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ADiff: 2Topic:


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Skill:


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Fact


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Those who believe that wages adjust quickly to clear the labor market also believe thatA)


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theAS curve is upward sloping.B)


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theAD curve is steep.C)


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theAD curve is flat.D)


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theAS curve is vertical.Answer:


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DDiff: 2Topic:


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Skill:


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Fact

34)


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anyone who is actively seeking workB)


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anyone who is willing to work if the market wage increasesC)


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anyone whois willing to

work at the current market wage, but has not yet been able to findemployment

D)


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anyone who is currently not workingAnswer:


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CDiff: 2Topic:


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Skill:


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True/F

alse

1)


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Thosewho

believe that the wage rate does not adjust quickly to clear the labor market arelikely to believe that the aggregate supply curve is vertical.Answer:


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FALSEDiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

2)


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If theactual

unemployment rate is below NAIRU, the change in the inflation rate will be positive.

Answer:


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TRUEDiff: 2Topic:


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Skill:


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Definition

3)


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Theclassical

view of the labor market holds that unemployment in the economy consists offrictional and structural unemployment.Answer:


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TRUEDiff: 1Topic:


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Definition

4)


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Classical

economists believe that economic policies are ineffective because they don't affectaggregate demand in the economy.Answer:


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FALSEDiff: 1Topic:


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Fact


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5)


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If firms pay wages higher than the market clearing wage, their profits will be reduced.Answer:


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FALSEDiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

14.3


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ExplainingtheExistence ofUne

mployment


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1


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Suppose the

wage rate in the labor market is $15 and the demand for labor decreases. If wagesare sticky,

A)


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unemployme nt increases.C)


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unemployme nt stays the same.D)


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wages decrease to eliminate the surplus.Answer:


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BDiff: 2Topic:


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Explaining theExistence ofUnemployment

Skill:


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AnalyticAACSB:


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Analytic Skills

2)


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Suppose the

equilibrium wage rate in the labor market is $10 and the demand for laborincreases. If wages are sticky, there will be a

A)


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surplus of labor and the wage rate declines.B)


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shortage of labor and the wage rate increases.C)


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shortage of labor and the wage rate stays the same.D)


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surplus of labor and the wage rate increases.Answer:


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CDiff: 2Topic:


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Skill:


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AnalyticAACSB:


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Analytic Skills

3)


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Suppose the

wage rate in the labor market is $8 and more people entered the labor force, whichof the following statements is CORRECT?

A)


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If wages are flexible, then wages will increase.B)


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If wages are sticky, the unemployment rate stays the same.D)


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If wages are flexible, the unemployment rate increases.Answer:


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BDiff: 2Topic:


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Skill:


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AnalyticAACSB:


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Analytic Skills


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Suppose the

wage rate in the labor market is $15 and the productivity of workers increases,which of the following statements is INCORRECT?

A)


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The labor demand curve shifts to the right.B)


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If wages are flexible, there will be an increase in wages.C)


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If wages are sticky, there will be a shortage in the labor market.D)


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If wages are sticky, there will be a surplus in the labor market.Answer:


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DDiff: 2Topic:


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Skill:


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AnalyticAACSB:


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Analytic Skills

5)


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If wages are sticky, an increase in laborA)


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demand decreases the wage rate.B)


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supply increases the wage rate.C)


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demand increases the wage rate.D)


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demand leaves wage rates intact.Answer:


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DDiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

6)


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Anunspok

en agreement between workers and firms that the firm will not cut wages is knownas

A)


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an implicit or social contract.B)


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an explicit contract.C)


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a relative- wage contract.D)


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employment -at-will.Answer:


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ADiff: 1Topic:


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Skill:


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Definition

7)


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Thesocial

contract explanation for the existence of downwardly sticky wages focuses on

A)


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employmentcontracts

that stipulate workers' wages, usually for a period of one to three years.

B)


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thecontention

that workers in one industry may be unwilling to accept a wage cut, unlessthey know that workers in other industries are receiving similar cuts.

C)


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unspoken agreements between workers and firms that firms will not cut wages.D)


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the incentive that firms have to hold wages above the market clearing rate.Answer:


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CDiff: 1Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking


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8)


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IntelCorporation, 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 ofits nonunionized workers. This is an example of

A)


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employment -at-will.B)


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an implicit or social contract not to cut wages.C)


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an explicit contract not to cut wages.D)


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a relative- wage contract.Answer:


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BDiff: 1Topic:


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Skill:


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ConceptualAACSB:


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FritoLayexperie

nced a 20% drop in its sales. Even though the demand for its product decreased,Frito Lay did not cut the wages of its nonunionized workers. This is an example of

A)


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an explicit contract not to cut wages.B)


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employment -at-will.C)


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poor management.D)


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an implicit or social contract not to cut wages.Answer:


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DDiff: 1Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

10)


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Suppose thatairline

workers are laid off during a recession because of an unspoken agreement betweenairline workers and airline executives that wages will not be reduced. This exampleis consistent with the

A)


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relative- wage explanation of unemployment.B)


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explicit contract explanation of unemployment.C)


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implicit contract explanation of unemployment.D)


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efficiency wage explanation of unemployment.Answer:


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CDiff: 1Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

11)


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Therelative-

wage explanation for the existence of downwardly sticky wages emphasizes

A)


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unspoken agreements between workers and firms that firms will not cut wages.B)


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the incentive that firms may have to hold wages above the market clearing rate.C)


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employmentcontracts

that stipulate workers' wages, usually for a period of one to three years.

D)


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thecontention

that workers in one industry may be unwilling to accept a wage cut, unlessthey know that workers in other firms and industries are receiving similar cuts.

Answer:


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DDiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking


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12)


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According to

the relative-wage explanation of unemployment, workers will be willing to acceptwage cuts only if

A)


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they know that unemployment is increasing in other industries.B)


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they can beconvinced

that they are overpaid relative to workers doing similar jobs at other firms.

C)


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they know that workers in other firms and industries are receiving similar cuts.D)


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the economy is in a prolonged recession.Answer:


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CDiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

13)


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Workersin thetextile

industry are laid off during a recession because they are unwilling to accept a wagecut, unless they know that workers in other industries are receiving similar cuts.

This example is consistent with theA)


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relative- wage explanation of unemployment.B)


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social contract explanation of unemployment.D)


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efficiency wage explanation of unemployment.Answer:


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ADiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

14)


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The percentage of workers whose wages are set by explicit contracts falls. This shouldA)


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make itmore

difficult for the labor market to reach an equilibrium after a change in thedemand for labor.

B)


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make iteasier for

the labor market to reach an equilibrium after a change in the demand forlabor.

C)


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have noimpact on

the movement of the labor market toward equilibrium after a change in thedemand for labor.

D)


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cause thelabor market

to always be at an equilibrium, even if there is a change in the demand forlabor.

Answer:


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BDiff: 2Topic:


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Skill:


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Analytic

15)


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Eventhough

explicit contracts may lead to layoffs during recessions, explicit contracts may stillbe efficient because such contracts

A)


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guarantee that only the least-productive workers will be laid off.B)


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reduce unemployment effects.C)


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reduce negotiation costs.D)


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will equitably spread the layoffs among junior and senior workers.Answer:


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CDiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking


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16)


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Suppose that

air traffic controllers, whose wages have been locked into place by a two-yearcontract, are laid off during a recession. This example is consistent with the

A)


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social contract explanation of unemployment.B)


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efficiency wage explanation of unemployment.D)


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relative- wage explanation of unemployment.Answer:


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BDiff: 2Topic:


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Skill:


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ConceptualAACSB:


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Whichof the

following arguments is NOT offered to explain the existence of "sticky" wages?

A)


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the social contract explanationB)


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the relative- wage explanationC)


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the fact that labor contracts don't existD)


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the explicit contract explanationAnswer:


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CDiff: 1Topic:


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Skill:


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Definition

18)


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When afirm

pays higher wages for its workers to improve workers' productivity, the firm pays

A)


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sticky wages.B)


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flexible wages.C)


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efficiency wages.D)


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minimum wages.Answer:


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CDiff: 1Topic:


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Skill:


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Definition

19)


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Which of the following is NOT a reason why firms pay efficiency wages?A)


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to reduce turnoversB)


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to abide by minimum wage lawsC)


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to improve moraleD)


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to reduce shirking of workAnswer:


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BDiff: 1Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking


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Figure 14.3

20)


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Refer toFigure

14.3. Assume that the productivity of workers increases as the wage rate increases.The efficiency wage

A)


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would be below $10.B)


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would equal $10.C)


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would be above $10.D)


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could either be above or below $10.Answer:


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CDiff: 2Topic:


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Skill:


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AnalyticAACSB:


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Analytic Skills

21)


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Refer to Figure 14.3. If this firm pays the efficient wage of $11,A)


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the firm's demand for labor will increase until $11 is also the equilibrium wage.B)


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the supply of labor will decrease until $11 is also the equilibrium wage.C)


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there will be an excess supply of labor of 2,000.D)


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there will be an excess supply of labor of 3,000.Answer:


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DDiff: 3Topic:


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Skill:


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AnalyticAACSB:


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Analytic Skills

22)


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Efficiency wage

theory suggests that firms may hold wages above the market clearing rate because

A)


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they believe that the productivity of workers increases with the wage rate.B)


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unspoken agreements between workers and firms are in place.C)


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it is required by law that they do so.D)


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long-term contracts fix wage rates for a period of one to three years.Answer:


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ADiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking


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23)


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Firms may NOT hold wages above the market clearing rate becauseA)


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they believe that the productivity of workers increases with the wage rate.B)


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they have agreed not to cut wages in an explicit agreement with their workers.C)


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they haveimplicitly

agreed not to cut wages because their workers care about relative wages .

D)


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they want to make sure they abide by minimum wage regulation.Answer:


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DDiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

24)


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Ifproducti

vity increases as wages increase and firms pay a wage above the market clearingwage, then

A)


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these firmswill go out of

business in the long run because they will not be able to compete with firmspaying lower wages.

B)


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these firmswill face an

excess demand for labor and will be able to hire the best workers in themarket.

C)


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these firms will have lower profit levels than their competitors.D)


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a potential benefit these firms may receive is a reduction in employee turnover.Answer:


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DDiff: 2Topic:


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Skill:


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AnalyticAACSB:


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Analytic Skills

25)


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A firmmay

benefit by paying workers more than the market clearing wage because the higherwages may lead to all of the following EXCEPT

A)


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lower worker turnover.B)


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improved worker morale.C)


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reduced shirking of work.D)


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reduced taxed.Answer:


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DDiff: 2Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

26)


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If, as aresult of

imperfect information, firms set their wage rates below the market clearing wagerate

A)


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unemployme nt increases.B)


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there will be a surplus of workers.C)


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there will be a shortage of workers.D)


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there will be equilibrium in the labor market.Answer:


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CDiff: 1Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking


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27)


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If, as aresult of

imperfect information, firms set their wage rates above the market clearing wagerate,

A)


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unemployme nt decreases.B)


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there will be a surplus of workers.C)


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there will be a shortage of workers.D)


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there will be equilibrium in the labor market.Answer:


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BDiff: 1Topic:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

28)


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Minimu m wage laws contribute to a higher unemployment rate byA)


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raising wages above the market clearing level in some labor markets.B)


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pushing wages below the market clearing level in some labor markets.C)


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raising wages above the market clearing level in all labor markets.D)


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pushing wages below the market clearing level in all labor markets.Answer:


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Skill:


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ConceptualAACSB:


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ReflectiveThinking

29)


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The minimum wage law contributes to aA)


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lower unemployment rate among teenaged workers.B)


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lower unemployment rate among adult workers.C)


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higher unemployment rate among high skilled workers.D)


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higher unemployment rate among teenaged workers.Answer:

7/30/2019 Princi

Principles of Macroeconomics_ Case Fair3

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Transcript of Principles of Macroeconomics_ Case Fair3