mc3 - Mock Multiple Choice the Labor Market Kyle F...

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Unformatted text preview: Mock Multiple Choice, the Labor Market Kyle F. Herkenhoff∗ UCLA Department of Economics April 7, 2011 1 Labor Market Which of the following are true? (We assume a Cobb-Douglas production function Y = AK α L1−α ) **ASSUME: No backward bending labor supply.** (a) If there is a temporary increase in technology, it is possible to draw a picture in which equilibrium labor falls. (b) If there is a permanent increase in technology, it is possible to draw a picture in which equilibrium labor falls. (c) If there is a permanent increase in technology, it is possible to draw a picture in which the real wage falls. (d) If there is a permanent increase in technology, it is possible to have the equilibrium M PL fall. (e) Two of the above (f) None of the above ∗ Correspondence: [email protected] 1 ANS: (a) If there is a temporary increase in technology, it is possible to draw a picture in which equilibrium labor falls. FALSE, no wealth effects, labor demand must increase (b) If there is a permanent increase in technology, it is possible to draw a picture in which equilibrium labor falls.TRUE (The ANSWER also), see picture below, there are wealth effect that move the labor supply from LS back to LS (i.e. for any given wage, the household supplies less labor because it expects to richer and it expects the future wage to go up). See Figure 1. (c) If there is a permanent increase in technology, it is possible to draw a picture in which the real wage falls.FALSE, LD shifts to the right, and LS can only shift to the left... we have linear curves (d) If there is a permanent increase in technology, it is possible to have the equilibrium M PL fall.FALSE: Since W = M PL where W is the nominal wage, then by the earlier P multiple choice question, the real wage cannot fall, so M PL cannot fall. (e) Two of the above FALSE (f) None of the above Figure 1: Permanent Increase in A 2 ...
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This note was uploaded on 10/23/2011 for the course ECON 102 taught by Professor Serra during the Spring '08 term at UCLA.

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mc3 - Mock Multiple Choice the Labor Market Kyle F...

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