chapter_14 - Principles of Macroeconomics 9e ­...

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Unformatted text preview: Principles of Macroeconomics, 9e ­ TB1 (Case/Fair/Oster) Chapter 14 1 The Labor Market in the Macroecono 14.1 m y The 1 M ul ti pl e C h o i c e 1) The functioning of the labor market primarily affects the shape of the A) aggregate demand curve. B) money demand curve. C) aggregate supply curve. D) planned investment curve. Answer: C Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Conceptual AACSB: Reflective Thinking 2) The type of unemployment that is due to changes in the structure of the economy is A) adjustable unemployment. B) structural unemployment. C) frictional unemployment. D) cyclical unemployment. Answer: B Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Definition 3) The type of unemployment that arises during recessions is known as A) the natural rate of unemployment. B) cyclical unemployment. C) structural unemployment. D) frictional unemployment. Answer: B Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Definition 4) The type of unemployment that is most likely to arise as a result of technological changes is A) cyclical unemployment. B) seasonal unemployment. C) frictional unemployment. D) structural unemployment. Answer: D Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Definition 5) If you hear a person saying "I lost my job because I was replaced by a machine," you should conclude that this person is ________ unemployed. A) cyclically B) structurally C) frictionally D) seasonally Answer: B Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Conceptual AACSB: Reflective Thinking 6) If you hear a person saying "I lost my job at the GM plant because car manufacturing is slow due to a slowdown in the economy," you should conclude that this person is ________ unemployed. A) cyclically B) structurally C) frictionally D) seasonally Answer: A Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Conceptual AACSB: Reflective Thinking 7) The labor force includes those people with a job and A) those people who are looking for work. B) those people training for a job. C) those people who formerly worked and are now retired. D) homemakers. Answer: A Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Definition 8) The unemployment rate is A) the number unemployed divided by the labor force. B) the number unemployed divided by the number employed. C) the number unemployed divided by the population. D) the difference between the population and the number employed divided by the population. Answer: A Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Definition 9) If a country has a population of 400 million, 160 million people employed and 40 million people looking for work, then its unemployment rate is A) 10%. B) 20%. C) 25%. D) 40%. Answer: B Diff: 2 Topic: The Labor Market: Basic Concepts Skill: Analytic AACSB: Analytic Skills 10) Employm ent tends to rise when A) aggregate output falls. B) unemployment rises. C) aggregate output rises. D) labor productivity falls. Answer: C Diff: 2 Topic: The Labor Market: Basic Concepts Skill: Conceptual AACSB: Reflective Thinking 2 Tr ue /F al s e 1) If a member is not in the labor force, it is because he or she has decided his or her time is more valuable in household nonmarket activities. Answer: TRUE Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Conceptual AACSB: Reflective Thinking 2) If a person is not employed but is looking for work, she is in the labor force. Answer: TRUE Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Conceptual AACSB: Reflective Thinking 3) Frictional unemployment is the type that arises due to recessions. Answer: FALSE Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Definition 4) Structural unemployment arises when the economy changes making some jobs obsolete. Answer: TRUE Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Definition 5) Cyclical unemployment is that which rises in recessions and shrinks during expansions. Answer: TRUE Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Definition 6) The unemployment rate will never be zero because the economy is dynamic and always changing. Answer: TRUE Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Conceptual AACSB: Reflective Thinking 7) The unemployment rate is the fraction of the labor force without a job. Answer: TRUE Diff: 1 Topic: The Labor Market: Basic Concepts Skill: Definition 14.2 The 1 M ul ti pl e C h o i c e 1) Changes in the ________ market affect the shape of the short run aggregate supply curve. A) money B) labor C) goods D) financial Answer: B Diff: 1 Topic: The Classical View of the Labor Market Skill: Conceptual AACSB: Reflective Thinking 2) Accordin g to Classical economists, the only types of unemployment that exist in an economy are A) structural and frictional unemployment. B) cyclical and frictional. C) seasonal and cyclical. D) frictional and seasonal. Answer: A Diff: 1 Topic: The Classical View of the Labor Market Skill: Fact 3) Accordin g to Classical economists, excessive unemployment does not persist in the economy because A) wages will always adjust to ensure equilibrium in the labor market. B) the labor demand does not change in the economy. C) the labor supply does not change in the economy. D) interest rates always change to insure equilibrium in the money market. Answer: A Diff: 2 Topic: The Classical View of the Labor Market Skill: Fact Refer to the information provided in Figure 14.1 below to answer the questions that follow. Figure 14.1 4) Refer to 14.1. Suppose there is a decrease in the fertility rate and this causes some men and women to place a Figure lower value on their time spent in nonmarket activities. This will cause A) the labor supply curve to shift to the left of S. B) the labor supply curve to shift to the right of S. C) demand curve to shift from D to D'. the labor D) the labor demand curve to shift from D' to D. Answer: B (maybe it means they work more now) Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 5) Refer to 14.1. If the demand for labor falls from D to D' and wages are sticky on the downward side, there will be Figure unemployment of ________ million. A) 200 B) 150 C) 100 D) 50 Answer: B (300­150) Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 6) Refer to 14.1. The demand for labor falls from D to D'. If firms enter into social, or implicit, contracts with Figure workers not to cut wages, then the wage rate will remain at $10 and A) employment will fall to 150 million. B) employment will fall to 200 million. C) employment will remain at 300 million. D) labor supply will decrease to restore the market to equilibrium. Answer: A ( look at graph) Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 7) Firms might pay efficiency wages above the equilibrium wage for all of the following reasons EXCEPT A) to reduce employee shirking. B) to improve employee morale. C) to reduce employee turnover. D) to reduce taxes. Answer: D Diff: 2 Topic: The Classical View of the Labor Market Skill: Conceptual AACSB: Reflective Thinking Refer to the information provided in Figure 14.2 below to answer the questions that follow. Figure 14.2 8) Refer to 14.2. The equilibrium wage rate is $________ and the equilibrium number of people employed is Figure ________ million people. A) 15; 270 B) 9; 210 C) 15; 150 D) 6; 180 Answer: B Diff: 1 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 9) Refer to Figure 14.2. At wage rate $15, there is a ________ of labor equal to ________ million people. A) surplus; 150 B) shortage; 150 C) shortage; 120 D) surplus; 120 Answer: D Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 10) Refer to Figure 14.2. At wage rate $6, there is a ________ of labor equal to ________ million people. A) shortage; 180 B) shortage; 60 C) surplus; 180 D) surplus; 60 Answer: B Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 11) Refer to Figure 14.2. According to Classical economists if the wage rate is A) $15, the wage rate will decline to eliminate the surplus. B) $15, the wage rate will increase to eliminate the shortage. C) $6, the wage rate will decline to eliminate the surplus. D) $15, the wage rate will decline to eliminate the shortage. Answer: A Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 12) Refer to Figure 14.2. Which of the following can change the equilibrium wage rate from $9 to $6? A) The value people put on their leisure time increases. B) The value of what firms produce increases. C) The productivity of workers decreases. D) The productivity of workers increases. Answer: C Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 13) Refer to Figure 14.2. Which of the following can change the equilibrium wage rate from $9 to $15? A) The value people put on their leisure time increases. B) The value of what firms produce decreases. C) The productivity of workers decreases. D) the value of what firms produce increases. Answer: A Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 14) Which of the following may shift the labor demand curve? A) an increase in the value of leisure B) a decrease in the value of leisure C) more people entering the labor force D) an increase in the value of output that firms produce Answer: D Diff: 1 Topic: The Classical View of the Labor Market Skill: Conceptual AACSB: Reflective Thinking 15) Which of the following may shift the labor supply curve? A) an increase in worker productivity B) a decrease in the value people place on their time C) an increase in the price of the output of the firm (demand) D) an increase in the corporate tax rate Answer: B Diff: 1 Topic: The Classical View of the Labor Market Skill: Conceptual AACSB: Reflective Thinking 16) Which of the following may shift the labor supply curve? A) an increase in the wage rate B) an increase in the value people place on their time C) an increase in the price of the output of the firm D) an increase in the corporate tax rate Answer: B Diff: 2 Topic: The Classical View of the Labor Market Skill: Conceptual AACSB: Reflective Thinking 17) An increase in the productivity of workers shifts the labor ________ curve to the ________. A) supply; left B) supply; right C) demand; right D) demand; left Answer: C Diff: 1 Topic: The Classical View of the Labor Market Skill: Conceptual AACSB: Reflective Thinking 18) A decrease in worker productivity A) reduces the demand for labor. B) increases the demand for labor. C) reduces the supply of labor. D) increases the supply of labor. Answer: A Diff: 1 Topic: The Classical View of the Labor Market Skill: Conceptual AACSB: Reflective Thinking 19) Martin is employed. The value Martin places on his leisure time is $30 an hour. Martin looks for a job and all the not offers he has are for less than $30 an hour. Martin should supply A) exactly 40 hours per week in the labor market. B) between 0 and 20 hours per week in the labor market. C) between 20 and 40 hours per week in the labor market. D) 0 hours in the labor market. Answer: D Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 20) Lisa is not employed. She places a value of $12 an hour on her time in nonmarket activities. If Lisa is offered a currently job paying $17 an hour, A) she should supply 0 hours in the labor market and allocate all of her time to nonmarket activities. B) she should supply a positive number of hours in the labor market and allocate no time to nonmarket activities. C) she should supply a positive number of hours in the labor market and to nonmarket activities. D) she is indifferent between supplying hours to the labor market and using her time in nonmarket activities. Answer: C Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 21) Doug is not employed. He places a value of $16 an hour on his time in nonmarket activities. If Doug is offered a currently job paying $12 an hour, A) he should supply 0 hours in the labor market. B) he should supply a positive number of hours in the labor market and allocate no time to nonmarket activities. C) he is indifferent between supplying hours to the labor market and using his time in nonmarket activities. D) he should supply a positive number of hours in the labor market and to nonmarket activities. Answer: A Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 22) John is contemplating whether he should take a job offered to him. John should A) not take the job if the value of his leisure is less than the wage rate the job pays. B) not take the job if the value of his leisure is greater than the wage rate the job pays. C) not take the job if taking the job implies he will enjoy less leisure. D) take the job if taking the job implies he will enjoy more leisure. Answer: B Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 23) A new implemented that guarantees every adult an annual income of $10,000 whether they work or not. This policy is will most likely shift the A) labor demand curve to the right. B) labor supply curve to the left. C) labor supply curve to the right. D) labor demand curve to the left. Answer: B Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 24) The nt lowers the marginal income tax rates so that after-tax wages are increased. This most likely will shift governme the labor A) supply curve to the right. B) supply curve to the left. C) demand curve to the right. D) demand curve to the left. Answer: A Diff: 2 Topic: The Classical View of the Labor Market Skill: Conceptual AACSB: Reflective Thinking 25) If a new ntal policy increases unemployment benefits, we would expect the labor ________ curve to shift to the governme ________. A) supply; right B) demand; right C) supply; left D) demand; left Answer: C (maybe then less wil work cz there are unempl benefits) Diff: 2 Topic: The Classical View of the Labor Market Skill: Conceptual AACSB: Reflective Thinking 26) One of of the classical view of the labor market is that the wage adjustments that are necessary to clear the labor the tenets market A) occur very infrequently. B) occur quickly. C) don't occur. D) occur slowly. Answer: B Diff: 2 Topic: The Classical View of the Labor Market Skill: Fact 27) If firms start offering more employment benefits, such as more stock options and a better dental plan, we would expect the labor ________ curve to shift to the ________. A) demand; right B) demand; left C) supply; right D) supply; left Answer: C Diff: 2 Topic: The Classical View of the Labor Market Skill: Conceptual AACSB: Reflective Thinking 28) The view of the labor market is basically consistent with the assumption of ________ aggregate supply curve. classical A) a horizontal (or almost horizontal) B) a downward- sloping C) an upward- sloping D) a vertical (or almost vertical) Answer: D Diff: 1 Topic: The Classical View of the Labor Market Skill: Fact 29) Classical economists believe that the aggregate supply curve is vertical because A) wages are flexible and they always change to clear the labor market. B) the labor market is always in equilibrium. C) people who are not working are those who have chosen not to work at the prevailing wage rate. D) all of the above Answer: D Diff:1 Topic: The Classical View of the Labor Market Skill: Fact 30) Accordin Classical theory, an expansionary monetary policy ________ the price level and ________ output in the g to the long run. A) decreases; increases B) increases; doesn't change C) increases; increases D) doesn't change; doesn't change Answer: B (expansionary means AD increases, but AS vertical so p only increases and Y remains same) Diff: 1 Topic: The Classical View of the Labor Market Skill: Fact 31) Assume that the percentage of the labor force covered by labor contracts that set wages for a predetermined period of time increases. This will tend to A) decrease the effectiveness of both monetary and fiscal policy to change output. B) increase the effectiveness of both monetary and fiscal policy to change output. C) increase the effectiveness of fiscal policy, but decrease the effectiveness of monetary policy to change output. D) have no impact on the effectiveness of either monetary or fiscal policy to change output. Answer: B Diff: 2 Topic: The Classical View of the Labor Market Skill: Analytic AACSB: Analytic Skills 32) Accordin g to the classical economists, those who are not working A) have chosen not to work at the market wage. B) are too productive to be hired at the current wage. C) are unable to find a job at the current wage rate. D) have given up looking for a job, but would accept a job at the current wage if one were offered to them. Answer: A Diff: 2 Topic: The Classical View of the Labor Market Skill: Fact 33) Those who believe that wages adjust quickly to clear the labor market also believe that A) the AS curve is upward sloping. B) the AD curve is steep. C) the AD curve is flat. D) the AS curve is vertical. Answer: D (classical) Diff: 2 Topic: The Classical View of the Labor Market Skill: Fact 34) What definition of unemployment would you expect classical economists to use? A) anyone who is actively seeking work B) anyone who is willing to work if the market wage increases C) anyone who is willing to work at the current market wage, but has not yet been able to find employment D) anyone who is currently not working Answer: C Diff: 2 Topic: The Classical View of the Labor Market Skill: Definition 2 Tr ue /F al s e 1) Those who believe that the wage rate does not adjust quickly to clear the labor market are likely to believe that the aggregate supply curve is vertical. Answer: FALSE Diff: 2 Topic: The Classical View of the Labor Market Skill: Conceptual AACSB: Reflective Thinking 2) If the actual unemployment rate is below NAIRU, the change in the inflation rate will be positive. Answer: TRUE Diff: 2 Topic: The Classical View of the Labor Market Skill: Definition 3) The view of the labor market holds that unemployment in the economy consists of frictional and structural classical unemployment. Answer: TRUE Diff: 1 Topic: The Classical View of the Labor Market Skill: Definition 4) Classical s believe that economic policies are ineffective because they don't affect aggregate demand in the economist economy. Answer: FALSE Diff: 1 Topic: The Classical View of the Labor Market Skill: Fact 5) If firms pay wages higher than the market clearing wage, their profits will be reduced. Answer: FALSE Diff: 2 Topic: The Classical View of the Labor Market Skill: Conceptual AACSB: Reflective Thinking 14.3 Expla 1 M ul ti pl e C h o i c e 1) Suppose the wage rate in the labor market is $15 and the demand for labor decreases. If wages are sticky, A) unemployment decreases. B) unemployment increases. C) unemployment stays the same. D) wages decrease to eliminate the surplus. Answer: B Diff: 2 Topic: Explaining the Existence of Unemployment Skill: Analytic AACSB: Analytic Skills 2) Suppose equilibrium wage rate in the labor market is $10 and the demand for labor increases. If wages are sticky, the there will be a A) surplus of labor and the wage rate declines. B) shortage of labor and the wage rate increases. C) shortage of labor and the wage rate stays the same. D) surplus of labor and the wage rate increases. Answer: C Diff: 2 Topic: Explaining the Existence of Unemployment Skill: Analytic AACSB: Analytic Skills 3) Suppose rate in the labor market is $8 and more people entered the labor force, which of the following statements the wage is CORRECT? A) If wages are flexible, then wages will increase. B) If wages are sti...
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