Chapter 6
Study Questions
1)
The reservation wage is:
(a) the wage offer that will end a laborstrike.
(b) the lowest wage firms are allowed by
law to pay workers.
(c) the wage that ensures a laid-off
individual will wait for re-hire, rather
than find another job.
(d) the wage that an employer must pay
workers to reduce turnover to a
reasonable level.
(e) none of the above
2)
In the wage-setting relation, the nominal
wage increases when:
(a)
(b)
(c)
(d)
(e)
5)
the price level rises.
unemployment benefits fall.
the minimum wage falls.
the unemployment rate rises.
all of the above
For this question, assume there is perfect
competition in the product market. Given
this assumption, we know that e (in the price
setting equation P = (1+e)W will equal:
(a) P.
1.
0.
W.
W/P.
Suppose we wish to examine the
determinants of the equilibrium real wage
and equilibrium level of employment (N). In
a graph with the real wage on the vertical
axis, and the level of employment on the
horizontal axis, the price-setting relation will
now be:
(a) an upward sloping line.
(b) a horizontal line.
(c) kinked at the natural rate of
unemployment.
(d) a vertical line.
(e) a downward sloping line.
7)
Suppose we wish to examine the
determinants of the equilibrium real wage
and equilibrium level of employment (N). In
a graph with the real wage on the vertical
axis, and the level of employment on the
horizontal axis, the wage-setting relation
will now be:
(a) a vertical line.
(b) a curve that first slopes upward, then
downward.
(c) a downward sloping line.
(d) a horizontal line.
(e) an upward sloping line.
If efficiency wage theory is valid, we would
expect a relatively low premium over the
reservation wage when:
(a) workers have few other options for
employment in the area.
(b) the unemployment rate is low.
(c) the job requires very little training.
(d) Both (a) and (c) are correct.
(e) (a), (b), and (c) are correct.
4)
6)
Efficiency wage theory suggests that:
(a) firms will be more resistant to wage
increases as the labor market tightens.
(b) the government can only set tax rates so
high before people will prefer not to
work.
(c) unskilled workers will have a lower
turnover rate than skilled workers.
(d) workers will be paid less than their
reservation wage.
(e) productivity might drop if the wage
rate is too low.
3)
(b)
(c)
(d)
(e)
8)
The natural level of employment will
decrease when which of the following
occurs?
(a) a reduction in unemployment benefits
(b) a reduction in the actual unemployment
rate
(c) a reduction in the markup of prices over
costs
(d) all of the above
(e) none of the above
Chapter 6
Study Questions
9)
Suppose workers and firms expect the
overall price level to increase by 2%. Given
this information, we would expect that:
(a) the nominal wage will increase by
exactly 2%.
(b) the real wage will increase by 2%.
(c) the nominal wage will increase by more
than 2%.
(d) the nominal wage will increase by less
than 2%.
(e) the real wage will increase by less than
2%.
10)
an upward shift in the WS curve
a downward shift in the WS curve
an upward shift in the PS curve
a downward shift in the PS curve
none of the above
Assume product markets less competitive in
the U.S. Given this information, we would
expect to observe which of the following?
(a)
(b)
(c)
(d)
(e)
14)
an upward shift in the WS curve
a downward shift in the WS curve
an upward shift in the PS curve
a downward shift in the PS curve
none of the above
A reduction in the minimum wage will tend
to cause which of the following?
(a)
(b)
(c)
(d)
(e)
13)
an upward shift in the WS curve.
an upward shift in the PS curve.
a downward shift in the WS curve.
a downward shift in the PS curve.
none of the above
An increase in unemployment insurance will
tend to cause which of the following?
(a)
(b)
(c)
(d)
(e)
12)
15)
an upward shift in the WS curve
a downward shift in the WS curve
an upward shift in the PS curve
a downward shift in the PS curve
none of the above
We know that a reduction in the markup will
cause:
Suppose the actual unemployment rate
increases. This will cause:
(a) a downward shift in the WS curve.
(b) an upward shift in the PS curve.
(c) a movement along the WS and the PS
curves.
(d) an upward shift in the WS curve.
(e) none of the above
Suppose the actual unemployment rate
decreases. This will cause:
(a)
(b)
(c)
(d)
(e)
11)
(a) an increase in the equilibrium real
wage.
(b) a reduction in the equilibrium real wage.
(c) an increase in the natural rate of
unemployment.
(d) a reduction in the natural rate of
unemployment and no change in the real
wage.
16)
Suppose the aggregate production function
is given by the following: Y = AN. Given
this information, we know that labor
productivity is represented by the following:
(a)
(b)
(c)
(d)
A.
1/A.
1/N.
N/Y.
1) Graphically illustrate (using the WS and PS
relations) and explain the effects of a reduction in
the markup on the equilibrium real wage, the
natural rate of unemployment, the natural level of
employment, and the natural level of output.
2) Graphically illustrate (using the WS and PS
relations) and explain the effects of a reduction in
unemployment benefits on the equilibrium real
wage, the natural rate of unemployment, the
natural level of employment, and the natural level
of output.
3) Based on your understanding of the labor market
model, explain what types of policies could be
implemented to cause a reduction in the natural
rate of unemployment.