Unit 16 Quiz

(The Economy Question 16.6) Watch our 'Economist in action' video featuring John van Reenen about the determinants of the productivity of firms. Based on the video, which of the following statements is correct?

A country's openness to imports can affect its productivity.

stock

A quantity measured at a point in time. Its units do not depend on time. See also: flow.

Net investment is the principal route through which new technology is incorporated in the production process. In the figure shown, the effect of this addition to capital is represented by:

A steepening (or upward stretching) of the production function.

employment protection legislation

Laws making job dismissal more costly (or impossible) for employers.

The profit-maximizing mark-up declines as the number of firms increases. This is because:

The larger number of firms, the more competitive the system is likely to be.

labour market matching

The way in which employers looking for additional employees (that is, with vacancies) meet people seeking a new job.

Figure 16.18 is a graph of the share of employment in manufacturing industry in different countries. Based on this information, which of the following statements are correct?

- The shift of employment out of industry was led by the UK and the US around 1950. - The UK has consistently had a higher share of total employment in industry than the US.

concave function

A function of two variables for which the line segment between any two points on the function lies entirely below the curve representing the function (the function is convex when the line segment lies above the function).

Which of the following will lead to a decrease in the equilibrium markup?

A lower expected long-run corporate tax rate.

Looking at the figure shown, if it were the case that countries with strong trade unions also experienced high unemployment rates, we would expect the data points to be:

Clustered around an upward-sloping line.

Last year, an economy had 1m registered unemployed and a labour force of 20m. Official statistics forecast a level of unemployment of 0.8m by the year's end while the size of the labour force remains unchanged. If this happens then the unemployment rate will have:

Fallen from 5 per cent to 4 per cent

Figure 16.8 depicts the graphs of the long-run price-setting curve and the markup at which firm entry and exit are both zero. Based on this information, which of the following statements is correct?

Higher risk of expropriation of businesses overseas results in a higher price-setting curve.

acyclical

No tendency to move either in the same or opposite direction to aggregate output and employment over the business cycle.

diffusion gap

The lag between the first introduction of an innovation and its general use.

(The Economy Question 16.3) The graph shows the plot of Beveridge curves for the US and Germany for the period 2001 Q1 to 2015 Q2. Based on this information, which of the statements below is correct?

The matching rate in Germany improved after its Beveridge curve shifted around 2007.

long run (model)

The term does not refer to a period of time, but instead to what is exogenous. A long-run cost curve, for example, refers to costs when the firm can fully adjust all of the inputs including its capital goods; but technology and the economy's institutions are exogenous.

medium run (model)

The term does not refer to a period of time, but instead to what is exogenous. In this case capital stock, technology, and institutions are exogenous. Output, employment, prices, and wages are endogenous.

The long-run price-setting curve is given by:

𝑤=𝜆(1−𝜇∗)w=λ(1−μ∗)

Watch our 'Economist in action' video featuring John Van Reenen about the determinants of the productivity of firms. Based on the video, which of the following statements is correct?

A country's openness to imports can affect its productivity.

short run (model)

The term does not refer to a period of time, but instead to what is exogenous: prices, wages, the capital stock, technology, institutions.

co-insurance

A means of pooling savings across households in order for a household to be able to maintain consumption when it experiences a temporary fall in income or the need for greater expenditure.

flow

A quantity measured per unit of time, such as annual income or hourly wage.

inclusive trade union

A union, representing many firms and sectors, which takes into account the consequences of wage increases for job creation in the entire economy in the long run.

The following is a plot of unemployment rate and trade union density for the period 2000-2012. Trade union density is defined as the fraction of employees who are union members. Based on this information, which of the following statements is correct?

Given the trade union density, the relative unemployment outcomes indicate that inclusiveness of trade unions is higher in Norway than in Belgium.

industry

Goods-producing business activity: agriculture, mining, manufacturing, and construction. Manufacturing is the most important component.

Which of the following might help to minimise the costs of adapting to new technology?

Government re-training schemes.

The following graph plots the real wage growth of different countries against their unemployment rate, averaged over the period 1970-2011. Based on this information, which of the following statements is correct?

If you only cared about wage growth, then European countries have outperformed North American countries.

Which of the following statements is correct regarding the model of the labour market?

In the short- and medium-run models the amount of capital is fixed, while in the long-run model the amount of capital can vary.

Which of the following may help to promote the spread of new technology in the long run?

Industry-wide wage-bargaining.

Taylorism

Innovation n management that seeks to reduce labour costs, for example by dividing skilled jobs into separate less-skilled tasks so as to lower wages.

Favourable institutional changes are difficult to bring about because:

Institutional changes are politically sensitive since they involve winners and losers.

creative destruction

Joseph Schumpeter's name for the process by which old technologies and the firms that do not adapt are swept away by the new, because they cannot compete in the market. In his view, the failure of unprofitable firms is creative because it releases labour and capital goods for use in new combinations.

Figure 16.9b depicts the long-run adjustment process in the labour market after technological progress. Based on this information, which of the following statements is correct?

Lower unemployment at E implies a higher wage required to induce workers to exert high effort, resulting in the higher real wage at B.

Does the introduction of a new labour-saving technology result in ...?

Lower wage share of output and higher Gini coefficient in the short run.

capital-intensive

Making greater use of capital goods (for example machinery and equipment) as compared with labour and other inputs. See also: labour-intensive.

In the short run, successive additions to capital produce smaller and smaller increases in output. Which of the following statement(s) could explain why GDP nevertheless continues to rise In the long run?

New capital equipment incorporates the latest technological developments.

innovation rents

Profits in excess of the opportunity cost of capital that an innovator gets by introducing a new technology, organizational form, or marketing strategy.

countercyclical

Tending to move in the opposite direction to aggregate output and employment over the business cycle.

procyclical

Tending to move in the same direction as aggregate output and employment over the business cycle.

The following diagram shows an economy's production function before and after technological progress:

The concavity of the production function indicates a diminishing marginal product of capital.

wage-setting curve

The curve that gives the real wage necessary at each level of economy-wide employment to provide workers with incentives to work hard and well.

price-setting curve

The curve that gives the real wage paid when firms choose their profit-maximizing price.

capital goods

The durable and costly non-labour inputs used in production (machinery, buildings) not including some essential inputs, e.g. air, water, knowledge that are used in production at zero cost to the user.

bargaining power

The extent of a person's advantage in securing a larger share of the economic rents made possible by an interaction.

Beveridge curve

The inverse relationship between the unemployment rate and the job vacancy rate (each expressed as a fraction of the labour force). Named after the British economist of the same name.

adjustment gap

The lag between some outside change in labour market conditions and the movement of the economy to the neighbourhood of the new equilibrium.

10 years ago, a growing economy enjoyed an increase in GDP of $1,000 per worker per year when net investment increased the capital available to each worker by $5,000. The same level of net investment last year was followed by an increase in GDP of $800. Which of the following describes the situation?

The marginal product of capital is falling.

The graph shows the plot of Beveridge curves for the US and Germany for the period 2001 Q1 to 2015 Q2. Based on this information, which of the statements below is correct?

The matching rate in Germany improved after its Beveridge curve shifted around 2007.

expropriation risk

The probability that an asset will be taken from its owner by the government or some other actor.

gross unemployment benefit replacement rate

The proportion of a worker's previous gross (pre-tax) wage that is received (gross of taxation) when unemployed.

Figure 16.1 is a graph of unemployment rates for 16 OECD countries from 1960 to 2014. Based on this information, which of the following statements is correct?

The unemployment rates of different countries were affected very differently by the oil shocks of the 1970s.

labour productivity

Total output divided by the number of hours or some other measure of labour input.

Sections 16.8 and 16.9 argue that institutional arrangements are an important influence on economic performance. Which of the following is a given example of favourable institutional change?

UK policy to increase competition in the labour market, 1980-90.