Econ Exam 1 MC

This figure depicts the Lorenz Curve. Related to the Lorenz Curve, the Gini coefficient is used to measure the degree of inequality in an economy. The Gini coefficient is measured as a. A / A+(B1+B2+B3) b. the area of A/(B1+B2) below the wage share line (s) c. (B1+B2+B3) / A d. B = B1+B2+B3

a. A / A+(B1+B2+B3)

Which of the following statements is correct regarding the years immediately after Roosevelt became the US president? a. A change in the expectations of consumers of their future earnings, as a result of the New Deal, would have contributed to an expansion in the economy's aggregate demand. b. The value of the US dollar increased as the result of the abandonment of the gold standard and allowed the nominal interest rate to be cut to close to zero. c. The real interest rate rose after 1933. d. Fiscal contraction from the increased government deficit would have contributed to the economy escaping from the Depression.

a. A change in the expectations of consumers of their future earnings, as a result of the New Deal, would have contributed to an expansion in the economy's aggregate demand.

Which of the following statements are correct regarding fire sales in the housing market? a. A household is underwater when the value of the house it owns is less than the value of the mortgage on the house. b. A fire sale occurs when a household cannot repay its mortgage and sells its house. c. Fire sales have a positive externality for prospective buyers who are able to purchase the foreclosed houses cheaply. d. Fire sales have a negative externality on other owners of similar assets by lowering the value of their assets.

a. A household is underwater when the value of the house it owns is less than the value of the mortgage on the house. d. Fire sales have a negative externality on other owners of similar assets by lowering the value of their assets.

The crisis that marked the end of the golden age is sometimes described as a supply-side phenomenon in contrast to the crisis of the 1930s, which was caused by inadequate demand. Which of the following did NOT contribute to problems on the supply side in the 1970s? a. High levels of employment b. A slowing of productivity growth c. The breakdown of the postwar accords, whereby workers and employers accepted their respective shares of productivity d. A reduction in the rate of net investment

a. High levels of employment

All of the following were considered to be contributing factors to the Great Depression except: a. Housing price bubble b. The banking crisis c. Deflation d. The stock market crash of 1929

a. Housing price bubble

Which of the following statements is correct? a. If all firms set the same price and pay the same nominal wage, then the higher the real wage that they pay, the lower is their markup b. To maximize profits, firms set the wage at the level where the workers are indifferent between working and not working c. Firms aim to set as high a price as possible d. In equilibrium, the wage clears the labor market, so there is no unemployment.

a. If all firms set the same price and pay the same nominal wage, then the higher the real wage that they pay, the lower is their markup

Imagine that you are responsible for policymaking in an economy that is experiencing a deep recession. You and your colleagues announce a number of measures (like those in Roosevelt's 'New Deal') that you tell everyone will boost demand and output. Why does it matter whether the public believes your announcement? a. People will feel more confident about the future and increase their spending, which will reinforce the actions of government b. It does not. The government's actions do not impact the macroeconomy c. It does not. If the measures are appropriate, aggregate demand will increase, regardless of what anyone thinks d. You are more likely to be re-elected if people believe that you tried to do something.

a. People will feel more confident about the future and increase their spending, which will reinforce the actions of government

The figure depicts the labor market when there has been a negative aggregate demand shock. Which of the following statements is correct? a. Point B is not a Nash equilibrium outcome. b. At B no individuals are looking for work c. Point X is not a Nash equilibrium outcome. d. An individual at X is voluntarily unemployed

a. Point B is not a Nash equilibrium outcome.

Which of the following was NOT a problem that arose from the great moderation? a. Rising real wages b. Rising debt c. Rising inequality d. Rising house prices

a. Rising real wages

What is not true about involuntary unemployment? a. Some workers are coerced to work b. Some unemployment is necessary, which means the employer can motivate workers to provide effort on the job c. the wage-setting curve is always to the left of the labor supply curve d. It is also known as excess supply in the labor market

a. Some workers are coerced to work

Figure 17.16 is a graph of the unemployment rate and consumer price inflation in advanced economies between 1960 and 2013. Which of the following statements is correct? a. Stagflation was caused by the shifting up of the Phillips curve, propelled by higher inflation expectations b. The unemployment rate and the inflation rate were consistently positively correlated during the stagflation period of the 1970s c. The end of stagflation was characterized by falls in both the unemployment rate and the inflation rate d. As predicted by the Phillips curve, the unemployment rate rises whenever inflation falls and vice versa throughout the period depicted

a. Stagflation was caused by the shifting up of the Phillips curve, propelled by higher inflation expectations

The figure below depicts the labor market model. Consider a reduction in the degree of competition faced by the firms. Which of the following statements is correct regarding the effects of reduced competition? a. The equilibrium real wage falls. b. The price-setting curve shifts up. c. The unemployment level falls. d. The wage-setting curve shifts up.

a. The equilibrium real wage falls.

You are given the following information for a country: Participation rate is 75%, the unemployment rate is 10%, the employment rate is 67.5%, and the number of employed is 27 million. Based on this information, which of the following is correct? a. The number of unemployed is 3 million b. The size of the labor force is 40 million c. The working age population is 30 million d. The unemployment rate is 12%.

a. The number of unemployed is 3 million

The following figure (bottom) shows the income share of the top 1% richest households in the US between 1914 and 2013. Based on this information, which of the following statements are correct? a. The top 1% richest US households received nearly one-fifth of the total income in 2010 b. Inequality always falls during recessions or depressions c. Inequality always rises in boom years d. The great moderation era was distinct from the other two boom periods in that inequality rose during the period

a. The top 1% richest US households received nearly one-fifth of the total income in 2010

The figure shows the wage-setting curve and the real wage w*. Based on this figure, which of the following statements is correct? a. The unemployment rate is 5% b. The participation rate is 76% c. 4% of the population is unemployed d. The employment rate is 95%. e. Disposable income is the maximum amount of expenditure possible without having to borrow or sell possessions.

a. The unemployment rate is 5%

The firm's labor-hiring decisions is NOT determined by a. public relations department b. human resources department c. marketing department d. production department

a. public relations department

How does a decrease in unemployment impact a worker's bargaining power? a. Unemployment is not related to workers' bargaining power b. A decrease in unemployment improves workers' bargaining power c. A decrease in unemployment will not change workers' bargaining power d. A decrease in unemployment weakens workers' bargaining power.

b. A decrease in unemployment improves workers' bargaining power

The following diagram depicts the price-setting curve. Based on this information, which of the following statements is correct? a. At point A, the markup is too high, and therefore the firm will raise its price. This leads to lower demand for the good and hence lower employment towards B. b. At point C, the real wage is too low and the markup is too high. Therefore the firm is able to increase profit by lowering prices and hiring more workers. c. Higher competition implies a lower price-setting curve. d. For any given markup, higher labour productivity implies a lower price-setting curve, which means a lower real wage.

b. At point C, the real wage is too low and the markup is too high. Therefore the firm is able to increase profit by lowering prices and hiring more workers.

Which of the following statements about the price-setting curve is correct? a. Firms have to pay a higher real wage when the employment rate is higher, Therefore the price-setting curve is upward-sloping b. At points below the price-setting curve, the firms are setting prices too high compared to their profit-maximizing level c. At points above the price-setting curve, the firms are setting prices too high compared to their profit-maximizing level d. The price-setting curve simply depicts the firms' profit-maximizing price level for different levels of economy-wide employment.

b. At points below the price-setting curve, the firms are setting prices too high compared to their profit-maximizing level

Which of the following scenarios would cause the wage-setting curve to shift down? a. A sudden drop in the working age population (i.e. the retirement of the baby-boomer generation) b. Firms implementing a new monitoring device used to detect shirking c. A increase in the disutility of working d. Increase in unemployment benefits

b. Firms implementing a new monitoring device used to detect shirking

This figure depicts the linkage between labor market and inequality (as represented by the Lorenz curve and Gini coefficient). Based on that, which statement below is correct? a. Inequality will increase if the real wage is higher b. Inequality will increase if the real wage falls c. Inequality declines if more people are without work d. Inequality will increase if productivity falls

b. Inequality will increase if the real wage falls

This Figure illustrates the effects of union wage-setting. What can we conclude from this figure? a. Under union wage-setting, the firm is still setting the wage that maximizes its profits b. The resulting bargained wage-setting curve will be above the wage-setting curve with no union c. The effect of a strong union will always be to increase unemployment d. Compared to A, at C the effort per hour is higher and therefore the firm's profit is higher.

b. The resulting bargained wage-setting curve will be above the wage-setting curve with no union

Labor productivity refers to a. Making greater use of labour as an input in production as compared with machines and other inputs b. Total output divided by the number of hours or some other measure of labor input c. A model that explains how employers set wages so that employees receive an economic rent d. The Nash equilibrium of the labour market because neither employers nor workers could do better by changing their behavior.

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

Profit-maximizing condition for the firm occurs when a. Isoporfit curve equals demand curve b. marginal rate of substitution equals marginal rate of transformation c. There is no involuntary unemployment in the labor market d. The labor productivity is at its highest.

b. marginal rate of substitution equals marginal rate of transformation

What is the wage share in an economy? a. the relative comparison of a worker's take home pay, to another worker's b. the ratio of real wage per output produced by each worker per day c. the real wage d. the amount of wage shared between a worker and his/her family

b. the ratio of real wage per output produced by each worker per day

Which of the following statements about the wage-setting curve is correct? a. A higher unemployment rate shifts the wage-setting curve down b. The wage-setting curve depicts the workers' reservation wage for different levels of economy-wide employment c. At each point on the wage-setting curve, the workers are choosing their best response effort level given the real wage and unemployment rate d. A lower unemployment rate shifts the wage-setting curve down.

c. At each point on the wage-setting curve, the workers are choosing their best response effort level given the real wage and unemployment rate

Based on the Figure above, one of the effect of the presence of labor union is a. No answer text provided b. The firm must to pay a wage greater than the minimum wage c. Employees receives both recognition and a voice in how decisions are made, resulting in lower wages d. The 'union voice effect' causes the wage-setting curve to shift to the left

c. Employees receives both recognition and a voice in how decisions are made, resulting in lower wages.

Which of the following statements is correct? a. In an equilibrium in the labor market, there is no unemployment b. Firms aim to set as high a price/markup as possible c. If all firms set the same price and pay the same nominal wage, then the higher the real wage that they pay, the lower their markup d. Firms set the wage at the level where the workers are indifferent between working and not working in order for the firms to maximize profits.

c. If all firms set the same price and pay the same nominal wage, then the higher the real wage that they pay, the lower their markup

This figure depicts the market's demand curve and the firm's isoprofit curves. Based on this information, which of the following statements is correct? a. Between points A and C, the firm would prefer point A as the output is higher b. Having chosen its profit-maximizing price p*, the firm would then set its nominal wage level c. If the firm finds itself producing at point C, it can increase its profit by selling more units at a lower price d. depicts the market's demand curve and the firm's isoprofit curves.

c. If the firm finds itself producing at point C, it can increase its profit by selling more units at a lower price

Figure 9.5 depicts the wage-setting curve and how it is derived using the best response function of the employees and the isocost lines for effort of the employers. Based on this figure: a. A cut in the unemployment benefit would shift the best response function to the left, and raise the wage-setting curve. b. If the expected period of unemployment increased, it would shift the best response function to the right, raising the wage-setting curve. c. In a country where the stigma attached to unemployment is high, the wage-setting curve would be lower. d. A sudden drop in the working-age population (due, for example, to the retirement of the baby-boomer generation) would shift the wage-setting curve lower.

c. In a country where the stigma attached to unemployment is high, the wage-setting curve would be lower.

Which of the following was NOT a policy reform used in the US to deal with the stagflation of the 1970s? a. Restrictive monetary policy b. Cutting unemployment benefits c. Increasing government expenditures d. Reducing union power

c. Increasing government expenditures

Suppose that everyone who had been looking for a job for more than six months gave up in despair and stopped looking for a job. What would happen to the unemployment rate? a. It would change, but the effect cannot be predicted b. It would increase c. It would decrease d. It would not change

c. It would decrease

Figure 17.14 is a graph of days on strike per 1,000 industrial workers (left-hand axis) and the average wages relative to share prices (right-hand axis) in advanced economies between 1950 and 2002. Based on this information, which of the following statements is correct? a. Strikes are beneficial to all workers. b. Nearly half of the workers went on strike at the peak of the strike activity between 1975 and 1980. c. The postwar accord of cooperation between employers and employees broke down in the late 1960s. d. The first oil shock of 1973 triggered a sharp rise in average wages.

c. The postwar accord of cooperation between employers and employees broke down in the late 1960s.

Which of the following statements is correct? a. participation rate = employed ÷ labour force b. unemployment rate = unemployed ÷ population of working age c. employment rate = employed ÷ population of working age d. employment rate + unemployment rate = 1

c. employment rate = employed ÷ population of working age

What is NOT true regarding the labor market model? a. it determines the wage rate b. it shows how shocks to the labor market affect inequality measures c. it does not determine the distribution of income between workers and employers in the economy d. it determines the magnitude of employment and unemployment in the economy

c. it does not determine the distribution of income between workers and employers in the economy

When a labor union is present, the wage is not set by Human Resources but instead is determined through a process of negotiation between union and firm. A bargained wage will thus be set. In that context, which statement is correct? a. Unions will never choose to restrain their use of bargaining power b. If the union can ensure that during a strike, no other workers will offer their services to the firm, it's bargaining strength will be lower c. The union can threaten to 'dismiss' the employees (at least temporarily) by going on strike d. 'bargaining curve' lying above the wage-setting curve

d. 'bargaining curve' lying above the wage-setting curve

Policies implemented in the labor market will affect the position of the wage-setting curve as well as that of the price-setting curve, which eventually will cause changes in the labor market equilibrium. Based on that, the correct statement below is a. A higher unemployment benefit decreases the reservation wage and shifts the best response curve to the left b. Better education and training will cause the price-setting curve to shift downward c. Enhancement in women's employment opportunities shifts the wage-setting curve upwards d. A wage subsidy will cause an upward shift of the price-setting curve.

d. A wage subsidy will cause an upward shift of the price-setting curve.

Which of the following statements is correct regarding the effects of a rise in the real wage on the labour supply of a worker? a. The income effect means that the worker will increase his labour supply. b. The substitution effect means that the worker will increase his consumption of free time. c. The income and substitution effects always enhance each other, leading to higher labour supply. d. At high wage levels, the income effect dominates the substitution effect, leading to lower labour supply.

d. At high wage levels, the income effect dominates the substitution effect, leading to lower labour supply.

Figure 17.26 depicts the US aggregate demand between 2006 Q2 and 2010 Q4.Based on this information, which of the following statements is correct? a. The fall in residential investment was the sole cause of the financial crisis. b. Household consumption and residential investment recovered promptly since the end of the crisis. c. Government consumption and investment have been supporting economic growth throughout the period considered. d. In the recession, not only did households stop purchasing new houses and other consumption goods, but also firms stopped investing.

d. In the recession, not only did households stop purchasing new houses and other consumption goods, but also firms stopped investing.

Which statement is true regarding The Gold Standard monetary system? a. UK authorities promised to exchange the money for a fixed quantity of gold b. It was abandoned in the Reagan era c. It is a product of Roosevelt's New Deal d. It adopted a fixed exchange rate in which the dollar has a specific gold value

d. It adopted a fixed exchange rate in which the dollar has a specific gold value

Figure 17.19 shows the household debt-to-income ratio and the house prices in the US between 1950 and 2014. Based on this information, which of the following statements is correct? a. The real value of household debt more than doubled from the end of the golden age to the peak on the eve of the financial crisis. b. The causality is from the house price to household debt, that is, higher house prices encourage higher debt, but not the other way round. c. A household debt-to-income ratio of over 100 means that the household is bankrupt. d. Subprime mortgages partly explain the rise in debt in the US prior to the financial crisis.

d. Subprime mortgages partly explain the rise in debt in the US prior to the financial crisis.

This unit suggests that there have been three distinctive periods ('epochs') in capitalist economies since 1914. Which of the following is not one of those periods? a. The great moderation b. The golden age of capitalism c. The roaring twenties and the Great Depression d. The Second World War

d. The Second World War

The following figure (top) shows the unemployment rate and productivity growth in the US between 1914 and 2015. Based on this information, which of the following statements is correct? a. The unemployment rate in more recent boom years is lower than unemployment rates in earlier boom years b. The unemployment rate reached in the recent financial crisis was the highest since the stagflation years of 1973-79 c. There was a consistent fall in productivity growth during the Great Depression (1929 to 1941) d. The US economy's performance in 1979-2008 was less strong than during the other two boom periods, with a higher average unemployment rate and lower average productivity growth

d. The US economy's performance in 1979-2008 was less strong than during the other two boom periods, with a higher average unemployment rate and lower average productivity growth

Equilibrium in the labor market is established by a. The higher number of employment; that is, when the unemployment is at its lowest b. The firms' profit-maximizing activities c. Intersection of the average product of labor and the supply of labor curves d. The intersection of the wage-setting and price-setting curves

d. The intersection of the wage-setting and price-setting curves

The price-setting curve shows how output per worker is split between: a. No answer text provided b. Firm owners (real profit) and unions (dues) c. Unions (dues) and workers (real wage) d. Workers (real wage) and firm owners (real profit)

d. Workers (real wage) and firm owners (real profit)

The real wage refers to a. wages calculated after deducting all taxes b. nominal wage minus the price level c. the actual take-home pay of the workers d. the purchasing power of the workers or anyone who receives income

d. the purchasing power of the workers or anyone who receives income