ECON309 Chapter 3
The town of Willbegon has a labor force of 32 comma 268 , of whom 30 comma 452 are employed. The remaining 17 comma 244 people in the town are not in the labor force. Based on these numbers, calculate Willbegon's employment ratio (in decimals, to three decimal places): nothing
.615 .652 .056 ? ? ?
Acme Widget, Inc., has the following production function. Find the MPN for each level of employment. Workers Widgets MPN 0 0 __ 1 13 nothing 2 23 nothing 3 29 nothing 4 34 nothing 5 38 nothing 6 41 nothing
13 10 6 5 4 3 1 3 5
You are given the following data on the unemployment rate and output. Year 1 2 3 4 Unemployment rate 0.08 0.06 0.07 0.05Output 960.0 1020.0 1013.5 1107.5 The natural rate of unemployment is 0.06 and Okun's law says that StartFraction Upper Y overbar minus Upper Y Over Upper Y overbar EndFraction equals 2 left parenthesis u minus u overbar right parenthesis . Find the full employment level of output in each year. (Round your answers to one decimal place.) Year Upper Y overbar nbsp 1 nothing 2 nothing 3 nothing 4 nothing
17
The following data give real GDP (Y), capital (K), and labor (N), for the economy in various years. Year Y K N 1970 3429 3600 79 1980 4901 5800 99 1990 6820 7400 119 2000 10 comma 363 10 comma 800 139 2010 12 comma 174 12 comma 400 156 Assume that the production function is Upper Y equals AK Superscript 0.3 Baseline Upper N Superscript 0.7 . Calculate the growth rate of total factor productivity in each decade (in all cases, report your answer in percent and round your answer to one decimal place). Between 1970 and 1980, U.S. total factor productivity grew by nothing %.
5.77 13.72 21.68 3.96
Which of the following will cause an increase in the demand for labor? A. An increase in the productivity of workers. B. An increase in the labor supply. C. A reduction in the stock of capital. D. A decrease in the real wage.
A. An increase in the productivity of workers.
A technological breakthrough raises a country's total factor productivity, A, by 10%. How does this change affect the production function relating output to capital and the production function relating output to labor? A. Both production functions shift upward. B. The production function relating capital to output will shift upward; the production function relating labor to output will shift downward. C. The production function relating capital to output will shift downward; the production function relating labor to output will shift upward. D. Both production functions will shift downward. A 10% increase in A will increase the MPK by ▼ more than 10% 10% an undetermined amount less than 10% and will increase the MPN by ▼ an undetermined amount less than 10% 10% more than 10% .
A. Both production functions shift upward. 10% 10%
incorrect, Exercise 6.1 Okun's law states that: A. The gap between output and full-employment output increases by 2% for each 1% that the unemployment rate increases. This is the correct answer. B. The gap between output and full-employment output increases by 3% for each 1% that the unemployment rate increases. C. The gap between output and full-employment output increases by 1% for each 2% that the unemployment rate increases. Your answer is not correct. D. The gap between output and full-employment output increases by 3% for each 2% that the unemployment rate increases. Question is complete. Tap on the red indicators to see incorrect answers. All parts showing
A. The gap between output and full-employment output increases by 2% for each 1% that the unemployment rate increases.
Okun's law states that the gap between output and full-employment output increases by 2% for each 1% that the unemployment rate increases. Why does a 1% increase in unemployment lead to twice as large an effect on output? A. When cyclical unemployment is rising, other factors such as the labor force and worker hours tend to be falling, further reducing output. B. With fewer workers, the marginal productivity of labor is lower, and thus output is lower. C. If firms are employing fewer workers, they must also be choosing to produce lower output due to recession and a falling price level. D. According to Okun's law, every worker produces two units of output.
A. When cyclical unemployment is rising, other factors such as the labor force and worker hours tend to be falling, further reducing output.
What is the marginal product of labor (MPN)? A. the additional amount of output produced when one unit of labor is added. B. the additional amount of output produced when one unit of capital is added. C. the total amount of output produced when an additional unit of labor is added. D. the additional amount of output produced when one unit of capital and one unit of labor is added. How is the MPN curve related to labor demand? A. The MPN curve is not related to the labor demand curve. B. The MPN curve is identical to the labor demand curve. C. The MPN curve multiplied by the price level is the labor demand curve. D. The MPN curve divided by the price level is the labor demand curve.
A. the additional amount of output produced when one unit of labor is added. B. The MPN curve is identical to the labor demand curve.
The unemployment rate is A. the fraction of the labor force that is not employed. B. the number of workers who are not employed. C. all employed and unemployed workers. D. the fraction of the adult population that is in the labor force. The labor force participation rate is A. the number of adult workers who are employed. B. the fraction of the labor force that is employed. C. the fraction of the adult population that is in the labor force. D. the number of the adult population who are in the labor force. The employment ratio is A. the fraction of the adult population that is in the labor force. B. the number of adult workers who are employed. C. all employed and unemployed workers. D. the fraction of the adult population that is employed.
A. the fraction of the labor force that is not employed. C. the fraction of the adult population that is in the labor force. D. the fraction of the adult population that is employed.
Full-employment output is A. the level of output that firms supply when wages and prices in the economy have fully adjusted. B. the level of output that firms supply when the inflation rate is zero. C. the level of output that firms supply when capital is fully employed. D. the level of output that firms supply when the unemployment rate is zero. How is full-employment output affected by an increase in labor supply? A. Full-employment output will not change. B. Full-employment output will increase. C. Full-employment output will decrease. D. The effect on full-employment output cannot be determined. How is full-employment output affected by a beneficial supply shock? A. Full-employment output will decrease. B. Full-employment output will not change. C. Full-employment output will increase. D. The effect on full-employment output cannot be determined.
A. the level of output that firms supply when wages and prices in the economy have fully adjusted. B. Full-employment output will increase. C. Full-employment output will increase.
Suppose that the government levies a lump-sum tax on workers. Which of the following best explains the effect on the supply of labor? A. A lump-sum tax has only an income effect, so increasing the tax will cause the supply of labor to decrease. B. A lump-sum tax has only an income effect, so increasing the tax will cause the supply of labor to increase. C. A lump-sum tax has only a substitution effect, so increasing the tax will cause the supply of labor to increase. D. A lump-sum tax has only a substitution effect, so increasing the tax will cause the supply of labor to decrease. E. A lump-sum tax has both income and substitution effects, so the overall effect on the supply of labor is uncertain. Consider an economy in which the marginal product of labor, MPN, is: MPN = 600 minus1 N, where N is the amount of labor used. The amount of labor supplied, NS, is given by: NS = 26 + 14 w + 1 T, where w is the real wage, and T is a lump-sum tax levied on individuals. Suppose that T = 29 . The equilibrium value of employment is nothing (round your answer to two decimal places).
B. A lump-sum tax has only an income effect, so increasing the tax will cause the supply of labor to increase.
Okun's law states that: A. The gap between output and full-employment output increases by 3% for each 2% that the unemployment rate increases. B. The gap between output and full-employment output increases by 2% for each 1% that the unemployment rate increases. C. The gap between output and full-employment output increases by 3% for each 1% that the unemployment rate increases. D. The gap between output and full-employment output increases by 1% for each 2% that the unemployment rate increases.
B. The gap between output and full-employment output increases by 2% for each 1% that the unemployment rate increases.
The production function slopes upward, but its slope declines from left to right. The production function slopes upward because A. supply shocks cause output to increase. B. additional units of input lead to additional output. C. additional units of output lead to additional inputs. D. additional demand for output creates demand for inputs. The slope of the production function declines from left to right because A. the quality of the labor force declines as more workers are employed. B. there is diminishing marginal productivity, because at least one input is fixed. C. as the economy produces more, it becomes less efficient. D. there are decreasing returns to scale in the production of all goods.
B. additional units of input lead to additional output. B. there is diminishing marginal productivity, because at least one input is fixed.
Which of the following best explains why the profit-maximizing level of employment for a firm occurs when the marginal revenue product of labor (MRPN) equals the nominal wage (W)? A. At that level of employment, further increases in employment would reduce total output. B. At that level of employment, the firm has the optimal quantity of capital and thus is maximizing profit. C. At that level of employment, the marginal benefit from the last worker is equal to the marginal cost of the last worker. D. At that level of employment, the firm's output is maximized and thus it earns the highest possible profit. How can this profit-maximizing condition be expressed in real terms? In the equations below, MPN is the marginal product of labor, MRPN is the marginal revenue product of labor, W is the nominal wage, and P is the price level. A. MPN = W/P B. MRPN = W/P C. MPN = W D. MPN = P/W E. MRPN = P/W
C. At that level of employment, the marginal benefit from the last worker is equal to the marginal cost of the last worker. A. MPN = W/P
How would each of the following affect Helena Handbasket's supply of labor? The value of Helena's home triples in an unexpectedly hot real estate market. A. The effect on Helena's labor supply is ambiguous because substitution and income effects go in opposite directions in this case. B. Helena will supply more labor due to the income effect. C. Helena will supply less labor due to the income effect. D. Helena will supply more labor due to both substitution and income effects. E. Helena will supply less labor due to both substitution and income effects. Originally an unskilled worker, Helena acquires skills that give her access to a job with a higher hourly wage. (Assume that her preferences about leisure are not affected by the change in jobs.) A. Helena will supply less labor due to both substitution and income effects. B. Helena will supply more labor due to both substitution and income effects. C. Helena will supply more labor due to the income effect. D. Helena will supply less labor due to the income effect. E. The effect on Helena's labor supply is ambiguous because substitution and income effects go in opposite directions in this case. A temporary income tax surcharge raises the percentage of her income that she must pay in taxes, for the current year only. (Taxes are proportional to income in Helena's country.) A. Helena is likely to supply more labor because short-run substitution effects are likely to exceed income effects. B. Helena will supply more labor due to the substitution effect. C. Helena is likely to supply less labor because short-run substitution effects are likely to exceed income effects. D. Helena will supply less labor due to the income effect. E. Helena will supply more labor due to both substitution and income effects.
C. Helena will supply less labor due to the income effect. E. The effect on Helena's labor supply is ambiguous because substitution and income effects go in opposite directions in this case. C. Helena is likely to supply less labor because short-run substitution effects are likely to exceed income effects.
ccording to Okun's law, if unemployment increases by 2 %, the gap between actual output and full-employment output will A. decrease by 2 %. B. increase by 2 %. C. increase by 4 %. D. not change. E. decrease by 4 %.
C. increase by 4 %.
What is structural unemployment? A. The difference between the actual rate of unemployment and the natural rate of unemployment. B. Temporary unemployment due to recessions. C. Long-term, chronic unemployment that exists even when the economy is not in a recession. D. Unemployment arising as workers search for suitable jobs and firms search for suitable workers. What are the two principal sources of structural unemployment? A. recessions and inflationary periods B. sticky wages that prevent the labor market from reaching equilibrium, and minimum wages C. workers with limited skills, and long-term declines in some industries D. the time it takes to find a good job match, and the mismatch of jobs and skills
C. Long-term, chronic unemployment that exists even when the economy is not in a recession. C. workers with limited skills, and long-term declines in some industries
Which of the following will cause an increase in the supply of labor? A. An increase in the real wage. B. A reduction in the stock of capital. C. An increase in the demand for labor. D. A decrease in the expected future real wage. E. An increase in the wealth of workers.
D. A decrease in the expected future real wage.
During the 1980s and 1990s the average rate of unemployment in Europe was high. Some economists claimed that this rate was in part the result of real-wage rigidity, a situation in which unions kept real wages above their market-clearing levels. Accepting for the sake of argument that real wages were too high in Europe in the 1980s and 1990s, which of the following graphs shows a situation in which real-wage rigidity leads to unemployment (where people who would like to work at the going wage cannot find jobs)? A. Labor, NCurrent real wage, w ND NS NS 1N*w*N1w1 The image is a graph that shows the relationship between current real wage and labor. The horizontal axis measures labor, N. The vertical axis measures current real wage, w. There is a downward-sloping straight line labeled ND. There is an upward-sloping straight line labeled NS. ND and NS intersect at a point that corresponds to N* units of labor and w* units of current real wage. There is another upward-sloping straight line, labeled NS subscript 1. NS subscript 1 lies to the left of NS. NS subscript 1 and NS are parallel to each other. NS subscript 1 and ND intersect at a point that corresponds to N1 units of labor and w1 units of current real wage. The point of intersection of NS subscript 1 and ND lies to the left of and above the point of intersection of ND and NS. N1 units of labor is less than N* units of labor. w1 units of current real wage is greater than w* units of current real wage. B. Labor, NCurrent real wage, w ND NS N*w* The image is a graph that shows the relationship between current real wage and labor. The horizontal axis measures labor, N. The vertical axis measures current real wage, w. There is a downward-sloping straight line labeled ND. There is an upward-sloping straight line labeled NS. ND and NS intersect at a point that corresponds to N* units of labor and w* units of current real wage. . C. Labor, NCurrent real wage, w ND NS ND 1N*w*N1w1 The image is a graph that shows the relationship between current real wage and labor. The horizontal axis measures labor, N. The vertical axis measures current real wage, w. There is a downward-sloping straight line labeled ND. There is an upward-sloping straight line labeled NS. ND and NS intersect at a point that corresponds to N* units of labor and w* units of current real wage. There is another downward-sloping straight line, labeled ND subscript 1. ND subscript 1 lies to the left of ND. ND subscript 1 and ND are parallel to each other. ND subscript 1 and NS intersect at a point that corresponds to N1 units of labor and w1 units of current real wage. N1 lies to the left of N*, and w1 lies below w*. D. Labor, NCurrent real wage, w ND NS NDwNSw The image is a graph that shows the relationship between current real wage and labor. The horizontal axis measures labor, N. The vertical axis measures current real wage, w. There is a downward-sloping straight line labeled ND. There is an upward-sloping straight line labeled NS. ND and NS intersect at a point. There is a point on ND that corresponds to ND units of labour and w units of current real wage. There is a point on NS that corresponds to NS units of labor and w units of current real wage. NS units of labor lies to the right of ND units of labor. Relative to the output that would be supplied by firms if there was no real wage rigidity, the output actually supplied by firms in this situation will be ▼ the same more less .
D. Labor, NCurrent real wage, w ND NS NDwNSw less
Self-employed workers in the United States must pay Social Security taxes equal to 12.4 % of any income up to $118 comma 500 in 2015 . This income level of $118 comma 500 is known as the "cap." Income in excess of the cap is not subject to Social Security tax, so self-employed workers with incomes exceeding $118 comma 500 pay $118 comma 500 times 0.124 = $14 comma 694 . Now consider two proposals designed to increase Social Security tax revenue. bullet Proposal A increases the cap to $143 comma 347 , so that Social Security taxes equal 12.4 % of income up to $143 comma 347 . bullet Proposal B increases the Social Security tax rate to 15.0 %, but leaves the cap unchanged at $118 comma 500 . For people with income that always exceeds the cap, the amount of Social Security tax is the same under Proposal A ($143 comma 347 times 0.124 = $17 comma 775 ) as under Proposal B ($118 comma 500 times 0.150 = $17 comma 775 ). There are no planned changes in future Social Security benefits anticipated by current workers. Sally is self-employed and earns $150,000 per year. Fred is self-employed and earns $50,000 per year. Which of the following best explains the effect of the proposals on Sally's labor supply? A. Under both proposals, both substitution and income effects will cause Sally to supply more labor. B. Since the proposals have both income and substitution effects, the change in Sally's labor supply is ambiguous. C. Since there is only an income effect for Sally, under both proposals, she will supply less labor. D. Since there is only an income effect for Sally, under both proposals, she will supply more labor. E. Under both proposals, both substitution and income effects will cause Sally to supply less labor. Which of the following best explains the effect of the proposals on Fred's labor supply? A. Under both proposals, income effects will cause Fred's labor supply to increase. B. Under both proposals, substitution effects will cause Fred's labor supply to decrease. C. Under Proposal A, there is no effect on Fred's labor supply, and under Proposal B, the effect is ambiguous. D. Under Proposal A, Fred's labor supply will decrease, and under Proposal B, the effect is ambiguous. E. Since the proposals have both income and substitution effects, the change in Fred's labor supply is ambiguous in either case.
D. Since there is only an income effect for Sally, under both proposals, she will supply more labor. C. Under Proposal A, there is no effect on Fred's labor supply, and under Proposal B, the effect is ambiguous.
The production function slopes upward, but its slope declines from left to right. The production function slopes upward because A. additional units of output lead to additional inputs. B. additional demand for output creates demand for inputs. C. supply shocks cause output to increase. D. additional units of input lead to additional output. The slope of the production function declines from left to right because A. there is diminishing marginal productivity, because at least one input is fixed. B. as the economy produces more, it becomes less efficient. C. the quality of the labor force declines as more workers are employed. D. there are decreasing returns to scale in the production of all goods.
D. additional units of input lead to additional output. A. there is diminishing marginal productivity, because at least one input is fixed.
Full-employment output is A. the level of output that firms supply when the inflation rate is zero. B. the level of output that firms supply when the unemployment rate is zero. C. the level of output that firms supply when capital is fully employed. D. the level of output that firms supply when wages and prices in the economy have fully adjusted. How is full-employment output affected by an increase in labor supply? A. Full-employment output will decrease. B. Full-employment output will not change. C. Full-employment output will increase. D. The effect on full-employment output cannot be determined. How is full-employment output affected by a beneficial supply shock? A. Full-employment output will decrease. B. Full-employment output will not change. C. Full-employment output will increase. D. The effect on full-employment output cannot be determined.
D. the level of output that firms supply when wages and prices in the economy have fully adjusted. C. Full-employment output will increase. C. Full-employment output will increase.
Suppose that the production function is Y = 9 K0.5N0.5. With this production function, the marginal product of labor is MPN = 4.5 K0.5/ N0.5. The labor supply curve is NS = 95 times [(1 minus t) times w ]2, where w is the real wage rate, t is the tax rate on labor income, and hence (1 minus t) times w is the after-tax real wage rate. The capital stock is K = 25 . Assume that the tax rate on labor income, t, equals zero. Which of the following equations represents the labor demand curve? A. ND = 112.5/w2 B. ND = 125 times N0.5 C. ND = 125/w D. ND = 45 / N0.5 E. ND = 506.25 /w2 The equilibrium level of the real wage is nothing (Round your answer to two decimal places).
E. ND = 506.25 /w2
According to Okun's law, if unemployment increases by 3 %, the gap between actual output and full-employment output will A. increase by 3 %. B. decrease by 6 %. C. not change. D. decrease by 3 %. E. increase by 6 %.
E. increase by 6 %.
Suppose that under a new law all businesses must pay a tax equal to 6% of their sales revenue. Assume that this tax is not passed on to consumers. Instead, consumers pay the same prices after the tax is imposed as they did before. 1.) Use the line drawing tool to show the effect of this change on the labor market. Properly label your new line. 2.) Use the point drawing tool to identify the new equilibrium real wage and employment. Label this point 'E'. Carefully follow the instructions above, and only draw the required objects. Assuming that the labor supply curve is unchanged, the tax will cause employment to ▼ remain constant decrease increase and the real wage to ▼ increase decrease remain constant .
ND shift down decrease Decrease
An unemployment spell is ▼ the length of time that a person is continuously unemployed a period of time that a person is continually unemployed the number of times that a person is continually unemployed the amount of time that a person goes without being unemployed , and unemployment duration is ▼ the number of times that a person is continually unemployed the length of time that a person is continuously unemployed a period of time that a person is continually unemployed the amount of time that a person goes without being unemployed . The duration of most unemployments spells is ▼ short undetermined long , but most people who are unemployed at a particular time are experiencing spells with ▼ short undetermined long durations. This seemingly contradictory observation about unemployment spells and duration can be explained because A. there are many people who are unemployed for very long periods of time. B. unemployment statistics do not correctly measure spells and duration of unemployment. C. in reality, there are very few people who have short spells of unemployment. D. there are many people unemployed very briefly and a few people who are unemployed for long periods of time.
a period of time that a person is continually unemployed the length of time that a person is continuously unemployed short long D. there are many people unemployed very briefly and a few people who are unemployed for long periods of time.
A temporary increase in the wage rate is likely to ▼ not change increase decrease the amount of labor supplied because for temporary wage changes, ▼ the income effect likely exceeds the substitution effect the income effect is likely to equal the substitution effect the income effect is likely to be less than the substitution effect . Which of the following statements best states the effect of a permanent wage increase? A. For a permanent wage increase, the income effect is likely to be less than the substitution effect, and thus the amount of labor supplied will rise. B. For a permanent wage increase, the income effect is likely to exceed the substitution effect, and thus the amount of labor supplied will rise. C. For a permanent wage increase, the income effect is likely to exceed the substitution effect, and thus the amount of labor supplied will fall. D. For a permanent wage increase, the income effect is likely to be less than the substitution effect, and thus the amount of labor supplied will fall.
increase the income effect is likely to be less than the substitution effect C. For a permanent wage increase, the income effect is likely to exceed the substitution effect, and thus the amount of labor supplied will fall.
Suppose the population falls, the labor force is constant, the number of unemployed rises, and the number of employed falls (but by less than the decline in population). The unemployment rate will ▼ increase stay the same decrease . The employment ratio will ▼ decrease stay the same increase . Suppose that population is constant, the labor force declines, employment rises, and unemployment falls. The participation rate will ▼ decrease stay the same increase . The employment ratio will ▼ increase decrease stay the same .
increase increase decrease increase
How would each of the following affect the current level of full-employment output? A large number of immigrants enter the country. A large number of immigrants entering the country ▼ changes technology decreases other factors of production decreases the labor force increases the capital stock increases other factors of production increases the labor force decreases the capital stock does not change anything and thus full-employment output ▼ increases does not change decreases . Energy supplies become depleted. Depletion of energy supplies ▼ does not change anything increases the capital stock increases other factors of production decreases the labor force decreases the capital stock increases the labor force decreases other factors of production changes technology and thus full-employment output ▼ increases does not change decreases . New teaching techniques improve the educational performance of high school seniors. Improving the eductional performance of current students ▼ increases other factors of production increases the labor force does not change anything increases the capital stock decreases the labor force changes technology decreases the capital stock decreases other factors of production and thus full-employment output ▼ increases does not change decreases . A new law mandates the shutdown of some unsafe forms of capital. Shutting down unsafe forms of capital ▼ increases other factors of production decreases other factors of production decreases the labor force increases the labor force does not change anything increases the capital stock decreases the capital stock changes technology and thus full-employment output ▼ increases does not change decreases .
increases the labor force increases decreases other factors of production decreases does not change anything does not change decreases the capital stock decreases
