MACO - FINAL (CH 11)

A firm is a price taker if it A. takes consumer demand into consideration in setting its price. B. always sells its output at the​ industry-determined price. C. takes its production costs into consideration in setting its price. D. uses a pricing strategy to gain market share.

B (always sells its output at the industry-determined price)

According to the efficiency wage​ model, firms will pay the real wage that A. maximizes effort per dollar of real wage. B. minimizes hiring and training costs to the firm. C. maximizes​ workers' marginal productivity. D. maximizes the marginal productivity of capital and the marginal productivity of labor together.

A (maximizes effort per dollar of real wage)

In the Keynesian​ model, money is A. neutral in the long​ run, but not in the short run. B. neutral in the short​ run, but not in the long run. C. neutral in both the short run and the long run. D. neutral in neither the short run nor the long run.

A (neutral in the long run, but not in the short run)

According to​ Keynesians, the primary reason money is not neutral is A. price stickiness. B. misperceptions over the aggregate price level. C. rational expectations. D. reverse causation.

A (price stickiness)

As an economy moves from left to right along an effective labor demand​ curve, output is A. rising. B. unchanged. C. falling.

A (rising)

Menu costs​ are, by definition A. the costs of changing prices. B. a measure of inefficiency in an inflationary market economy. C. the costs associated with reprinting menus in the restaurant industry. D. the variety of costs​ (or prices) of different goods and services

A (the costs of changing prices)

The distinguishing feature that determines whether an analysis is classical or Keynesian is A. the speed of price adjustment. B. the assumption about the transmission mechanism of monetary policy. C. the slope of the aggregate demand curve. D. the degree of monopoly power in the economy.

A (the speed of price adjustment)

In this​ model (Keynesian model with efficiency wages) , how is​ full-employment output affected by changes in productivity​ (supply shocks)? A. A productivity shock affects the marginal product of​ labor, so employment changes B. A productivity shock does not affect the marginal product of​ labor, so employment does not change C. A productivity shock changes the efficiency​ wage, since it affects work​ effort, so employment changes D. A productivity shock does not lead to a change in the efficiency​ wage, so employment does not change

A (A productivity shock affects the marginal product of​ labor, so employment changes)

In the Keynesian​ model, which curve is​ vertical? A. LRAS. B. AD. C. NS. D. SRAS.

A (LRAS)

In the Keynesian model in the short​ run, a decrease in the money supply will cause A. a decrease in output and an increase in the real interest rate. B. a decrease in the real interest rate and a decrease in output. C. an increase in the real interest rate but no change in output. D. no change in either the real interest rate or output.

A (a decrease in output and an increase in the real interest rate)

The idea behind the effective labor demand curve is that A. firms are willing to meet demand for their output at a specific price. B. demand is more effective than supply. C. the marginal product of labor is not equal to the real wage. D. demand is not as effective as supply.

A (firms are willing to meet demand for their output at a specific price)

The idea that firms retain some workers in a​ recession, whom they would otherwise lay​ off, to avoid the costs of hiring and​ training, is called A. labor hoarding. B. union busting. C. worker pooling. D. the gift exchange motive.

A (labor hoarding)

Which of the following is true about the results of​ Ford's $5​ day? A. Wages​ increased, productivity​ increased, and profitability increased. B. Wages​ increased, productivity​ decreased, and profitability increased. C. Wages​ increased, productivity​ decreased, and profitability decreased. D. Wages​ decreased, productivity​ decreased, and profitability decreased.

A (wages increased, productivity increased, and profitability increased)

Which of the following was an observed effect of​ Ford's "efficiency​ wage?" A. Increased worker slowdowns. B. Increased productivity. C. Increased absenteeism. D. All of the above.

B (increased productivity)

The existence of labor unions could contribute to real−wage ​rigidity, except that in the United States A. unions try to increase employment rather than negotiating over wages. B. most workers​ aren't in unions. C. labor unions are outlawed. D. unions are interested in​ benefits, not wages.

B (most workers aren't in unions)

As an economy moves from left to right along an effective labor demand​ curve, employment is A. falling. B. rising. C. unchanged.

B (rising)

According to Keynesian business cycle​ theory, A. the procyclical movement of investment is well explained when shocks to durable goods are themselves a main source of the cycle​ (so-called "animal​ spirits"), but not when cycles are caused by fluctuations in the LM curve. B. the procyclical behavior of labor productivity occurs due to​ firms' labor hoarding practices. C. inflation is procyclical and leading. D. beneficial aggregate demand​ shocks, regardless of whether they shift the IS curve or the LM​ curve, will increase both output and the real interest rate.

B (the procyclical behavior of labor productivity occurs due to firms' labor hoarding practices)

Keynesians argue that financial​ innovations, such as the introduction of money market deposit accounts at​ banks, led to a large increase in the demand for M2 in the early 1980s. If this claim is​ true, how does it help explain the relationship between money growth and inflation that you observe after​ 1980? A. Financial innovation caused money growth to decline sharply after​ 1980, thus reducing the inflation rate. B. Financial innovation caused inflation to rise sharply after 1980. C. The money growth rate rose because of financial innovation and thus became less important in determining the inflation rate.

C (The money growth rate rose because of financial innovation and thus became less important in determining the inflation rate.)

According to​ Keynesians, the primary source of business cycle fluctuations is A. oil price shocks. B. consumer confidence shocks. C. aggregate demand shocks. D. productivity shocks.

C (aggregate demand shocks)

In the​ efficiency-wage model, a decrease in productivity would cause the real wage to A. fall. B. rise. C. be unchanged.

C (be unchanged)

In the​ efficiency-wage model, a decrease in productivity would cause output to A. rise. B. be unchanged. C. fall.

C (fall)

In the Keynesian​ model, an increase in government purchases affects output by A. increasing saving to pay for future​ taxes, lowering the real interest rate and shifting the IS curve to the left. B. increasing labor​ supply, because workers feel effectively poorer. C. increasing aggregate demand as national saving declines. D. increasing the real interest rate due to crowding​ out, reducing aggregate demand

C (increasing aggregate demand as national saving declines)

During a severe and persistent​ recession, Keynesians would most likely propose A. a tight money policy. B. tax increases. C. macroeconomic stabilization. D. annually balanced federal budgets.

C (macroeconomic stabilization)

The theory that firms will be slow to change their​ products' prices in response to changes in demand because there are costs to changing prices is called A. gift exchange theory. B. cost-benefit theory. C. menu cost theory. D. transactions cost theory.

C (menu cost theory)

In the Keynesian​ model, short-run equilibrium occurs A. where the LM curve intersects the FE line. B. where the IS​ curve, LM​ curve, and FE lines intersect. C. where the IS and LM curves intersect. D. where the IS curve intersects the FE line.

C (where the IS and LM curves intersect.)

How is​ full-employment output affected by changes in labor​ supply? A. Labor supply changes affect the efficiency wage and​ employment; so they change​ full-employment output. B. Labor supply changes have no effect on​ employment, despite changing the efficiency​ wage; so they have no impact on​ full-employment output. C. Labor supply changes have no effect on the efficiency wage but they change​ employment; so they affect​ full-employment output. D. Labor supply changes have no effect on the efficiency wage or​ employment; so they have no impact on​ full-employment output.

D (Labor supply changes have no effect on the efficiency wage or​ employment; so they have no impact on​ full-employment output.)

​Real-wage rigidity in the Keynesian efficiency wage diagram of the labor market is depicted by A. a vertical labor supply curve at the efficient level of employment. B. a​ steep, positively sloped labor supply curve depicting various efficiency wages at various employment levels. C. a vertical labor demand curve at the efficient level of employment. D. a horizontal line at the efficiency wage.

D (a horizontal line at the efficiency wage)

The efficiency wage​ is: A. an amount that maximizes effort or efficiency per dollar of money wages. B. the equilibrium wage rate determined in competitive labor markets. C. an amount equal to or just above the minimum wage. D. an amount that maximizes effort or efficiency per dollar of real wages

D (an amount that maximizes effort or efficiency per dollar of real wages)

Between 1960 and​ 1980, an increase in the money growth rate is followed after several years by​ _____ in the inflation​ rate; after​ 1980, the relationship​ _____. A. an​ increase; remains the same B. a​ decrease; remains the same C. a​ decrease; disappears D. an​ increase; disappears

D (an increase; disappears)

The Application is about Henry Ford and the Ford Motor Company and A. how an increase in the price of a complement can decrease demand for a good. B. how unions can increase wages for workers. C. the efficiency gains that can result from having workers each specialize in a small part of the production process. D. how an increase in wages can be good for profitability.

D (how an increase in wages can be good for profitability)

The cost to a firm of producing one more unit of output A. usually exceeds the​ firm's price. B. usually equals the​ firm's price for monopolistically competitive firms. C. is significantly less than the​ firm's price for purely competitive firms operating in​ long-run equilibrium. D. is the​ firm's marginal cost.

D (is the firm's marginal cost)

In the efficiency wage model with the efficiency wage above the​ market-clearing wage, the level of employment depends on A. labor supply alone. B. the intersection of labor supply and labor demand. C. the marginal productivity of capital and the marginal productivity of labor. D. labor demand alone.

D (labor demand alone)

In the Keynesian​ model, firms are best characterized as A. irrational. B. perfectly competitive. C. price takers. D. monopolistically competitive.

D (monopolistically competitive)

In the Keynesian​ model, a​ firm's high menu costs cause A. full employment. B. efficiency wages. C. real-wage rigidity. D. price stickiness.

D (price stickiness)

How is​ full-employment output determined in the Keynesian model with efficiency​ wages? A. the amount of output produced by firms with employment determined where the labor demand curve intersects the labor supply curve B. the amount of output produced by firms with employment determined by the labor supply curve at the point where workers do not shirk C. the amount of output produced by firms with employment determined by the labor demand curve at the point where the unemployment rate is zero D. the amount of output produced by firms with employment determined by the labor demand curve at the point where the marginal product of labor equals the efficiency wage

D (the amount of output produced by firms with employment determined by the labor demand curve at the point where the marginal product of labor equals the efficiency wage)

Price stickiness​ is: A. the tendency of prices to adjust in unison with changes in GDP. B. the notion that prices never change over time. C. the concept that prices only​ rise, but do not​ fall, over time. D. the tendency of prices to adjust slowly to changes in the economy

D (the tendency of prices to adjust slowly to changes in the economy)

An assumption about worker behavior behind the efficiency wage theory is that effort is _______ related to the worker compensation.

directly

Encouraging​ 'scalping' and other forms of arbitrage in a market economy will likely lead to a _______ degree of price stickiness in that economy.

lesser

In the short​ run, changes in the money supply will affect ___________ while in the long​ run, these changes will only affect the ___________ .

output and the real interest rate; price level