Quiz 2 352

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What is the unemployment rate if there are 150 million people employed, 25 million people unemployed, and 25 million not in the labor force? (a) 14.3% (b) 13.4% (c) 12.5% (d) 25.0%

(a) 14.3%

Suppose the economy's production function is Y = AK0.3N0.7. When K = 1000, N = 50, and A = 15, what is Y? (a) 1842 (b) 6106 (c) 750,000 (d) 123

(a) 1842

The city of Hope has a labor force of 1000. Twenty people lose their jobs each month and remain unemployed for exactly one month before finding jobs. On January 1, May 1, and September 1 of each year, 50 people lose their jobs for a period of four months before finding new jobs. What is the average duration of an unemployment spell? (a) 2.15 months (b) 2.85 months (c) 3.14 months (d) 3.43 months

(a) 2.15 months

What is the participation rate if there are 125 million people in the labor force, 100 million people employed, and 25 million not in the labor force? (a) 83% (b) 80% (c) 75% (d) 67%

(a) 83%

A supply shock that reduces total factor productivity directly affects which term in the production function Y = AF(K, N)? (a) A (b) F (c) K (d) N

(a) A

If the marginal product of capital doesn't change as the amount of capital increases, a figure showing the relationship between output and capital (a) is a straight line with constant upward slope. (b) is a straight line with a slope of zero. (c) is a vertical line. (d) slopes upward with a slope that declines as the amount of capital increases.

(a) is a straight line with constant upward slope.

In the production function Y = AF(K, N), A is _____, K is _____, and N is _____. (a) total factor productivity; the capital stock; the number of workers employed (b) total factor productivity; investment; the number of workers employed (c) the productivity of labor; the capital stock; the size of the labor force (d) the productivity of labor; investment; the size of the labor force

(a) total factor productivity; the capital stock; the number of workers employed

Assume that the full-employment level of output is $5000 billion and the natural unemployment rate is 5%. Suppose the current unemployment rate is 8%. What would be the current level of output according to Okun's law (when the Okun's law coefficient is 2)? (a) $4500 billion (b) $4700 billion (c) $4900 billion (d) $5000 billion

(b) $4700 billion

According to Okun's law, if output grew 7% and full-employment output rose 5%, what would be the change in the unemployment rate? (a) -4% (b) -1% (c) 1% (d) 4%

(b) -1%

Suppose the marginal product of labor is MPN = 200 - 0.5N where N is aggregate employment. The aggregate quantity of labor supplied is 300 + 8w, where w is the real wage. What is the equilibrium real wage? (a) 5 (b) 10 (c) 15 (d) 20

(b) 10

How many people are unemployed if the employment ratio is 75%, there are 90 million people employed, and there are 20 million people not in the labor force? (a) 20 million (b) 10 million (c) 5 million (d) 0 million

(b) 10 million

Suppose the economy's production function is Y = A K0.3N0.7. If K = 2000, N = 100, and A = 1, then Y = 246. If K and N both rise by 10%, and A is unchanged, by how much does Y increase? (a) 5% (b) 10% (c) 15% (d) 20%

(b) 10%

Suppose the marginal product of labor is MPN = 200 - 0.5N where N is aggregate employment. The aggregate quantity of labor supplied is 300 + 8w, where w is the real wage. If a supply shock increases the marginal product of labor by 10 (to MPN = 210 - 0.5 N), by how much does the real wage increase? (a) 1 (b) 2 (c) 3 (d) 4

(b) 2

In the production function Y = AF(K, N), total factor productivity is (a) Y/A. (b) A. (c) K/N. (d) Y/N.

(b) A.

A tremendous flood along the Mississippi River destroys thousands of factories, reducing the nation's capital stock by 5%. What happens to current employment and the real wage rate? (a) Both employment and the real wage rate would increase. (b) Both employment and the real wage rate would decrease. (c) Employment would increase and the real wage would decrease. (d) Employment would decrease and the real wage would increase.

(b) Both employment and the real wage rate would decrease.

Changes in the capital stock occur _____, and changes in the amount of labor that firms employ occur _____. (a) quickly; quickly (b) slowly; slowly (c) slowly; quickly (d) quickly; slowly

(c) slowly; quickly

An adverse oil-price shock reduces labor demand. What happens to current employment and the real wage rate? (a) Both employment and the real wage rate would increase. (b) Both employment and the real wage rate would decrease. (c) Employment would increase and the real wage would decrease. (d) Employment would decrease and the real wage would increase.

(b) Both employment and the real wage rate would decrease.

What two factors should you equate in deciding how many workers to employ? (a) The marginal product of labor and the marginal product of capital (b) The marginal product of labor and the real wage rate (c) The marginal product of labor and the real interest rate (d) The marginal product of capital and the real wage rate

(b) The marginal product of labor and the real wage rate

An adverse supply shock, such as a reduced supply of raw materials, would (a) increase the marginal product of labor. (b) decrease the marginal product of labor. (c) decrease the marginal product of capital, but have no effect on the marginal product of labor. (d) not affect the marginal product of labor.

(b) decrease the marginal product of labor.

A winter ice storm has paralyzed the entire east coast, reducing productivity sharply. This supply shock shifts the marginal product of labor curve (a) up and to the right, raising the quantity of labor demanded at any given real wage. (b) down and to the left, reducing the quantity of labor demanded at any given real wage. (c) up and to the right, reducing the quantity of labor demanded at any given real wage. (d) down and to the left, raising the quantity of labor demanded at any given real wage.

(b) down and to the left, reducing the quantity of labor demanded at any given real wage.

Economists often treat the economy's capital stock as fixed because (a) labor is a more important factor of production than capital, so economists ignore capital. (b) it takes a long time for new investment and the scrapping of old capital to affect the overall quantity of capital. (c) there is very little capital in the economy compared to the amount of labor. (d) unless the interest rate changes, the capital stock doesn't change.

(b) it takes a long time for new investment and the scrapping of old capital to affect the overall quantity of capital.

The survey on labor supply by Killingsworth found that (a) labor supply rises in response to a permanent increase in the real wage, but falls in response to a temporary increase in the real wage. (b) labor supply rises in response to a temporary increase in the real wage, but falls in response to a permanent increase in the real wage. (c) labor supply rises in response to both a temporary and a permanent increase in the real wage. (d) labor supply falls in response to both a temporary and a permanent increase in the real wage.

(b) labor supply rises in response to a temporary increase in the real wage, but falls in response to a permanent increase in the real wage.

A permanent increase in the real wage rate has a _____ income effect on labor supply than a temporary increase in the real wage, so labor supply is _____ with a permanent wage increase than for a temporary wage increase. (a) larger; more (b) larger; less (c) smaller; more (d) smaller; less

(b) larger; less

The marginal product of capital is the increase in (a) capital needed to produce one more unit of output. (b) output from a one-unit increase in capital. (c) labor needed to accompany a one-unit increase in capital. (d) output from a one-dollar increase in capital.

(b) output from a one-unit increase in capital.

An adverse supply shock would (a) shift the production function up and decrease marginal products at every level of employment. (b) shift the production function down and decrease marginal products at every level of employment. (c) shift the production function down and increase marginal products at every level of employment. (d) shift the production function up and increase marginal products at every level of employment.

(b) shift the production function down and decrease marginal products at every level of employment.

The _____ is the number of unemployed divided by the labor force and the _____ is the number of employed divided by the adult population. (a) unemployment rate; employment rate (b) unemployment rate; employment ratio (c) unemployment ratio; participation rate (d) discouraged worker ratio; employment rate

(b) unemployment rate; employment ratio

Suppose the marginal product of labor is MPN = 200 - 0.5N where N is aggregate employment. The aggregate quantity of labor supplied is 300 + 8w, where w is the real wage. What is the equilibrium quantity of employment? (a) 12 (b) 190 (c) 380 (d) 760

(c) 380

Which of the following events would lead to an increase in the marginal product of labor for every quantity of labor? (a) An increase in the real wage (b) A decrease in the real wage (c) A favorable supply shock such as a fall in the price of oil (d) An adverse supply shock, such as a reduced supply of raw materials

(c) A favorable supply shock such as a fall in the price of oil

IfY=A×N×(75+K/N),whereK=1000,N=20,andA=10,whathappensifKdoublesand N doubles? (a) Y is unchanged. (b) Y increases 50%. (c) Y doubles. (d) Y quadruples.

(c) Y doubles.

As a result of the superb economics essay that you wrote during this quarter, you won the Adam Smith prize of $100. The receipt of these funds would be an example of (a) the substitution effect being stronger than the income effect. (b) the income effect being stronger than the substitution effect. (c) a pure income effect. (d) a pure substitution effect.

(c) a pure income effect.

The two main characteristics of the production function are (a) it slopes downward from left to right, and the slope becomes flatter as the input increases. (b) it slopes upward from left to right, and the slope becomes steeper as the input increases. (c) it slopes upward from left to right, and the slope becomes flatter as the input increases. (d) it slopes downward from left to right, and the slope becomes steeper as the input increases.

(c) it slopes upward from left to right, and the slope becomes flatter as the input increases.

Firms hire labor at the point where the (a) nominal wage rate equals the marginal product of labor. (b) real wage rate equals the marginal revenue product of labor. (c) nominal wage rate equals the marginal revenue product of labor. (d) real wage rate equals the marginal revenue product of capital.

(c) nominal wage rate equals the marginal revenue product of labor.

A person is more likely to increase labor supply in response to an increase in the real wage, the _____ is the income effect and the _____ is the substitution effect. (a) larger; larger (b) larger; smaller (c) smaller; larger (d) smaller; smaller

(c) smaller; larger

Suppose that in 2003 Freedonia had GDP equal to 2000 million, the capital stock was equal to 1700 million, the number of employees equaled 70 million. The production function is Y = AK0.25N0.75. Total factor productivity of the economy in that year was approximately equal to (a) 0.09. (b) 2.61. (c) 4.19. (d) 12.87.

(d) 12.87.

Suppose the marginal product of labor is MPN = 200 - 0.5N where N is aggregate employment. The aggregate quantity of labor supplied is 300 + 8w, where w is the real wage. If a supply shock increases the marginal product of labor by 10 (to MPN = 210 - 0.5 N), by how much does employment increase? (a) 0 (b) 4 (c) 8 (d) 16

(d) 16

The city of Hope has a labor force of 1000. Twenty people lose their jobs each month and remain unemployed for exactly one month before finding jobs. On January 1, May 1, and September 1 of each year, 50 people lose their jobs for a period of four months before finding new jobs. What is the unemployment rate in any given month? (a) 2% (b) 3% (c) 5% (d) 7%

(d) 7%

A sharp increase in stock prices makes people much wealthier. If the main effect of this increased wealth is felt on labor supply, what happens to current employment and the real wage rate? (a) Both employment and the real wage rate would increase. (b) Both employment and the real wage rate would decrease. (c) Employment would increase and the real wage would decrease. (d) Employment would decrease and the real wage would increase.

(d) Employment would decrease and the real wage would increase.

An increase in the number of workers hired by a firm could result from (a) a decrease in the marginal product of labor. (b) a decrease in the marginal revenue product of labor. (c) an increae in the real wage. (d) a decrease in the real wage.

(d) a decrease in the real wage.

According to Okun's law, an increase in the unemployment rate will cause _____ in the level of employment and _____ in the level of output. (a) an increase; an increase (b) an increase; a decrease (c) a decrease; an increase (d) a decrease; a decrease

(d) a decrease; a decrease

An increase in the real wage rate will cause (a) the labor demand curve to shift to the right. (b) the labor demand curve to shift to the left. (c) the quantity of labor demanded to rise. (d) a movement along the labor demand curve.

(d) a movement along the labor demand curve

An invention that speeds up the Internet is an example of (a) an income effect. (b) an increase in labor. (c) a substitution effect. (d) a supply shock.

(d) a supply shock.

The marginal product of labor (a) is measured by the slope of the production function relating capital to employment. (b) is larger when the labor supply is relatively larger. (c) is smaller when the labor supply is relatively smaller. (d) decreases as the number of workers already employed increases.

(d) decreases as the number of workers already employed increases.

The equilibrium level of employment, achieved after the complete adjustment of wages and prices, is known as the (a) zero-unemployment level of employment. (b) natural state. (c) invisible handshake. (d) full-employment level of employment.

(d) full-employment level of employment.

One reason that firms hire labor at the point where w = MPN is (a) if w < MPN, the cost (w) of hiring additional workers exceeds the benefits (MPN) of hiring them, so they should hire fewer workers. (b) if w > MPN, the cost (w) of hiring additional workers is less than the benefits (MPN) of hiring them, so they should hire more workers. (c) if w < MPN, the cost (w) of hiring additional workers equals the benefits (MPN) of hiring them, so they have the right number of workers. (d) if w > MPN, the cost (w) of hiring additional workers exceeds the benefits (MPN) of hiring them, so they should hire fewer workers.

(d) if w > MPN, the cost (w) of hiring additional workers exceeds the benefits (MPN) of hiring them, so they should hire fewer workers.

Your boss wants to know if you should lay off any workers. You answer that you should lay off workers if the (a) marginal revenue product of labor is greater than the nominal wage rate. (b) marginal product of labor is greater than or equal to the real wage rate. (c) marginal revenue product of labor is equal to the nominal wage rate. (d) marginal product of labor is less than the real wage rate.

(d) marginal product of labor is less than the real wage rate.

Cyclical unemployment arises when (a) unskilled or low-skilled workers find it difficult to obtain desirable, long-term jobs. (b) labor must be reallocated from industries that are shrinking to areas that are growing. (c) workers must search for suitable jobs and firms must search for suitable workers. (d) output and employment are below full-employment levels.

(d) output and employment are below full-employment levels.

The aggregate supply of labor is the (a) total amount of time a person works over his or her lifetime. (b) total amount of time a person spends in the labor force over his or her lifetime. (c) unemployment rate. (d) sum of the labor supplied by everyone in the economy.

(d) sum of the labor supplied by everyone in the economy.

The fact that the production function relating output to capital becomes flatter as we move from left to right means that (a) the marginal product of labor is positive. (b) the marginal product of capital is positive. (c) there is diminishing marginal productivity of labor. (d) there is diminishing marginal productivity of capital.

(d) there is diminishing marginal productivity of capital.

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A technological breakthrough in using photons for computers will increase the productivity of those working with computers a hundredfold. You would expect this breakthrough to shift the (a) marginal product of labor curve up and to the right, raising the quantity of labor demanded at any given real wage. (b) marginal product of labor curve down and to the left, reducing the quantity of labor demanded at any given real wage. (c) labor supply curve up, reducing the quantity of labor demanded at any given real wage. (d) labor supply curve down, raising the quantity of labor demanded at any given real wage.

a) marginal product of labor curve up and to the right, raising the quantity of labor demanded at any given real wage.

A decrease in the real wage would result in a (a) movement along the labor demand curve, causing an increase in the number of workers hired by the firm. (b) shift of the labor demand curve, causing an increase in the number of workers hired by the firm. (c) movement along the labor demand curve, causing a decrease in the number of workers hired by the firm. (d) shift of the labor demand curve, causing a decrease in the number of workers hired by the firm.

a) movement along the labor demand curve, causing an increase in the number of workers hired by the firm.

Full-employment output is the level of output that firms in the economy supply when (a) taxes are zero. (b) wages and prices have fully adjusted. (c) the unemployment rate is zero. (d) all capital is fully utilized.

b) wages and prices have fully adjusted.

If Jeff's wage rate rises, he decides to work fewer hours. From this, we can infer that (a) for Jeff, the substitution effect is greater than the income effect. (b) for Jeff, the substitution effect is equal to the income effect. (c) for Jeff, the substitution effect is less than the income effect. (d) Jeff is a nitwit.

c) for Jeff, the substitution effect is less than the income effect.

A mathematical expression relating the amount of output produced to quantities of capital and labor utilized is the (a) real interest rate. (b) productivity relation. (c) production function. (d) marginal product.

c) production function

The fact that the production function relating output to labor becomes flatter as we move from left to right means that (a) the marginal product of labor is positive. (b) the marginal product of capital is positive. (c) there is diminishing marginal productivity of labor. (d) there is diminishing marginal productivity of capital.

c) there is diminishing marginal productivity of labor.

Frictional unemployment arises when (a) unskilled or low-skilled workers find it difficult to obtain desirable, long-term jobs. (b) labor must be reallocated from industries that are shrinking to areas that are growing. (c) workers must search for suitable jobs and firms must search for suitable workers. (d) output and employment are below full-employment levels.

c) workers must search for suitable jobs and firms must search for suitable workers.

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The marginal product of labor (measured in units of output) for Expando Corp. is given by MPN = A(400 - N) where A measures productivity and N is the number of labor hours used in production. Suppose the price of output is $3 per unit and A = 2.0. What will be the demand for labor if the nominal wage is $18? (a) 57 (b) 107 (c) 197 (d) 397

d) 397