Homework 6

In the Solow growth model, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals: (1 - s) y (1 - s) y - i sy (1 + s) y

(1 - s) y

If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be: 0.02. 0.08. 0.10. 0.18.

0.18.

f the per-worker production function is given by y = k1/2, the saving rate (s) is 0.2, and the depreciation rate is 0.1, then the steady-state capital per worker is: 4. 1. 9. 2.

4

Which of the following is an example of frictional unemployment? Elaine is willing to work for less than the minimum wage, but employers cannot hire her for less than the minimum wage. Dave searches for a new job after voluntarily moving to San Diego. Joan is willing to work for less than the going wage, but there are no jobs available. Bill is qualified and would like to be an airline pilot, but airlines do not find it profitable to hire him at the wage established by the airline pilots' union.

Dave searches for a new job after voluntarily moving to San Diego.

______ cause(s) the capital stock to rise, while ______ cause(s) the capital stock to fall. Investment; depreciation International trade; depressions Interest rates; the discount rate

Investment; depreciation

Which of the following is the best example of structural unemployment? Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has two months of unemployment insurance benefits left. Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available. Tim is looking for a job with flexible hours but has not been offered one yet. Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer-generated animation.

Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available.

Assume that a country experiences a reduction in productivity that shifts the labor demand curve downward and to the left. If the labor market were always in equilibrium, this would lead to: no change in real wage or in unemployment. a lower real wage and less unemployment. a lower real wage and no change in unemployment. a lower real wage and a rise in unemployment.

a lower real wage and no change in unemployment

Short-term unemployment is most likely to be ______ unemployment, while long-term unemployment is mostly likely to be _____ unemployment. the natural rate of; frictional structural; the natural rate of structural; frictional frictional; structural

frictional; structural

Exhibit: Output, Consumption, and Investment. In this graph, when the capital stock per worker is OA, AB represents: investment per worker, and AC represents consumption per worker. investment per worker, and BC represents consumption per worker. consumption per worker, and BC represents investment per worker. consumption per worker, and AC represents investment per worker.

investment per worker, and BC represents consumption per worker.

Sectoral shifts: make frictional unemployment inevitable. depend on the level of the minimum wage. lead to wage rigidity. explain the payment of efficiency wages.

make frictional unemployment inevitable.

Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker: more in Highland. more in Lowland. in Highland but not in Lowland. by the same amount in Highland and Lowland.

more in Lowland.

Assume that a country experiences a reduction in productivity that shifts the labor demand curve downward and to the left. If the real wage were rigid, this would lead to: a decrease in the real wage. no change in the real wage and a fall in unemployment. no change in the real wage and a rise in unemployment. no change in the real wage and no change in unemployment.

no change in the real wage and a rise in unemployment.

In the Solow growth model, for any given capital stock, the ______ determines how much output the economy produces, and the ______ determines the allocation of output between consumption and investment. depreciation rate; population growth rate population growth rate; saving rate saving rate; production function production function; saving rate

production function; saving rate

Efficiency-wage theories suggest that a firm may pay workers more than the market-clearing wage for all of the following reasons except to: reduce labor turnover. reduce the firm's wage bill. increase worker effort. improve the quality of the firm's labor force.

reduce the firm's wage bill

Any policy aimed at lowering the natural rate of unemployment must either ______ the rate of job separation or ______ the rate of job finding. reduce; increase reduce; reduce increase; reduce increase; increase

reduce; increase

When f (k) is drawn on a graph with increases in k noted along the horizontal axis, the slope of the curve denotes: output per worker. the marginal product of capital. output per unit of capital. the marginal product of labor.

the marginal product of capital.

When the unemployment rate is at a steady state: no hiring or firings are occurring. the number of people losing jobs exceeds the number of people finding jobs. the number of people finding jobs exceeds the number of people losing jobs. the number of people finding jobs equals the number of people losing jobs.

the number of people finding jobs equals the number of people losing jobs.

All of the following are reasons for frictional unemployment except: unemployed workers accept the first job offer that they receive. the flow of information is imperfect. workers have different preferences and abilities. geographic mobility takes time.

unemployed workers accept the first job offer that they receive.

In the model of the steady-state unemployment rate with a fixed labor force, the rate of job finding equals the percentage of the ______ who find a job each month, while the rate of job separation equals the percentage of the ______ who lose their job each month. labor force; unemployed employed; labor force labor force; labor force unemployed; employed

unemployed; employed

A policy that increases the job-finding rate _____ the natural rate of unemployment. will not change will decrease will increase could either increase or decrease

will decrease