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#### 1)In the production function Y = AF(K, N), A is ________, K is ________, and N is ________

###### Economics

1)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

2) 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.

3) Suppose the economy's production function is Y = A

. Suppose K = 200, N = 2000, and A = 1. Calculate the marginal product of capital.

A) 1.0

B) 1.5

C) 2.0

D) 2.5

4) 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.

5) Because of diminishing marginal productivity

A) the labor supply curve is not vertical.

B) nominal wages are sticky in a downward direction.

C) the labor demand curve is negatively sloped.

D) households save only a small share of their income.

6) 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.(because there is dimishing return , more labor less change)

7) 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.(this is production function, this is not supply function)

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.

8) A favorable 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.

9) 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.(A includes factors that are not K,N    invention is included in prodactivity(A))

10) 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

11) Suppose the production function is Y = A

. Suppose in 2000, K = 1000, N = 100, and Y = 199.5. In 2010, capital, labor, and output have doubled, so K = 2000, N = 200, and Y = 399.

(a)  By what percentage did productivity grow (A’s growth rate)from 2000 to 2010?

(b)  If output had risen to 798 instead of 399, and capital and labor doubled, by what percentage would productivity have grown from 2000 to 2010?

12.  In the U.S. economy in 1991, real GDP was 4861.4 (in billions of 1987 dollars), the capital stock was 13,806.2 (in billions of 1987 dollars), and employment was 118.4 (in millions of workers). In 1992 the numbers were: real GDP 4986.3, capital stock 14,040.8, employment 119.2. Suppose the production function in both years is Y = A

.

(a)  Calculate total factor productivity for 1991 and 1992.

(b)  How much did total factor productivity grow from 1991 to 1992?

(c)  Calculate the percent increase in real output between 1991 and 1992.

(d) Suppose tax incentives had raised the capital stock in 1992, making it 10% higher, to 15,444.9. If employment didn't change, what would have been the percent increase in real output between 1991 and 1992?

(e)  Instead of the increase in the capital stock in part d, suppose employment was 10% higher in 1992, making it 131.1. With the capital stock fixed at 14,040.8, what would have been the increase in real output between 1991 and 1992?

13) Suppose the economy's production function is Y = A

. Suppose K = 200, N = 2000, and A = 1.

Calculate the marginal products of labor and capital.

14) 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 with the amount of labor.

D) unless the interest rate changes, the capital stock doesn't change.

15) 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.

16) 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.

17) 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 (MPN)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

18) 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.

19) 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 (MPRN)of labor.

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

D) real wage rate equals the marginal revenue product of capital.

20) The Upstart Company has the following production function.

If the company hires 4 workers, which of the following could be the real wage rate?

A) 2

B) 4(w=MPN) This is 4 because hire five the mpn becomes 3 which if the wage is 4 then the mpn would be too low.

C) 6

D) 8

21) The Widget Company has the following production function.

If widgets sell for \$6 each and the wage rate is \$33, how many workers will the company hire?

A) 0

B) 1

C) 2

D) 4 the w=5.5 if we hire 5 people we get mpn 5 which is lower than 5.5 so we stop at 4

22) 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.

23) The tendency of workers to supply more labor in response to a larger reward for working is called the ________ of a higher real wage on the quantity of labor supplied.

A) homogeneous labor supply effect

B) negative correlation effect

C) income effect

D) substitution effect

24) The income effect of a higher real wage on the quantity of labor supply is the

A) idea that workers feel psychologically wealthier when wages are higher, so they work more.

B) effect that income must rise when wages rise.

C) tendency of workers to supply more labor in response to becoming wealthier.

D) tendency of workers to supply less labor in response to becoming wealthier.

25) 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.

26) Research on labor supply generally shows 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.

27) Over the past 100 years, what has happened to the average workweek in the U.S. manufacturing industry? Why has this occurred? What are the implications for the size of the income and substitution effects?

28) In each of the following scenarios, state whether the labor supply curve would shift to the left, to the right, not shift at all, or if the shift is ambiguous because there is more than one effect and they would move the curve in opposite directions.

(a)  The stock market rises sharply.

(b)  Fewer teenagers work while in school than before. (let)

(c)  A large fraction of the population flees the country because of a bird flu epidemic.(let)

(d)  The expected future wage declines and the stock market crashes. (Right)

(e)  The current real wage rate rises.(Right)

29) A tremendous flood along the Mississippi River destroys thousands of factories, reducing the nation's capital stock by 5%. (negative supply shock) that 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.?labor demand shift left?

C) Employment would increase and the real wage would decrease.

D) Employment would decrease and the real wage would increase.

30) 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.

31) A bird flu epidemic causes many people to flee the country, but does not affect labor demand significantly because almost all the goods produced within the country are exported. 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.

32) 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.

33) 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.

34) Suppose oil prices fall temporarily, as oil becomes more plentiful. What impact is this likely to have on the production function, the marginal products of labor and capital, labor demand, employment, and the real wage?

35) Suppose the marginal product of labor in the economy is given by MPN = 200 - 0.5 N, while the supply of labor is 100 + 4w.

(a)  Find the market-clearing real wage rate. w=50

(b) What happens if the government imposes a minimum wage of 40? Is there involuntary unemployment?

(c)  What happens if the government imposes a minimum wage of 60? Is there involuntary unemployment?

36) 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

37) 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%     70/1000

38) 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 (220/70)

D) 3.43 months

12) 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.

39) Cyclical unemployment is caused by

A) people entering the labor force to search for jobs.

B) technological progress, which causes some industries to expand employment and others to reduce employment.

C) reducing international trade barriers, which causes some industries to expand employment and others to reduce employment.

40) In April 2000, the United States had a labor force of 141,230,000, employment of 135,706,000, and there were 67,986,000 people not in the labor force (all numbers rounded to the nearest 1000).

(a)  Calculate the unemployment rate.

(b)  Calculate the participation rate.

(c)  Calculate the employment ratio.

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