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Homework answers / question archive / 1) The existence of labor unions could contribute to real-wage rigidity, except that in the United States A) labor unions are outlawed

1) The existence of labor unions could contribute to real-wage rigidity, except that in the United States A) labor unions are outlawed

Economics

1) The existence of labor unions could contribute to real-wage rigidity, except that in the United States

A) labor unions are outlawed.

B) most workers aren't in unions.

C) unions are interested in benefits, not wages.

D) to increase employment rather than negotiating over wages.

 

 

 

 

 

2) Keynesians are skeptical of the classical theory that recessions are periods of increased mismatch between workers and jobs because

A) help-wanted advertising falls during recessions.

B) help-wanted advertising rises during recessions.

C) workers spend a lot of time searching for work in recessions.

D) people are indifferent between being employed or not.

 

 

3) The gift exchange motive suggests that

A) workers value benefits like health insurance more than job security.

B) workers prefer a nice work environment, even if they must accept lower wages.

C) workers who feel well treated will work harder and more efficiently.

D) workers will shirk if they are paid a low wage.

 

 

4) A model in which workers won't be concerned about the possibility of being fired if they don't work hard, because their wage is so low, is called

A) a cost-benefit model.

B) a job-stress model.

C) a gift-exchange model.

D) a shirking model.

 

 

5) The effort curve is

A) horizontal, because work effort is independent of the real wage.

B) negatively sloped, because of diminishing marginal returns to labor.

C) positively sloped, because of the law of increasing cost.

D) s-shaped, because a small increase in the real wage will increase work effort more at an intermediate wage than at a low wage or at a high wage.

 

 

6) According to the efficiency wage model, firms will pay the real wage that

A) maximizes workers' marginal productivity.

B) maximizes the marginal productivity of capital and the marginal productivity of labor together.

C) maximizes effort per dollar of real wage.

D) minimizes hiring and training costs to the firm.

 

 

7) Assuming no change in the effort curve of employees, the efficiency wage model implies that

A) the real wage is rigid and equals the efficiency wage.

B) the real wage exceeds the marginal productivity of labor.

C) an increase in the marginal productivity of capital will increase the real wage.

D) the real wage is procyclical.

 

 

 

8) A firm faces the following relationship between the real wage it pays and the effort exerted by its workers.

 

 

 

 

The marginal product of labor for this firm is given by MPN = E (100 - N)/9. The firm will choose to pay a wage such that the effort level is

A) 20.

B) 24.

C) 27.

D) 29.

 

 

 

9) A firm faces the following relationship between the real wage it pays and the effort exerted by its workers.

 

 

 

 

The marginal product of labor for this firm is given by MPN = E (100 - N)/9. How many workers will the firm employ?

A) 96

B) 92

C) 88

D) 80

 

 

 

10) In the efficiency wage model with the efficiency wage above the market-clearing wage, the level of employment depends on

A) the intersection of labor supply and labor demand.

B) the marginal productivity of capital and the marginal productivity of labor.

C) labor demand alone.

D) labor supply alone.

 

 

11) In the efficiency wage model with the efficiency wage above the market-clearing wage, when employment is at its full-employment level,

A) labor supply equals labor demand.

B) there is an excess supply of labor.

C) there is an excess demand for labor.

D) there could be either an excess demand for, or an excess supply of, labor.

 

 

12) In the efficiency wage model, an increase in productivity will cause

A) no change in the real wage.

B) an increase in the real wage.

C) a decrease in the real wage.

D) an increase in both the real wage and the level of employment.

 

 

 

13) In the efficiency wage model, if the real wage is higher than the market-clearing wage so that there is an excess supply of labor,

A) firms will hire new workers at lower wages.

B) firms will replace high-paid workers with low-paid, formerly unemployed workers.

C) employers will not hire workers who are willing to work for a lower wage.

D) firms will demand a higher level of effort from existing employees.

 

 

 

14) According to the efficiency wage model, during a recession, firms will not reduce real wages because

A) unions would go on strike, reducing profitability.

B) this would reduce worker effort and productivity.

C) the equilibrium real wage has increased.

D) legally, they can't.

 

 

15) The efficiency wage model can be modified to allow real wages to vary over the business cycle by assuming that

A) workers' effort may depend on the unemployment rate and the real wage.

B) during a recession, labor supply will decrease, reducing the efficiency wage.

C) during a recession, productivity will fall, causing a reduction in the efficiency wage.

D) during a boom, labor demand will increase, causing the efficiency wage to rise.

 

 

16) In the Keynesian model, the real wage is mildly procyclical because

A) demand for labor fluctuates with the demand for final goods.

B) firms take advantage of recessions to pay slightly lower wages, since there's excess labor supply.

C) workers' effort may depend on the unemployment rate and the real wage.

D) the supply of labor fluctuates with the business cycle.

 

 

17) In the efficiency wage model, an increase in productivity would

A) increase output but decrease the real wage.

B) decrease the real wage but have no effect on output.

C) increase output but have no effect on the real wage.

D) have no effect on either output or the real wage.

 

 

18) In the Keynesian model with efficiency wages,

A) the full-employment line is determined where the quantity of labor demanded equals the quantity of labor supplied.

B) the full-employment level is determined at the intersection of the labor demand curve and the efficiency wage line.

C) an increase in labor supply increases employment.

D) a decrease in labor supply shifts the FE line to the left.

 

 

19) In the Keynesian model, the full-employment level of output is the amount of output produced when

A) the quantity of labor demanded equals the quantity of labor supplied.

B) the market wage exceeds the efficiency wage.

C) labor is paid an efficiency wage, and the real wage equals the marginal product of labor.

D) the real wage exceeds the nominal wage.

 

 

 

11.2   Price Stickiness

 

1) A firm is a price taker if it

A) always sells its output at the industry-determined price.

B) takes consumer demand into consideration in setting its price.

C) takes its production costs into consideration in setting its price.

D) uses a pricing strategy to gain market share.

 

 

2) A model in which individual producers act as price setters, because there are only a few sellers and the product they sell is not standardized, is called

A) imperfect competition.

B) perfect competition.

C) monopoly.

D) monopsony.

 

 

 

3) In the Keynesian model, firms are best characterized as

A) perfectly competitive.

B) irrational.

C) price takers.

D) monopolistically competitive.

 

 

4) When the demand for an imperfect competitor's product is greater than it planned, the firm will

A) increase the price of the product until supply equals demand.

B) meet the demand at its set price.

C) reduce the price until supply equals demand.

D) allow a shortage of the product to develop, without changing the product's price.

 

 

 

5) If the menu cost theory is true, then firms that change prices less frequently than other firms are likely to be in

A) more competitive industries.

B) service, rather than manufacturing, industries.

C) growing, rather than declining, industries.

D) less competitive industries.

 

 

6) 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) transactions cost theory.

B) cost-benefit theory.

C) menu cost theory.

D) gift exchange theory.

 

 

 

7) According to the menu cost theory, firms will be slow in changing their prices because

A) if prices changed frequently, individuals would reduce their demand for that good because of uncertainty.

B) frequent price changes would be a sign of monopolistic behavior.

C) the cost of changing the price might exceed the additional revenue the price change would generate.

D) demand for their product would fall because consumers would purchase goods from firms that had not raised their prices.

 

 

8) The cost to a firm of producing one more unit of output

A) usually exceeds the firm's price.

B) is significantly less than the firm's price for purely competitive firms operating in long-run equilibrium.

C) usually equals the firm's price for monopolistically competitive firms.

D) is the firm's marginal cost.

 

 

 

 

9) In setting the price of its product, a monopolistic competitor sets the price equal to its marginal cost plus an amount called the

A) markup.

B) profit.

C) rent.

D) menu cost.

 

 

10) According to Nakamura and Steinsson's research, prices are ________ sticky than Bils and Klenow found because the latter failed to account for ________.

A) more; sales

B) more; taxes

C) less; taxes

D) less; sales

 

 

 

11) If firms are price setters, a small decline in the demand for their outputs will cause them to

A) reduce price and reduce the level of output produced.

B) reduce output in the short run, but reduce price in the long run.

C) reduce price in the short run, but reduce output only in the long run.

D) increase price in the short run to offset the effect on profits of a decline in output.

 

 

12) Because of price stickiness in the Keynesian model, a decline in investment demand will not cause the

A) LM curve to shift down and to the right in the short run.

B) LM curve to shift in the long run.

C) IS curve to shift down and to the left in the short run.

D) IS curve to shift in the long run.

 

 

 

11.3   Monetary and Fiscal Policy in the Keynesian Model

 

 

1) In the Keynesian model in the short run, the amount of employment is determined by the effective labor demand curve and the level of

A) prices.

B) output.

C) the real interest rate.

D) the supply of labor.

 

 

 

2) In the Keynesian model, short-run equilibrium occurs

A) where the IS and LM curves intersect.

B) where the IS curve, LM curve, and FE lines intersect.

C) where the IS curve intersects the FE line.

D) where the LM curve intersects the FE line.

 

 

 

3) In the Keynesian model, when the economy is not in long-run equilibrium, then the short-run equilibrium point is not on which curve?

A) SRAS

B) FE

C) IS

D) LM

 

 

4) 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) an increase in the real interest rate but no change in output.

C) a decrease in the real interest rate and a decrease in output.

D) no change in either the real interest rate or output.

 

 

5) In the Keynesian model in the short run, an increase in the money supply will cause

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

B) a decrease in the real interest rate but no change in output.

C) an increase in the real interest rate and an increase in output.

D) no change in either the real interest rate or output.

 

 

6) The distinguishing feature that determines whether an analysis is classical or Keynesian is

A) the speed of price adjustment.

B) the slope of the aggregate demand curve.

C) the degree of monopoly power in the economy.

D) the assumption about the transmission mechanism of monetary policy.

 

 

7) In the Keynesian model, money is

A) neutral in both the short run and the long run.

B) neutral in neither the short run nor the long run.

C) neutral in the short run, but not in the long run.

D) neutral in the long run, but not in the short run.

 

 

8) In the Keynesian model in the long run, a decrease in the money supply will cause

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

B) an increase in the real interest rate but no change in output.

C) a decrease in the real interest rate and a decrease in output.

D) no change in either the real interest rate or output.

 

 

9) In the Keynesian model, which curve is vertical?

A) LRAS

B) SRAS

C) AD

D) NS

 

 

 

 

10) In the Keynesian model in the long run, a decrease in the money supply will cause ________ in the real interest rate and ________ in the price level.

A) an increase; an increase

B) a decrease; a decrease

C) no change; an increase

D) no change; a decrease

 

 

 

11) According to Keynesians, the primary reason money is not neutral is

A) rational expectations.

B) price stickiness.

C) reverse causation.

D) misperceptions over the aggregate price level.

 

 

 

12) In the Keynesian model in the long run, an increase in the money supply will raise

A) the price level but not the level of output.

B) the level of output but not the price level.

C) both the level of output and the price level.

D) neither the level of output nor the price level.

 

 

13) Using the Keynesian model, the effect of an increase in the effective tax rate on capital would be to cause ________ in the real interest rate and ________ in output in the short run.

A) a decrease; a decrease

B) a decrease; no change

C) an increase; an increase

D) no change; a decrease

 

 

14) Using the Keynesian model, the effect of a decrease in the effective tax rate on capital would be to cause ________ in the real interest rate and ________ in output in the short run.

A) a decrease; a decrease

B) a decrease; no change

C) an increase; an increase

D) no change; a decrease

 

 

15) Using the Keynesian model, the effect of a decrease in the effective tax rate on capital would be to cause ________ in the real interest rate and ________ in output in the long run.

A) an increase; no change

B) a decrease; no change

C) an increase; an increase

D) no change; a decrease

 

 

 

 

16) Using the Keynesian model, the effect of a government-imposed ceiling on interest rates paid on personal checking accounts that is lower than the current market interest rate would be to cause ________ in the real interest rate and ________ in output in the short run.

A) a decrease; a decrease

B) a decrease; no change

C) a decrease; an increase

D) an increase; a decrease

 

 

 

 

 

17) In the Keynesian model, an increase in government purchases affects output by

A) increasing labor supply, because workers feel effectively poorer.

B) increasing saving to pay for future taxes, lowering the real interest rate and shifting the IS curve to the left.

C) increasing the real interest rate due to crowding out, reducing aggregate demand.

D) increasing aggregate demand as national saving declines.

 

 

 

 

18) In the Keynesian model in the short run, a decrease in government purchases causes output to ________ and the real interest rate to ________.

A) fall; rise

B) fall; fall

C) rise; rise

D) rise; fall

 

Diff: 2

 

 

 

 

19) In the Keynesian model in the long run, an increase in taxes causes the price level to ________ and the real interest rate to ________.

A) fall; rise

B) fall; fall

C) rise; rise

D) rise; fall

 

 

 

20) Suppose the government decided to tighten monetary policy and decrease government expenditures. In the short run in the Keynesian model, the effect of these policies would be to ________ the real interest rate and ________ the level of output.

A) lower; decrease

B) lower; have an ambiguous effect on

C) have an ambiguous effect on; decrease

D) raise; decrease

 

 

 

 

21) Suppose the government decided to ease monetary policy, then increase taxes. In the short run in the Keynesian model, the effect of these policies would be to ________ the real interest rate and ________ the level of output.

A) lower; increase

B) lower; decrease

C) lower; have an ambiguous effect on

D) have an ambiguous effect on; increase

 

 

 

 

22) The 1980s were characterized by ________ monetary policy and ________ fiscal policy.

A) tight; easy

B) tight; tight

C) easy; easy

D) easy; tight

 

 

 

 

 

23) Easy monetary policy and tight fiscal policy lead to

A) high real interest rates.

B) low real interest rates.

C) roughly unchanged real interest rates.

D) roughly unchanged real interest rates only when Ricardian equivalence holds; otherwise, low real interest rates.

 

 

 

11.4   The Keynesian Theory of Business Cycles and Macroeconomic Stabilization

 

1) According to Keynesians, the primary source of business cycle fluctuations is

A) aggregate demand shocks.

B) productivity shocks.

C) oil price shocks.

D) consumer confidence shocks.

 

 

 

2) Keynesians believe that the most important shocks for affecting the business cycle are

A) productivity shocks.

B) aggregate supply shocks.

C) aggregate demand shocks.

D) government spending shocks.

 

 

 

3) The Keynesian theory is consistent with the business cycle fact that inflation is

A) procyclical and leading.

B) procyclical and lagging.

C) countercyclical and leading.

D) countercyclical and lagging.

 

 

 

4) 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) the gift exchange motive.

B) worker pooling.

C) labor hoarding.

D) union busting.

 

 

 

5) The use of macroeconomic policies to smooth or moderate the business cycle is known as

A) aggregate demand management.

B) aggregate supply management.

C) automatic stabilization.

D) discretionary policy.

 

 

6) In the Keynesian model, the difference between using monetary and fiscal policy to eliminate a recession is that

A) monetary policy will eliminate a recession quicker than fiscal policy will.

B) fiscal policy will eliminate a recession quicker than monetary policy will.

C) an expansionary monetary policy will leave the economy with a lower real interest rate than an expansionary fiscal policy.

D) an expansionary fiscal policy will leave the economy with a lower real interest rate than an expansionary monetary policy.

 

 

 

 

7) In the Keynesian model, the difference between no intervention by the government during a recession and intervention using expansionary monetary or fiscal policy is that no intervention will return the economy to its equilibrium level of output

A) faster than intervention will and at a lower price level.

B) slower than intervention will and at a higher price level.

C) slower than intervention will and at a lower price level.

D) faster than intervention will and at a higher price level.

 

 

 

8) Keynesians believe that the difference between using an increase in the money supply compared with an increase in government spending to increase aggregate demand in the event of a recession is that if government spending is increased, ________ will be ________ than if the money supply is increased.

A) real interest rate; higher

B) real interest rate; lower

C) the price level; lower

D) the price level; higher

 

 

9) A problem with the use of aggregate demand management to stabilize the business cycle is that

A) monetary policy isn't available to use when interest rates are already rising because of higher inflation.

B) fiscal policy takes a long time to have any impact on the economy.

C) monetary policy is difficult to use, because the decision-making process is long and complicated.

D) the precise amount that output will change in response to monetary or fiscal policy isn't known.

 

 

 

10) In the 1990s, nominal interest rates in Japan were approximately

A) 0%.

B) 10%.

C) 100%.

D) 1000%.

 

 

 

11) A situation in which expansionary monetary policy has no effect on the economy is known as

A) macroeconomic stabilization.

B) a liquidity trap.

C) a depression.

D) capital flight.

 

 

 

12) In the long run in the Keynesian model, a beneficial supply shock would leave the economy with a higher level of output, but also a ________ real interest rate and a ________ price level.

A) higher; lower

B) lower; higher

C) lower; lower

D) higher; higher

 

 

 

13) In the short run in the Keynesian model, a sharp increase in oil prices would leave the economy with a ________ level of output and a ________ real interest rate.

A) higher; lower

B) lower; higher

C) lower; lower

D) higher; higher

 

 

 

 

14) In the short run in the Keynesian model, a sharp decline in oil prices would leave the economy with a ________ level of output and a ________ real interest rate.

A) higher; lower

B) lower; higher

C) lower; lower

D) higher; higher

 

 

 

15) Recent research by Keynesians and classicals has led to

A) a reconciliation of the types of models they use.

B) the recognition by classical economists that prices adjust very slowly.

C) convincing evidence that TFP shocks are the dominant force affecting the business cycle.

D) the refutation of the efficiency wage model.

 

 

 

 

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