Test Two Quizzes

Suppose workers and firms expect the overall price level to increase by 5%. Given this information, we would expect that

A) the nominal wage will increase by more than 5%.

B) the real wage will increase by less than 5%.

C) the nominal wage will increase by exactly 5%.

D) the nominal wage will increase by less than 5%.

E) the real wage will increase by 5%.

C) the nominal wage will increase by exactly 5%.

In the wage setting relation W = P^eF(u,z), the variable z does not include which of the following variables?

A) unemployment benefits

B) the minimum wage

C) the extent to which firms mark up prices over their marginal cost

D) all of the above

E) none of the above

C) the extent to which firms mark up prices over their marginal cost

Which of the following variables is most directly determined in the labor market?

A) stock prices

B) interest rates

C) nominal wages

D) all of the above

E) none of the above

C) nominal wages

The Current Population Survey interviews approximately how many households each month?

A) 100,000

B) 5,000

C) 10,000

D) 60,000

D) 60,000

As the unemployment rate falls,

A) the proportion of the unemployed finding a job increases.

B) the separation rate increases.

C) the young and unskilled experience larger-than-average decreases in unemployment.

D) both A and C.

E) all of the above

D) both A and C.

Use the information provided below to answer the following question(s).

The non-institutional civilian population is 250 million, of which 100 million are employed and 10 million are unemployed.

Based on the information above, the unemployment rate is

A) 4%.

B) 6.6%.

C) 11.1%.

D) 10%.

E) 9.1%.

E) 9.1%.

Based on wage setting behavior, we know that a reduction in the unemployment rate will cause

A) an upward shift of the WS curve.

B) no change in the real wage.

C) a reduction in the real wage.

D) an increase in the real wage.

D) an increase in the real wage.

Suppose we wish to examine the determinants of the equilibrium real wage and equilibrium level of employment (N). In a graph with the real wage on the vertical axis, and the level of employment on the horizontal axis, the price-setting relation will now be

A) an upward sloping line.

B) a horizontal line.

C) kinked at the natural rate of unemployment.

D) a vertical line.

E) a downward sloping line.

B) a horizontal line.

The natural rate of unemployment is the rate of unemployment

A) that occurs when the money market is in equilibrium.

B) where the markup of prices over costs is equal to its historical value.

C) that occurs when both the goods and financial markets are in equilibrium.

D) that occurs when the markup of prices over costs is zero.

E) none of the above

E) none of the above

Efficiency wage theory suggests that

A) workers will be paid less than their reservation wage.

B) productivity might drop if the wage rate is too low.

C) firms will be more resistant to wage increases as the labor market tightens.

D) the government can only set tax rates so high before people will prefer not to work.

E) unskilled workers will have a lower turnover rate than skilled workers.

B) productivity might drop if the wage rate is too low.

An increase in the price of oil will likely cause which of the following?

A) increase the natural rate of unemployment

B) increase the markup in the Phillips curve equation

C) increase the sum "m + z" in the Phillips curve equation

D) all of the above

E) none of the above

D) all of the above

Data for which country were first used to illustrate the relationship between unemployment and inflation (i.e., the original Phillips curve)?

A) Germany

B) Canada

C) France

D) United States

E) England

E) England

When inflation has been persistent, as was the case in the United States during the 1970s, low unemployment rates will likely be associated with

A) low but stable rates of inflation.

B) increases in the inflation rate.

C) high natural rates of unemployment.

D) low natural rates of unemployment.

E) high but stable rates of inflation.

B) increases in the inflation rate.

When a worker's nominal wage is indexed, the nominal wage is usually automatically adjusted based on movements in which of the following variables?

A) productivity

B) the price of the firm's product

C) the average wage in the industry

D) the average wage in the country

E) none of the above

E) none of the above

In the Phillips curve equation, which of the following will cause a reduction in the current inflation rate?

A) a reduction in the markup, m

B) an increase in the unemployment rate

C) a reduction in the expected inflation rate

D) all of the above

E) none of the above

D) all of the above

Which of the following individuals first discovered the relationship between unemployment and inflation?

A) Solow

B) Friedman

C) Samuelson

D) Phillips

D) Phillips

Since approximately 1970, the most stable Phillips-type relationship for the United States has been between which of the following?

A) the change in the unemployment rate and the change in the rate of inflation

B) the unemployment rate and the change in the rate of inflation

C) the unemployment rate and the rate of inflation

D) the rate of inflation and the change in the unemployment rate

E) the inverse of the unemployment rate and the rate of inflation

B) the unemployment rate and the change in the rate of inflation

During the Great Depression, the actual unemployment rate in the U.S. ________, and the natural rate apparently ________.

A) increased; decreased

B) increased; remain unchanged

C) decreased; increased

D) decreased; remained unchanged

E) increased; increased as well

E) increased; increased as well

Which of the following will not cause a change in the natural rate of unemployment?

A) a reduction in m

B) an increase in z

C) an increase in the expected inflation rate

D) an increase in m

E) none of the above

C) an increase in the expected inflation rate

The zero lower bound refers to the situation that

A) inflation rate is 0%.

B) the lowest the central bank can decrease the nominal policy rate is 0%.

C) risk premium is 0%.

D) real interest rate is 0%.

B) the lowest the central bank can decrease the nominal policy rate is 0%.

The Phillips curve shows that when the unemployment rate is higher than the natural rate,

A) policy rate is higher than expected.

B) inflation is lower than expected.

C) inflation is higher than expected.

D) policy rate is lower than expected.

B) inflation is lower than expected.

In the IS-LM-PC model, investment does not depend on

A) r.

B) x.

C) T.

D) Y.

C) T.

What is the major reason for oil price to go up in the 1970s?

A) formation of the OPEC

B) new energy

C) fast of growth of emerging economies

D) higher demand from the US

A) formation of the OPEC

When a government reduces its deficit by increasing taxes, in the short run,

A) interest rate is higher.

B) IS curve shifts inward to the left.

C) output returns to potential.

D) output increases.

B) IS curve shifts inward to the left.

If the output is too high, to achieve the medium run equilibrium, the central bank will

A) increases policy rate.

B) increases inflation rate.

C) reduces policy rate.

 D) increase money supply.

A) increases policy rate.

The natural rate of interest is not

A) zero.

B) Wicksellian rate of interest.

C) associated with the natural rate of unemployment.

D) the neutral rate of interest.

 

A) zero.

When a government reduces its deficits by increasing taxes, in the medium run,

A) IS curve shifts inward to the left.

B) interest rate is higher.

C) output increases.

D) output returns to potential.

D) output returns to potential.

Okun's law shows that when the unemployment rate is above the natural rate,

A) output is above potential.

B) inflation is higher than expected.

C) output is below potential.

D) inflation is lower than expected.

C) output is below potential.