chapter 14

Principles of Macroeconomics, 9e - TB1 (Case/Fair/Oster) Chapter 14

1

The Labor Market in the Macroeconomy

14.1

2

The Labor Market: Basic Concepts

1

3

Multiple Choice

1)

4

The functioning of the labor market primarily affects the shape of the A)

5

aggregate demand curve. B)

6

money demand curve. C)

7

aggregate supply curve. D)

8

planned investment curve. Answer :

9

C Diff: 1 Topic :

10

The Labor Market: Basic Concepts Skill :

11

Conceptual AACSB :

12

Reflective Thinking

2)

13

The type of unemployment that is due to changes in the structure of the economy is A)

14

adjustable unemployment. B)

15

structural unemployment. C)

16

frictional unemployment. D)

17

cyclical unemployment. Answer :

18

B Diff: 1 Topic :

19


20

Definition

3)

21

The type of unemployment that arises during recessions is known as A)

22

the natural rate of unemployment. B)

23

cyclical unemployment. C)

24

structural unemployment. D)

25

frictional unemployment. Answer :

26

B Diff: 1 Topic :

27


28

Definition

4)

29

The type of unemployment that is most likely to arise as a result of technological changes is A)

30

cyclical unemployment. B)

31

seasonal unemployment. C)

32

frictional unemployment. D)

33

structural unemployment. Answer :

34

D Diff: 1 Topic :

35


36

Definition

37

5)

38

If you hear a person saying "I lost my job because I was replaced by a machine," you should conclude that this person is ________ unemployed.

A)

39

cyclically B)

40

structurally C)

41

frictionally D)

42

seasonally Answer :

43

B Diff: 1 Topic :

44


45

Conceptual AACSB :

46

Reflective Thinking

6)

47

If you hear a person saying "I lost my job at the GM plant because car manufacturing is slow due to a slowdown in the economy," you should conclude that this person is ________ unemployed.

A)

48

cyclically B)

49

structurally C)

50

frictionally D)

51

seasonally Answer :

52

A Diff: 1 Topic :

53


54

Conceptual AACSB :

55

Reflective Thinking

7)

56

The labor force includes those people with a job and A)

57

those people who are looking for work. B)

58

those people training for a job. C)

59

those people who formerly worked and are now retired. D)

60

homemakers. Answer :

61

A Diff: 1 Topic :

62


63

Definition

8)

64

The unemployment rate is A)

65

the number unemployed divided by the labor force. B)

66

the number unemployed divided by the number employed. C)

67

the number unemployed divided by the population. D)

68

the difference between the population and the number employed divided by the population. Answer :

69

A Diff: 1 Topic :

70


71

Definition

72

9)

73

If a country has a population of 400 million, 160 million people employed and 40 million people looking for work, then its unemployment rate is

A)

74

10%. B)

75

20%. C)

76

25%. D)

77

40%. Answer :

78

B Diff: 2 Topic :

79


80

Analytic AACSB :

81

Analytic Skills

10)

82

Employment tends to rise when A)

83

aggregate output falls. B)

84

unemployment rises. C)

85

aggregate output rises. D)

86

labor productivity falls. Answer :

87

C Diff: 2 Topic :

88


89

Conceptual AACSB :

90

Reflective Thinking

2

91

True/False

1)

92

If a household member is not in the labor force, it is because he or she has decided his or her time is more valuable in nonmarket activities.

Answer :

93

TRUE Diff: 1 Topic :

94


95

Conceptual AACSB :

96

Reflective Thinking

2)

97

If a person is not employed but is looking for work, she is in the labor force. Answer :

98


99


100

Conceptual AACSB :

101

Reflective Thinking

3)

102

Frictional unemployment is the type that arises due to recessions. Answer :

103

FALSE Diff: 1 Topic :

104


105

Definition

4)

106

Structural unemployment arises when the economy changes making some jobs obsolete. Answer :

107


108


109

Definition

110

5)

111

Cyclical unemployment is that which rises in recessions and shrinks during expansions. Answer :

112


113


114

Definition

6)

115

The unemployment rate will never be zero because the economy is dynamic and always changing.

Answer :

116


117


118

Conceptual AACSB :

119

Reflective Thinking

7)

120

The unemployment rate is the fraction of the labor force without a job. Answer :

121


122


123

Definition

14.2

124

The Classical View of the Labor Market

1

125

Multiple Choice

1)

126

Changes in the ________ market affect the shape of the short run aggregate supply curve. A)

127

money B)

128

labor C)

129

goods D)

130

financial Answer :

131

B Diff: 1 Topic :

132

The Classical View of the Labor Market Skill :

133

Conceptual AACSB :

134

Reflective Thinking

2)

135

According to Classical economists, the only types of unemployment that exist in an economy are

A)

136

structural and frictional unemployment. B)

137

cyclical and frictional. C)

138

seasonal and cyclical. D)

139

frictional and seasonal. Answer :

140

A Diff: 1 Topic :

141


142

Fact

143

3)

144

According to Classical economists, excessive unemployment does not persist in the economy because

A)

145

wages will always adjust to ensure equilibrium in the labor market. B)

146

the labor demand does not change in the economy. C)

147

the labor supply does not change in the economy. D)

148

interest rates always change to insure equilibrium in the money market. Answer :

149

A Diff: 2 Topic :

150


151

Fact

Refer to the information provided in Figure 14.1 below to answer the questions that follow.

Figure 14.1

4)

152

Refer to Figure 14.1. Suppose there is a decrease in the fertility rate and this causes some men and women to place a lower value on their time spent in nonmarket activities. This will cause

A)

153

the labor supply curve to shift to the left of S. B)

154

the labor supply curve to shift to the right of S. C)

155

the labor demand curve to shift from D to D'. D)

156

the labor demand curve to shift from D' to D. Answer :

157

B Diff: 2 Topic :

158


159

Analytic AACSB :

160

Analytic Skills

5)

161

Refer to Figure 14.1. If the demand for labor falls from D to D' and wages are sticky on the downward side, there will be unemployment of ________ million.

A)

162

200 B)

163

150 C)

164

100 D)

165

50 Answer :

166

B Diff: 2 Topic :

167


168

Analytic AACSB :

169

Analytic Skills

170

6)

171

Refer to Figure 14.1. The demand for labor falls from D to D'. If firms enter into social, or implicit, contracts with workers not to cut wages, then the wage rate will remain at $10 and

A)

172

employment will fall to 150 million. B)

173

employment will fall to 200 million. C)

174

employment will remain at 300 million. D)

175

labor supply will decrease to restore the market to equilibrium. Answer :

176

A Diff: 2 Topic :

177


178

Analytic AACSB :

179

Analytic Skills

7)

180

Firms might pay efficiency wages above the equilibrium wage for all of the following reasons EXCEPT

A)

181

to reduce employee shirking. B)

182

to improve employee morale. C)

183

to reduce employee turnover. D)

184

to reduce taxes. Answer :

185

D Diff: 2 Topic :

186


187

Conceptual AACSB :

188

Reflective Thinking


Figure 14.2

8)

189

Refer to Figure 14.2. The equilibrium wage rate is $________ and the equilibrium number of people employed is ________ million people.

A)

190

15; 270 B)

191

9; 210 C)

192

15; 150 D)

193

6; 180 Answer :

194

B Diff: 1 Topic :

195


196

Analytic AACSB :

197

Analytic Skills

198

9)

199

Refer to Figure 14.2. At wage rate $15, there is a ________ of labor equal to ________ million people.

A)

200

surplus; 150 B)

201

shortage; 150 C)

202

shortage; 120 D)

203

surplus; 120 Answer :

204

D Diff: 2 Topic :

205


206

Analytic AACSB :

207

Analytic Skills

10)

208

Refer to Figure 14.2. At wage rate $6, there is a ________ of labor equal to ________ million people.

A)

209

shortage; 180 B)

210

shortage; 60 C)

211

surplus; 180 D)

212

surplus; 60 Answer :

213

B Diff: 2 Topic :

214


215

Analytic AACSB :

216

Analytic Skills

11)

217

Refer to Figure 14.2. According to Classical economists if the wage rate is A)

218

$15, the wage rate will decline to eliminate the surplus. B)

219

$15, the wage rate will increase to eliminate the shortage. C)

220

$6, the wage rate will decline to eliminate the surplus. D)

221

$15, the wage rate will decline to eliminate the shortage. Answer :

222

A Diff: 2 Topic :

223


224

Analytic AACSB :

225

Analytic Skills

12)

226

Refer to Figure 14.2. Which of the following can change the equilibrium wage rate from $9 to $6?

A)

227

The value people put on their leisure time increases. B)

228

The value of what firms produce increases. C)

229

The productivity of workers decreases. D)

230

The productivity of workers increases. Answer :

231

C Diff: 2 Topic :

232


233

Analytic AACSB :

234

Analytic Skills

235

13)

236

Refer to Figure 14.2. Which of the following can change the equilibrium wage rate from $9 to $15?

A)

237

The value people put on their leisure time increases. B)

238

The value of what firms produce decreases. C)

239

The productivity of workers decreases. D)

240

the value of what firms produce increases. Answer :

241

A Diff: 2 Topic :

242


243

Analytic AACSB :

244

Analytic Skills

14)

245

Which of the following may shift the labor demand curve? A)

246

an increase in the value of leisure B)

247

a decrease in the value of leisure C)

248

more people entering the labor force D)

249

an increase in the value of output that firms produce Answer :

250

D Diff: 1 Topic :

251


252

Conceptual AACSB :

253

Reflective Thinking

15)

254

Which of the following may shift the labor supply curve? A)

255

an increase in worker productivity B)

256

a decrease in the value people place on their time C)

257

an increase in the price of the output of the firm D)

258

an increase in the corporate tax rate Answer :

259

B Diff: 1 Topic :

260


261

Conceptual AACSB :

262

Reflective Thinking

16)

263

Which of the following may shift the labor supply curve? A)

264

an increase in the wage rate B)

265

an increase in the value people place on their time C)

266

an increase in the price of the output of the firm D)

267

an increase in the corporate tax rate Answer :

268

B Diff: 2 Topic :

269


270

Conceptual AACSB :

271

Reflective Thinking

272

17)

273

An increase in the productivity of workers shifts the labor ________ curve to the ________. A)

274

supply; left B)

275

supply; right C)

276

demand; right D)

277

demand; left Answer :

278

C Diff: 1 Topic :

279


280

Conceptual AACSB :

281

Reflective Thinking

18)

282

A decrease in worker productivity A)

283

reduces the demand for labor. B)

284

increases the demand for labor. C)

285

reduces the supply of labor. D)

286

increases the supply of labor. Answer :

287

A Diff: 1 Topic :

288


289

Conceptual AACSB :

290

Reflective Thinking

19)

291

Martin is not employed. The value Martin places on his leisure time is $30 an hour. Martin looks for a job and all the offers he has are for less than $30 an hour. Martin should supply

A)

292

exactly 40 hours per week in the labor market. B)

293

between 0 and 20 hours per week in the labor market. C)

294

between 20 and 40 hours per week in the labor market. D)

295

0 hours in the labor market. Answer :

296

D Diff: 2 Topic :

297


298

Analytic AACSB :

299

Analytic Skills

20)

300

Lisa is currently not employed. She places a value of $12 an hour on her time in nonmarket activities. If Lisa is offered a job paying $17 an hour,

A)

301

she should supply 0 hours in the labor market and allocate all of her time to nonmarket activities.

B)

302

she should supply a positive number of hours in the labor market and allocate no time to nonmarket activities.

C)

303

she should supply a positive number of hours in the labor market and to nonmarket activities.

D)

304

she is indifferent between supplying hours to the labor market and using her time in nonmarket activities.

Answer :

305

C Diff: 2 Topic :

306


307

Analytic AACSB :

308

Analytic Skills

309

21)

310

Doug is currently not employed. He places a value of $16 an hour on his time in nonmarket activities. If Doug is offered a job paying $12 an hour,

A)

311

he should supply 0 hours in the labor market. B)

312

he should supply a positive number of hours in the labor market and allocate no time to nonmarket activities.

C)

313

he is indifferent between supplying hours to the labor market and using his time in nonmarket activities.

D)

314

he should supply a positive number of hours in the labor market and to nonmarket activities.

Answer :

315

A Diff: 2 Topic :

316


317

Analytic AACSB :

318

Analytic Skills

22)

319

John is contemplating whether he should take a job offered to him. John should A)

320

not take the job if the value of his leisure is less than the wage rate the job pays. B)

321

not take the job if the value of his leisure is greater than the wage rate the job pays. C)

322

not take the job if taking the job implies he will enjoy less leisure. D)

323

take the job if taking the job implies he will enjoy more leisure. Answer :

324

B Diff: 2 Topic :

325


326

Analytic AACSB :

327

Analytic Skills

23)

328

A new policy is implemented that guarantees every adult an annual income of $10,000 whether they work or not. This will most likely shift the

A)

329

labor demand curve to the right. B)

330

labor supply curve to the left. C)

331

labor supply curve to the right. D)

332

labor demand curve to the left. Answer :

333

B Diff: 2 Topic :

334


335

Analytic AACSB :

336

Analytic Skills

24)

337

The government lowers the marginal income tax rates so that after-tax wages are increased. This most likely will shift the labor

A)

338

supply curve to the right. B)

339

supply curve to the left. C)

340

demand curve to the right. D)

341

demand curve to the left. Answer :

342

A Diff: 2 Topic :

343


344

Conceptual AACSB :

345

Reflective Thinking

346

25)

347

If a new governmental policy increases unemployment benefits, we would expect the labor ________ curve to shift to the ________.

A)

348

supply; right B)

349

demand; right C)

350

supply; left D)

351

demand; left Answer :

352

C Diff: 2 Topic :

353


354

Conceptual AACSB :

355

Reflective Thinking

26)

356

One of the tenets of the classical view of the labor market is that the wage adjustments that are necessary to clear the labor market

A)

357

occur very infrequently. B)

358

occur quickly. C)

359

don't occur. D)

360

occur slowly. Answer :

361

B Diff: 2 Topic :

362


363

Fact

27)

364

If firms start offering more employment benefits, such as more stock options and a better dental plan, we would expect the labor ________ curve to shift to the ________.

A)

365

demand; right B)

366

demand; left C)

367

supply; right D)

368

supply; left Answer :

369

C Diff: 2 Topic :

370


371

Conceptual AACSB :

372

Reflective Thinking

28)

373

The classical view of the labor market is basically consistent with the assumption of ________ aggregate supply curve.

A)

374

a horizontal (or almost horizontal) B)

375

a downward-sloping C)

376

an upward-sloping D)

377

a vertical (or almost vertical) Answer :

378

D Diff: 1 Topic :

379


380

Fact

381

29)

382

Classical economists believe that the aggregate supply curve is vertical because A)

383

wages are flexible and they always change to clear the labor market. B)

384

the labor market is always in equilibrium. C)

385

people who are not working are those who have chosen not to work at the prevailing wage rate.

D)

386

all of the above Answer :

387

D Diff: 1 Topic :

388


389

Fact

30)

390

According to the Classical theory, an expansionary monetary policy ________ the price level and ________ output in the long run.

A)

391

decreases; increases B)

392

increases; doesn't change C)

393

increases; increases D)

394

doesn't change; doesn't change Answer :

395

B Diff: 1 Topic :

396


397

Fact

31)

398

Assume that the percentage of the labor force covered by labor contracts that set wages for a predetermined period of time increases. This will tend to

A)

399

decrease the effectiveness of both monetary and fiscal policy to change output. B)

400

increase the effectiveness of both monetary and fiscal policy to change output. C)

401

increase the effectiveness of fiscal policy, but decrease the effectiveness of monetary policy to change output.

D)

402

have no impact on the effectiveness of either monetary or fiscal policy to change output. Answer :

403

B Diff: 2 Topic :

404


405

Analytic AACSB :

406

Analytic Skills

32)

407

According to the classical economists, those who are not working A)

408

have chosen not to work at the market wage. B)

409

are too productive to be hired at the current wage. C)

410

are unable to find a job at the current wage rate. D)

411

have given up looking for a job, but would accept a job at the current wage if one were offered to them.

Answer :

412

A Diff: 2 Topic :

413


414

Fact

415

33)

416

Those who believe that wages adjust quickly to clear the labor market also believe that A)

417

the AS curve is upward sloping. B)

418

the AD curve is steep. C)

419

the AD curve is flat. D)

420

the AS curve is vertical. Answer :

421

D Diff: 2 Topic :

422


423

Fact

34)

424

What definition of unemployment would you expect classical economists to use? A)

425

anyone who is actively seeking work B)

426

anyone who is willing to work if the market wage increases C)

427

anyone who is willing to work at the current market wage, but has not yet been able to find employment

D)

428

anyone who is currently not working Answer :

429

C Diff: 2 Topic :

430


431

Definition

2

432

True/False

1)

433

Those who believe that the wage rate does not adjust quickly to clear the labor market are likely to believe that the aggregate supply curve is vertical.

Answer :

434


435


436

Conceptual AACSB :

437

Reflective Thinking

2)

438

If the actual unemployment rate is below NAIRU, the change in the inflation rate will be positive.

Answer :

439


440


441

Definition

3)

442

The classical view of the labor market holds that unemployment in the economy consists of frictional and structural unemployment.

Answer :

443


444


445

Definition

4)

446

Classical economists believe that economic policies are ineffective because they don't affect aggregate demand in the economy.

Answer :

447


448


449

Fact

450

5)

451

If firms pay wages higher than the market clearing wage, their profits will be reduced. Answer :

452


453


454

Conceptual AACSB :

455

Reflective Thinking

14.3

456

Explaining the Existence of Unemployment

1

457

Multiple Choice

1)

458

Suppose the wage rate in the labor market is $15 and the demand for labor decreases. If wages are sticky,

A)

459

unemployment decreases. B)

460

unemployment increases. C)

461

unemployment stays the same. D)

462

wages decrease to eliminate the surplus. Answer :

463

B Diff: 2 Topic :

464

Explaining the Existence of Unemployment Skill :

465

Analytic AACSB :

466

Analytic Skills

2)

467

Suppose the equilibrium wage rate in the labor market is $10 and the demand for labor increases. If wages are sticky, there will be a

A)

468

surplus of labor and the wage rate declines. B)

469

shortage of labor and the wage rate increases. C)

470

shortage of labor and the wage rate stays the same. D)

471

surplus of labor and the wage rate increases. Answer :

472

C Diff: 2 Topic :

473


474

Analytic AACSB :

475

Analytic Skills

3)

476

Suppose the wage rate in the labor market is $8 and more people entered the labor force, which of the following statements is CORRECT?

A)

477

If wages are flexible, then wages will increase. B)

478

If wages are sticky, the unemployment rate increases. C)

479

If wages are sticky, the unemployment rate stays the same. D)

480

If wages are flexible, the unemployment rate increases. Answer :

481

B Diff: 2 Topic :

482


483

Analytic AACSB :

484

Analytic Skills

485

4)

486

Suppose the wage rate in the labor market is $15 and the productivity of workers increases, which of the following statements is INCORRECT?

A)

487

The labor demand curve shifts to the right. B)

488

If wages are flexible, there will be an increase in wages. C)

489

If wages are sticky, there will be a shortage in the labor market. D)

490

If wages are sticky, there will be a surplus in the labor market. Answer :

491

D Diff: 2 Topic :

492


493

Analytic AACSB :

494

Analytic Skills

5)

495

If wages are sticky, an increase in labor A)

496

demand decreases the wage rate. B)

497

supply increases the wage rate. C)

498

demand increases the wage rate. D)

499

demand leaves wage rates intact. Answer :

500

D Diff: 2 Topic :

501


502

Conceptual AACSB :

503

Reflective Thinking

6)

504

An unspoken agreement between workers and firms that the firm will not cut wages is known as

A)

505

an implicit or social contract. B)

506

an explicit contract. C)

507

a relative-wage contract. D)

508

employment-at-will. Answer :

509

A Diff: 1 Topic :

510


511

Definition

7)

512

The social contract explanation for the existence of downwardly sticky wages focuses on A)

513

employment contracts that stipulate workers' wages, usually for a period of one to three years.

B)

514

the contention that workers in one industry may be unwilling to accept a wage cut, unless they know that workers in other industries are receiving similar cuts.

C)

515

unspoken agreements between workers and firms that firms will not cut wages. D)

516

the incentive that firms have to hold wages above the market clearing rate. Answer :

517

C Diff: 1 Topic :

518


519

Conceptual AACSB :

520

Reflective Thinking

521

8)

522

Intel Corporation, a major manufacturer of microchips, saw the demand for its product drop by 25%. Even though the demand for its product decreased, Intel did not cut the wages of its nonunionized workers. This is an example of

A)

523

employment-at-will. B)

524

an implicit or social contract not to cut wages. C)

525

an explicit contract not to cut wages. D)

526

a relative-wage contract. Answer :

527

B Diff: 1 Topic :

528


529

Conceptual AACSB :

530

Reflective Thinking

9)

531

Frito Lay experienced a 20% drop in its sales. Even though the demand for its product decreased, Frito Lay did not cut the wages of its nonunionized workers. This is an example of

A)

532

an explicit contract not to cut wages. B)

533

employment-at-will. C)

534

poor management. D)

535

an implicit or social contract not to cut wages. Answer :

536

D Diff: 1 Topic :

537


538

Conceptual AACSB :

539

Reflective Thinking

10)

540

Suppose that airline workers are laid off during a recession because of an unspoken agreement between airline workers and airline executives that wages will not be reduced. This example is consistent with the

A)

541

relative-wage explanation of unemployment. B)

542

explicit contract explanation of unemployment. C)

543

implicit contract explanation of unemployment. D)

544

efficiency wage explanation of unemployment. Answer :

545

C Diff: 1 Topic :

546


547

Conceptual AACSB :

548

Reflective Thinking

11)

549

The relative-wage explanation for the existence of downwardly sticky wages emphasizes A)

550

unspoken agreements between workers and firms that firms will not cut wages. B)

551

the incentive that firms may have to hold wages above the market clearing rate. C)

552

employment contracts that stipulate workers' wages, usually for a period of one to three years.

D)

553

the contention that workers in one industry may be unwilling to accept a wage cut, unless they know that workers in other firms and industries are receiving similar cuts.

Answer :

554

D Diff: 2 Topic :

555


556

Conceptual AACSB :

557

Reflective Thinking

558

12)

559

According to the relative-wage explanation of unemployment, workers will be willing to accept wage cuts only if

A)

560

they know that unemployment is increasing in other industries. B)

561

they can be convinced that they are overpaid relative to workers doing similar jobs at other firms.

C)

562

they know that workers in other firms and industries are receiving similar cuts. D)

563

the economy is in a prolonged recession. Answer :

564

C Diff: 2 Topic :

565


566

Conceptual AACSB :

567

Reflective Thinking

13)

568

Workers in the textile industry are laid off during a recession because they are unwilling to accept a wage cut, unless they know that workers in other industries are receiving similar cuts. This example is consistent with the

A)

569

relative-wage explanation of unemployment. B)

570


571

social contract explanation of unemployment. D)

572

efficiency wage explanation of unemployment. Answer :

573

A Diff: 2 Topic :

574


575

Conceptual AACSB :

576

Reflective Thinking

14)

577

The percentage of workers whose wages are set by explicit contracts falls. This should A)

578

make it more difficult for the labor market to reach an equilibrium after a change in the demand for labor.

B)

579

make it easier for the labor market to reach an equilibrium after a change in the demand for labor.

C)

580

have no impact on the movement of the labor market toward equilibrium after a change in the demand for labor.

D)

581

cause the labor market to always be at an equilibrium, even if there is a change in the demand for labor.

Answer :

582

B Diff: 2 Topic :

583


584

Analytic

15)

585

Even though explicit contracts may lead to layoffs during recessions, explicit contracts may still be efficient because such contracts

A)

586

guarantee that only the least-productive workers will be laid off. B)

587

reduce unemployment effects. C)

588

reduce negotiation costs. D)

589

will equitably spread the layoffs among junior and senior workers. Answer :

590

C Diff: 2 Topic :

591


592

Conceptual AACSB :

593

Reflective Thinking

594

16)

595

Suppose that air traffic controllers, whose wages have been locked into place by a two-year contract, are laid off during a recession. This example is consistent with the

A)

596

social contract explanation of unemployment. B)

597


598

efficiency wage explanation of unemployment. D)

599

relative-wage explanation of unemployment. Answer :

600

B Diff: 2 Topic :

601


602

Conceptual AACSB :

603

Reflective Thinking

17)

604

Which of the following arguments is NOT offered to explain the existence of "sticky" wages?

A)

605

the social contract explanation B)

606

the relative-wage explanation C)

607

the fact that labor contracts don't exist D)

608

the explicit contract explanation Answer :

609

C Diff: 1 Topic :

610


611

Definition

18)

612

When a firm pays higher wages for its workers to improve workers' productivity, the firm pays

A)

613

sticky wages. B)

614

flexible wages. C)

615

efficiency wages. D)

616

minimum wages. Answer :

617

C Diff: 1 Topic :

618


619

Definition

19)

620

Which of the following is NOT a reason why firms pay efficiency wages? A)

621

to reduce turnovers B)

622

to abide by minimum wage laws C)

623

to improve morale D)

624

to reduce shirking of work Answer :

625

B Diff: 1 Topic :

626


627

Conceptual AACSB :

628

Reflective Thinking

629


Figure 14.3

20)

630

Refer to Figure 14.3. Assume that the productivity of workers increases as the wage rate increases. The efficiency wage

A)

631

would be below $10. B)

632

would equal $10. C)

633

would be above $10. D)

634

could either be above or below $10. Answer :

635

C Diff: 2 Topic :

636


637

Analytic AACSB :

638

Analytic Skills

21)

639

Refer to Figure 14.3. If this firm pays the efficient wage of $11, A)

640

the firm's demand for labor will increase until $11 is also the equilibrium wage. B)

641

the supply of labor will decrease until $11 is also the equilibrium wage. C)

642

there will be an excess supply of labor of 2,000. D)

643

there will be an excess supply of labor of 3,000. Answer :

644

D Diff: 3 Topic :

645


646

Analytic AACSB :

647

Analytic Skills

22)

648

Efficiency wage theory suggests that firms may hold wages above the market clearing rate because

A)

649

they believe that the productivity of workers increases with the wage rate. B)

650

unspoken agreements between workers and firms are in place. C)

651

it is required by law that they do so. D)

652

long-term contracts fix wage rates for a period of one to three years. Answer :

653

A Diff: 2 Topic :

654


655

Conceptual AACSB :

656

Reflective Thinking

657

23)

658

Firms may NOT hold wages above the market clearing rate because A)

659

they believe that the productivity of workers increases with the wage rate. B)

660

they have agreed not to cut wages in an explicit agreement with their workers. C)

661

they have implicitly agreed not to cut wages because their workers care about relative wages .

D)

662

they want to make sure they abide by minimum wage regulation. Answer :

663

D Diff: 2 Topic :

664


665

Conceptual AACSB :

666

Reflective Thinking

24)

667

If productivity increases as wages increase and firms pay a wage above the market clearing wage, then

A)

668

these firms will go out of business in the long run because they will not be able to compete with firms paying lower wages.

B)

669

these firms will face an excess demand for labor and will be able to hire the best workers in the market.

C)

670

these firms will have lower profit levels than their competitors. D)

671

a potential benefit these firms may receive is a reduction in employee turnover. Answer :

672

D Diff: 2 Topic :

673


674

Analytic AACSB :

675

Analytic Skills

25)

676

A firm may benefit by paying workers more than the market clearing wage because the higher wages may lead to all of the following EXCEPT

A)

677

lower worker turnover. B)

678

improved worker morale. C)

679

reduced shirking of work. D)

680

reduced taxed. Answer :

681

D Diff: 2 Topic :

682


683

Conceptual AACSB :

684

Reflective Thinking

26)

685

If, as a result of imperfect information, firms set their wage rates below the market clearing wage rate

A)

686

unemployment increases. B)

687

there will be a surplus of workers. C)

688

there will be a shortage of workers. D)

689

there will be equilibrium in the labor market. Answer :

690

C Diff: 1 Topic :

691


692

Conceptual AACSB :

693

Reflective Thinking

694

27)

695

If, as a result of imperfect information, firms set their wage rates above the market clearing wage rate,

A)

696

unemployment decreases. B)

697

there will be a surplus of workers. C)

698

there will be a shortage of workers. D)

699

there will be equilibrium in the labor market. Answer :

700

B Diff: 1 Topic :

701


702

Conceptual AACSB :

703

Reflective Thinking

28)

704

Minimum wage laws contribute to a higher unemployment rate by A)

705

raising wages above the market clearing level in some labor markets. B)

706

pushing wages below the market clearing level in some labor markets. C)

707

raising wages above the market clearing level in all labor markets. D)

708

pushing wages below the market clearing level in all labor markets. Answer :

709

A Diff: 1 Topic :

710


711

Conceptual AACSB :

712

Reflective Thinking

29)

713

The minimum wage law contributes to a A)

714

lower unemployment rate among teenaged workers. B)

715

lower unemployment rate among adult workers. C)

716

higher unemployment rate among high skilled workers. D)

717

higher unemployment rate among teenaged workers. Answer :

718

D Diff: 1 Topic :

719


720

Fact

721


Figure 14.4 30)

722

Refer to Figure 14.4. A minimum wage of $12 A)

723

will lead to unemployment of 10. B)

724

will lead to unemployment of 20. C)

725

will lead to unemployment of 40. D)

726

will have no effect because the minimum wage is set above the equilibrium wage and for a minimum wage to have any effect on the labor market it must be below the equilibrium wage.

Answer :

727

C Diff: 1 Topic :

728


729

Analytic AACSB :

730

Analytic Skills

31)

731

Refer to Figure 14.4. A minimum wage of $8 A)

732

will lead to an excess demand for labor of 20. B)

733

will lead to an excess demand for labor of 40. C)

734

will lead to an excess demand for labor of 60. D)

735

will have no effect because the minimum wage is set below the equilibrium wage and for a minimum wage to have any effect on the labor market it must be above the equilibrium wage.

Answer :

736

D Diff: 2 Topic :

737


738

Analytic AACSB :

739

Analytic Skills

32)

740

Refer to Figure 14.4. A firm might pay wages above $10 per hour if it believes such a wage will result in all of the following EXCEPT

A)

741

reduce worker shirking. B)

742

reduce worker turnover. C)

743

improve worker moral. D)

744

agitate unions. Answer :

745

D Diff: 2 Topic :

746


747

Analytic AACSB :

748

Analytic Skills

749

2

750

True/False

1)

751

If the minimum wage is set above the market clearing wage, wages will be "sticky" in the downward direction.

Answer :

752


753


754

Conceptual AACSB :

755

Reflective Thinking

2)

756

Sticky wages reduce unemployment. Answer :

757


758


759

Fact

3)

760

Efficiency wages are an explanation for the existence of unemployment. Answer :

761


762


763

Conceptual AACSB :

764

Reflective Thinking

4)

765

Cost of living adjustments in labor contracts offer no protection to workers from unexpected inflation.

Answer :

766


767


768

Conceptual AACSB :

769

Reflective Thinking

5)

770

Efficiency wages may lower employee turnover. Answer :

771


772


773

Conceptual AACSB :

774

Reflective Thinking

14.4

775

The Short-Run Relationship Between the Unemployment Rate and Inflation

1

776

Multiple Choice

1)

777

The unemployment rate rises if A)

778

the demand for labor increases. B)

779

aggregate output increases. C)

780

the supply of labor increases. D)

781

aggregate demand increases. Answer :

782

C Diff: 1 Topic :

783

The Short-Run Relationship Between the Unemployment Rate and Inflation Skill :

784

Conceptual AACSB :

785

Reflective Thinking

786

2)

787

What sequence of events results from a decrease in aggregate demand? A)

788

The price level falls, inventories decline, firms respond by increasing output and employment.

B)

789

The price level falls, inventories increase, firms respond by reducing output and employment.

C)

790

The price level rises, inventories decline, firms respond by increasing output and employment.

D)

791

The price level rises, inventories increase, firms respond by increasing output and employment.

Answer :

792

B Diff: 2 Topic :

793


794

Analytic AACSB :

795

Analytic Skills

3)

796

What sequence of events results from an increase in aggregate demand? A)

797

The price level falls, inventories decline, firms respond by increasing output and employment.

B)

798

The price level falls, inventories increase, firms respond by reducing output and employment.

C)

799

The price level rises, inventories decline, firms respond by increasing output and employment.

D)

800

The price level rises, inventories increase, firms respond by increasing output and employment.

Answer :

801

C Diff: 2 Topic :

802


803

Analytic AACSB :

804

Analytic Skills

805


Figure 14.5

4)

806

Refer to Figure 14.5. If aggregate demand shifts while aggregate supply is stable, the relationship between the price level and the unemployment rate is represented in Panel

A)

807

A. B)

808

B. C)

809

C. D)

810

D. Answer :

811

A Diff: 1 Topic :

812


813

Conceptual AACSB :

814

Reflective Thinking

5)

815

As the unemployment rate increases in response to the economy moving away from capacity output, the aggregate price level

A)

816

is stable. B)

817

falls. C)

818

rises at an increasing rate. D)

819

rises at a declining rate. Answer :

820

B Diff: 2 Topic :

821


822

Conceptual AACSB :

823

Reflective Thinking

824

6)

825

If aggregate demand changes while aggregate supply is stable, output and the unemployment rate are

A)

826

positively related. B)

827

not related in the short run. C)

828

not related neither in the long run nor in the short run. D)

829

negatively related. Answer :

830

D Diff: 1 Topic :

831


832

Conceptual AACSB :

833

Reflective Thinking

7)

834

If the aggregate supply is vertical, an (a) ________ in the price level ________ unemployment rate.

A)

835

decrease; increases B)

836

increase; doesn't change C)

837

decrease; decreases D)

838

increase; increases Answer :

839

B Diff: 1 Topic :

840


841

Conceptual AACSB :

842

Reflective Thinking

8)

843

Changes in the price level don't affect the unemployment rate if A)

844

the economy is operating below capacity. B)

845

the economy is operating at capacity. C)

846

the aggregate supply curve is flat. D)

847

the aggregate demand curve is steep. Answer :

848

B Diff: 2 Topic :

849


850

Analytic AACSB :

851

Analytic Skills

9)

852

The Phillips curve depicts the relationship between A)

853

output and the price level. B)

854

aggregate demand and aggregate expenditures. C)

855

inflation and unemployment. D)

856

money supply and interest rates. Answer :

857

C Diff: 1 Topic :

858


859

Definition

860


Figure 14.6

10)

861

Refer to Figure 14.6. Assuming all shocks to the economy arise from demand changes, which panel represents the short-run relationship between output and the price level?

A)

862

A B)

863

B C)

864

C D)

865

D Answer :

866

B Diff: 1 Topic :

867


868

Conceptual AACSB :

869

Reflective Thinking

11)

870

Refer to Figure 14.6. Which panel represents the short-run Phillips curve? A)

871

A B)

872

B C)

873

C D)

874

D Answer :

875

A Diff: 1 Topic :

876


877

Conceptual AACSB :

878

Reflective Thinking

879

12)

880

Refer to Figure 14.6. If unemployment is on the x-axis, which panel represents the long-run Phillips curve?

A)

881

A B)

882

B C)

883

C D)

884

D Answer :

885

C Diff: 1 Topic :

886


887

Conceptual AACSB :

888

Reflective Thinking


Figure 14.7 13)

889

Refer to Figure 14.7. The unemployment rate at U1 A)

890

is greater than the natural rate. B)

891

is lower than the natural rate. C)

892

equals the natural rate. D)

893

equals zero. Answer :

894

C Diff: 1 Topic :

895


896

Conceptual AACSB :

897

Reflective Thinking

14)

898

Refer to Figure 14.7. If the natural unemployment rate equals 6%, the unemployment rate at U2 could be

A)

899

4%. B)

900

5%. C)

901

6%. D)

902

7%. Answer :

903

D Diff: 2 Topic :

904


905

Analytic AACSB :

906

Analytic Skills

907

15)

908

Refer to Figure 14.7. Suppose the economy is at Point A, an increase in money supply will move the economy to Point ________ in the short run.

A)

909

E B)

910

B C)

911

C D)

912

D Answer :

913

C Diff: 2 Topic :

914


915

Analytic AACSB :

916

Analytic Skills

16)

917

Refer to Figure 14.7. If the economy is on SRPC1, then the expected inflation rate is A)

918

4% B)

919

5% C)

920

6% D)

921

none of the above Answer :

922

B Diff: 2 Topic :

923


924

Analytic AACSB :

925

Analytic Skills

17)

926

Refer to Figure 14.7. If the economy is on SRPC2, then the expected inflation rate is A)

927

4% B)

928

5% C)

929

6% D)

930

none of the above Answer :

931

C Diff: 2 Topic :

932


933

Analytic AACSB :

934

Analytic Skills

18)

935

Refer to Figure 14.7. Suppose the economy is initially at Point A. A contractionary fiscal policy moves the economy to Point ________ in the short run.

A)

936

E B)

937

B C)

938

C D)

939

D Answer :

940

B Diff: 2 Topic :

941


942

Analytic AACSB :

943

Analytic Skills

944

19)

945

Refer to Figure 14.7. Suppose the economy is at Point C. What can possibly move the economy to Point D?

A)

946

a leftward shift in the AD curve B)

947

a rightward shift in the AD curve C)

948

a leftward shift in the AS curve D)

949

a rightward shift in the AS curve Answer :

950

C Diff: 3 Topic :

951


952

Analytic AACSB :

953

Analytic Skills

20)

954

Refer to Figure 14.7. Which combinations of events could move the economy from Point A to Point C, and then from Point C to Point D?

A)

955

a contractionary fiscal policy followed by a leftward shift in the AS curve B)

956

a contractionary fiscal policy followed by a rightward shift in the AS curve C)

957

an expansionary fiscal policy followed by a leftward shift in the AS curve D)

958

an expansionary fiscal policy followed by a rightward shift in the AS curve Answer :

959

C Diff: 3 Topic :

960


961

Analytic AACSB :

962

Analytic Skills

21)

963

Refer to Figure 14.7. Which combinations of events could move the economy from Point A to Point B, and then from Point B to Point E?

A)

964

a contractionary monetary policy followed by a leftward shift in the AS curve B)

965

a contractionary monetary policy followed by a rightward shift in the AS curve C)

966

an expansionary fiscal policy followed by a leftward shift in the AS curve D)

967

an expansionary fiscal policy followed by a rightward shift in the AS curve Answer :

968

B Diff: 3 Topic :

969


970

Analytic AACSB :

971

Analytic Skills

22)

972

Refer to Figure 14.7. Suppose the economy is at Point A, a sudden increase in the price of oil without any change in the aggregate demand shifts the short-run Phillips curve (SRPC) from

A)

973

SRPC1 to SRPC2. B)

974

SRPC1 to SRPC3. C)

975

SRPC2 to SRPC1. D)

976

SRPC3 to SRPC1. Answer :

977

A Diff: 3 Topic :

978


979

Analytic AACSB :

980

Analytic Skills

981

23)

982

Refer to Figure 14.7. If the economy is at Point B, the cost of raw material decreased dramatically, and the aggregate demand did not change, the economy could move to Point ________.

A)

983

A B)

984

E C)

985

C D)

986

D Answer :

987

B Diff: 3 Topic :

988


989

Analytic AACSB :

990

Analytic Skills

24)

991

Refer to Figure 14.7. Suppose the economy is at Point A, and the cost of inputs is fixed. An increase in government spending could move the economy to Point ________.

A)

992

E B)

993

B C)

994

C D)

995

D Answer :

996

C Diff: 3 Topic :

997


998

Analytic AACSB :

999

Analytic Skills

25)

1000

If aggregate demand increases and expectations regarding inflation remain constant, A)

1001

the economy moves along the short-run Phillips curve. B)

1002

the short-run Phillips curve shifts to the right. C)

1003

the short-run Phillips curve shifts to the left. D)

1004

the long-run Phillips curve shifts to the right. Answer :

1005

A Diff: 2 Topic :

1006


1007

Analytic AACSB :

1008

Analytic Skills

26)

1009

If inflation expectations change as a result of an expansionary fiscal policy, this causes A)

1010

the long-run Phillips curve to shift. B)

1011

the short-run Phillips curve to shift. C)

1012

the short-run Phillips curve to remain constant. D)

1013

a movement along the short-run Phillips curve. Answer :

1014

B Diff: 2 Topic :

1015


1016

Analytic AACSB :

1017

Analytic Skills

1018

27)

1019

If aggregate supply increases and aggregate demand remains unchanged, A)

1020

there will be a positive relationship between the price level and the level of aggregate output.

B)

1021

there will be a negative relationship between the price level and the level of aggregate output.

C)

1022

there will be no systematic relationship between the price level and the level of aggregate output.

D)

1023

the price level will remain unchanged, but aggregate output will decrease. Answer :

1024

B Diff: 3 Topic :

1025


1026

Analytic AACSB :

1027

Analytic Skills

28)

1028

The economy experiences both inflation and unemployment when A)

1029

aggregate demand decreases and aggregate supply increases. B)

1030

aggregate supply decreases and aggregate demand remains unchanged. C)

1031

aggregate demand decreases and aggregate supply remains unchanged. D)

1032

aggregate demand increases and aggregate supply decreases. Answer :

1033

B Diff: 2 Topic :

1034


1035

Analytic AACSB :

1036

Analytic Skills

29)

1037

The economy experiences both a falling price level and falling unemployment when A)

1038

aggregate supply increases with aggregate demand stable. B)

1039

aggregate demand increases with aggregate supply stable. C)

1040

aggregate supply decreases with aggregate demand stable. D)

1041

aggregate demand decrease with aggregate supply stable. Answer :

1042

A Diff: 2 Topic :

1043


1044

Analytic AACSB :

1045

Analytic Skills

30)

1046

There is no systematic relationship between the price level and the level of aggregate output when

A)

1047

aggregate demand is negatively sloped. B)

1048

aggregate demand is changing, but aggregate supply is not. C)

1049

both aggregate supply and aggregate demand are changing simultaneously. D)

1050

aggregate supply is changing, but aggregate demand is not. Answer :

1051

C Diff: 2 Topic :

1052


1053

Conceptual AACSB :

1054

Reflective Thinking

1055

31)

1056

If the AD curve shifts from year to year and the AS curve does not, then the short run Phillips curve would be

A)

1057

downward sloping. B)

1058

upward sloping. C)

1059

shifting to the left. D)

1060

shifting to the right. Answer :

1061

A Diff: 2 Topic :

1062


1063

Conceptual AACSB :

1064

Reflective Thinking

32)

1065

If the AS curve shifts from year to year, but the AD curve does not, then the Phillips curve would show

A)

1066

a positive relationship between the inflation and unemployment rates. B)

1067

a negative relationship between the inflation and unemployment rates. C)

1068

no particular relationship between the inflation and unemployment rates. D)

1069

a constant trade-off between the inflation and unemployment rates. Answer :

1070

A Diff: 2 Topic :

1071


1072

Conceptual AACSB :

1073

Reflective Thinking

33)

1074

If inflationary expectations decrease, the Phillips curve will A)

1075

shift to the right. B)

1076

shift to the left. C)

1077

become vertical. D)

1078

become upward sloping. Answer :

1079

B Diff: 2 Topic :

1080


1081

Conceptual AACSB :

1082

Reflective Thinking

34)

1083

The United States began to pull out of a recession in the spring of 1991. Unemployment fell, but inflation did not increase. What was the most likely cause of this?

A)

1084

Aggregate supply was increasing at a faster rate than aggregate demand. B)

1085

Both aggregate demand and aggregate supply were decreasing. C)

1086

Aggregate demand was increasing but aggregate supply was decreasing. D)

1087

Aggregate demand was increasing at a faster rate than aggregate supply. Answer :

1088

A Diff: 2 Topic :

1089


1090

Conceptual AACSB :

1091

Reflective Thinking

1092

35)

1093

Related to the Economics in Practice on p. 264 [576]: Increased applications to graduate school in 2008 were an indication that the

A)

1094

labor demand was decreasing. B)

1095

labor demand was increasing. C)

1096

aggregate supply was increasing. D)

1097

aggregate demand was increasing. Answer :

1098

A Diff: 2 Topic :

1099

The Short-Run Relationship Between the Unemployment Rate and Inflation: Economics in Practice Skill :

1100

Conceptual AACSB :

1101

Reflective Thinking

36)

1102

Related to the Economics in Practice on p. 264 [576]: Ceteris paribus, applications to graduate school tend to ________ when the economy is experiencing ________.

A)

1103

increase; inflation B)

1104

increase; growth C)

1105

decrease; recession D)

1106

decrease; growth Answer :

1107

D Diff: 2 Topic :

1108

The Short-Run Relationship Between the Unemployment Rate and Inflation: Economics in Practice Skill :

1109

Conceptual AACSB :

1110

Reflective Thinking

2

1111

True/False

1)

1112

As the unemployment rate declines in response to the economy moving closer and closer to capacity output, the aggregate price level rises at a decreasing rate.

Answer :

1113


1114


1115

Conceptual AACSB :

1116

Reflective Thinking

2)

1117

At the natural rate of unemployment, frictional unemployment is zero. Answer :

1118


1119


1120

Conceptual AACSB :

1121

Reflective Thinking

3)

1122

The Phillips curve suggests that if we want to raise the inflation rate, we must accept a higher unemployment rate in return.

Answer :

1123


1124


1125

Conceptual AACSB :

1126

Reflective Thinking

1127

4)

1128

If aggregate supply changes when aggregate demand is stable, then the Phillips curve is negatively sloped.

Answer :

1129


1130


1131

Conceptual AACSB :

1132

Reflective Thinking

5)

1133

An increase in inflationary expectations shifts the economy's short run Phillips curve to the left.

Answer :

1134


1135


1136

Conceptual AACSB :

1137

Reflective Thinking

14.5

1138

The Long-Run Aggregate Supply Curve, Potential GDP, and the Natural Rate of Unemployment

1

1139

Multiple Choice

1)

1140

In the long run, the Phillips curve will be vertical at the natural rate of unemployment if A)

1141

the long-run aggregate demand curve is vertical at potential GDP. B)

1142

the long-run aggregate demand curve is horizontal at the natural rate of inflation. C)

1143

the long-run aggregate supply curve is vertical at potential GDP. D)

1144

the long-run supply curve is horizontal at the natural rate of inflation. Answer :

1145

C Diff: 2 Topic :

1146

The Long-Run Aggregate Supply Curve, Potential GDP, and the Natural Rate of Unemployment Skill :

1147

Conceptual AACSB :

1148

Reflective Thinking

2)

1149

If the Phillips curve is vertical in the long run, then A)

1150

there is a trade-off between inflation and unemployment in the long run. B)

1151

the inflation rate will always be zero in the long run. C)

1152

the unemployment rate will be zero in the long run. D)

1153

there is no trade-off between inflation and unemployment in the long run. Answer :

1154

D Diff: 2 Topic :

1155


1156

Conceptual AACSB :

1157

Reflective Thinking

1158


Figure 14.8

3)

1159

Refer to Figure 14.8. Expected inflation at Point A ________ expected inflation at Point C. A)

1160

is greater than B)

1161

is less than C)

1162

equals D)

1163

cannot be determined from the figure Answer :

1164

C Diff: 2 Topic :

1165


1166

Analytic AACSB :

1167

Analytic Skills

4)

1168

Refer to Figure 14.8. Expected inflation at Point B equals A)

1169

4%. B)

1170

5%. C)

1171

6%. D)

1172


1173

B Diff: 2 Topic :

1174


1175

Analytic AACSB :

1176

Analytic Skills

5)

1177

Refer to Figure 14.8. Along SRPC2, expected inflation equals A)

1178

4%. B)

1179

5%. C)

1180

6%. D)

1181


1182

C Diff: 2 Topic :

1183


1184

Analytic AACSB :

1185

Analytic Skills

1186

6)

1187

Refer to Figure 14.8. Along SRPC3, expected inflation equals A)

1188

4%. B)

1189

5%. C)

1190

6%. D)

1191


1192

A Diff: 2 Topic :

1193


1194

Analytic AACSB :

1195

Analytic Skills

7)

1196

If the measured unemployment rate is 8% and the natural unemployment rate is 3%, then A)

1197

frictional unemployment is 5%. B)

1198

cyclical unemployment is 5%. C)

1199

frictional unemployment is 11%. D)

1200

structural unemployment is 11%. Answer :

1201

B Diff: 1 Topic :

1202


1203

Analytic AACSB :

1204

Analytic Skills

8)

1205

Economists who argue that the AS curve is vertical in the long run at potential GDP also argue that the Phillips curve in the long run is

A)

1206

vertical at the natural rate of unemployment. B)

1207

upward sloping. C)

1208

downward sloping. D)

1209

horizontal at the natural rate of inflation. Answer :

1210

A Diff: 1 Topic :

1211


1212

Fact

9)

1213

The measured unemployment rate can be pushed below the natural rate, but A)

1214

only in the long run and only if the price level is constant. B)

1215

only in the long run and not without inflation. C)

1216

only in the short run and only if the price level is constant. D)

1217

only in the short run and not without inflation. Answer :

1218

D Diff: 1 Topic :

1219


1220

Conceptual AACSB :

1221

Reflective Thinking

10)

1222

If the economy is at potential output, actual inflation A)

1223

is greater than expected inflation. B)

1224

equals expected inflation. C)

1225

is less than expected inflation. D)

1226

equals the natural rate of unemployment. Answer :

1227

B Diff: 2 Topic :

1228


1229

Conceptual AACSB :

1230

Reflective Thinking

2

1231

True/False

1)

1232

As a result of a shifting aggregate supply curve during the 1990s, the U.S. economy experienced a negative trade-off between inflation and unemployment.

Answer :

1233


1234


1235

Fact

2)

1236

A vertical aggregate supply curve implies a vertical Phillips curve. Answer :

1237


1238


1239

Conceptual AACSB :

1240

Reflective Thinking

3)

1241

If the unemployment rate rises above the natural rate of unemployment in the short run, the inflation rate will rise.

Answer :

1242


1243


1244

Conceptual AACSB :

1245

Reflective Thinking

4)

1246

.If unemployment is below the natural rate of unemployment, then output is below potential output.

Answer :

1247


1248


1249

Conceptual AACSB :

1250

Reflective Thinking

5)

1251

The natural rate of unemployment is unemployment that occurs as a normal part of the functioning of the economy.

Answer :

1252


1253


1254

Definition

1255

chapter 14

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