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Econ 302
Spring 2008
Quiz 4
Instructions: Select the best answer for each question, and record it on the answer sheet.
1.
According to the efficiency wage theory, firms choose to pay wages higher than the
minimum necessary to find workers willing to accept jobs. The reason a firm does so is:
a.
the cost of implementing wage reductions is too high.
b.
the firm does not want the reputation of being a low-quality employer.
c.
the firm does not want to lose its most skilled workers during each economic slowdown.
d.
the firm is trying to maximize labor efficiency, defined as labor output per dollar spent on
wages.
e.
the firm is choosing to adjust employment rather than wages.
2.
The misperceptions model says that workers set wages according to their expected level
of prices. Output rises above the natural rate when _____ is ____ than workers expected.
a.
b.
c.
d.
e.
the nominal wage
the price level
average labor productivity
real interest rates
government spending
higher
higher
lower
lower
lower
3.
The business cycle fact that Keynesian economic theory seems not to explain is that ____
is ______.
a.
b.
c.
d.
e.
stock prices
monetary growth
average labor productivity
inflation
unemployment
countercyclical
leading and procyclical
procyclical
procyclical
countercyclical
4.
A monopolistically competitive firm is unlike a perfectly competitive firm because the
monopolistically competitive firm will:
a.
b.
c.
d.
e.
produce a level of output that keeps price above marginal cost.
produce a level of output where marginal revenue is less than marginal cost.
set a price less for its product less than marginal cost.
try to make the demand curve for its product less steep.
none of the above.
5.
Keynesian economists believe that firms “hoard labor” during economic slowdowns,
keeping workers on the payroll and assigning them to do less-than-essential tasks. This argument
explains why:
a.
the data suggests that average labor productivity rises during expansions, even though
Keynesian theory says it shouldn’t.
b.
the data suggests that money growth causes economic expansions, even though
Keynesian theory says it shouldn’t.
c.
the data suggests that government spending rises during economic expansions, even
though Keynesian theory says it shouldn’t.
d.
the data suggests that inflation rises during economic expansions, even though Keynesian
theory says it shouldn’t.
e.
the data suggests that labor force participation rises during economic expansions, even
though Keynesian theory says it shouldn’t.
6.
Keynesian theory says that economic cycles occur because prices and wages are slow to
adjust to sudden changes in aggregate demand. Sudden changes in aggregate demand occur
because:
a.
b.
c.
d.
e.
government expenditure is unstable, causing the LM curve to be unstable.
money demand can be unstable, causing the LM curve to be unstable.
desired investment can be unstable, causing the LM curve to be unstable.
money supply can be unstable, causing the IS curve to be unstable.
labor force participation can be unstable, causing the IS curve to be unstable.