Download 1. The macroeconomic problem that affects individuals

1. The macroeconomic problem that affects individuals most directly and severely is:
A) inflation.
B) unemployment.
C) low savings.
D) low investment.
2. In a steady state:
A) no hiring or firings are occurring.
B) the number of people finding jobs equals the number of people losing jobs.
C) the number of people finding jobs exceeds the number of people losing jobs.
D) the number of people losing jobs exceeds the number of people finding jobs.
3. One reason for unemployment is that:
A) it takes time to match workers and jobs.
B) all jobs are identical.
C) the labor market is always in equilibrium.
D) a laid-off worker can immediately find a new job at the market wage.
4. Frictional unemployment is inevitable because:
A) different sectors do not shift.
B) the economy needs to be lubricated.
C) workers never quit their jobs to change careers.
D) the demand for different goods always fluctuates.
5. Unemployment insurance increases the amount of frictional unemployment by:
A) making workers more frantic in their search for new jobs.
B) inducing workers to accept the first job offer that they receive.
C) making employers more reluctant to lay off workers.
D) softening the economic hardship of unemployment.
6. Public policy to increase the job finding rate include _____ and public policy to
decrease the job separation rate include _____.
A) government employment agencies; higher unemployment insurance benefits
B) job training programs; 100 percent experience rated unemployment insurance
C) higher minimum wage laws; payment of unemployment benefits for longer periods
D) higher efficiency wages; partially experience rated unemployment insurance
7. When the real wage is above the level that equilibrates supply and demand:
A) the quantity of labor supplied exceeds the quantity demanded.
B) the quantity of labor demanded exceeds the quantity supplied.
C) there is no unemployment.
D) the labor market clears.
8. If wage rigidity holds the real wage above the equilibrium level, an increase in the
supply of labor will ______ the number unemployed.
A) increase
B) decrease
C) not change
D) possibly increase, decrease, or leave unchanged
9. If wage rigidity holds the real wage above the equilibrium level, an increase in the
demand for labor will ______ the number unemployed.
A) increase
B) decrease
C) not change
D) possibly increase, decrease, or leave unchanged
10. When insiders have a much greater impact on the wage-bargaining process than do
outsiders, the negotiated wage is likely to be ______ the equilibrium wage.
A) much greater than
B) much less than
C) almost equal to
D) about one-half of
11. If the rate of job separation is 0.02 per month and the rate of job finding is 0.10 per
month, what is the natural rate of unemployment?
12. Assume that the real wage in an economy is held above equilibrium.
a. Graphically illustrate how an increase in technology that raises the demand for labor will
change the number of unemployed workers. Be sure to label the axes and the quantities of
labor hired before and after the technological progress.
b. Explain in words what happens to the number of unemployed as a result of this change.
13. Assume that an employer believes that the “efficiency” (e) it can get from a particular
worker, as a function of the hourly wage (w), is given by function e = –0.125w +
0.15w2 – 0.005w3, at least up to a wage of 30.
a. Create a table of w, e, e/w, and w/e for wages equal to 5, 10, 14, 15, 16, 20, and 25.
b. Which wage gives the highest ratio of efficiency per unit of labor cost?
c. Once the firm has hit on an optimal w, whatever it is, would cutting wages whenever demand
falls off increase or decrease wages per unit of efficiency?
14. Suppose that over the course of a year 100 people are unemployed for 4 weeks each
(the short-term unemployed), while 10 people are unemployed for 52 weeks each
(the long-term unemployed). Approximately what percentage of the total spells of
unemployment were attributable to the long-term unemployed?
A) 9 percent.
B) 10 percent.
C) 43.5 percent.
D) 56.5 percent.
15. Explain how paying efficiency wages can help employers overcome both moral
hazard and adverse selection problems in employment.
Answer Key - Untitled Exam-1
1. B
2. B
3. A
4. D
5. D
6. B
7. A
8. A
9. B
10. A
11. 16.67 percent
12. a.
b. The number of unemployed falls from (L – L1) to (L – L2).
13.w
a.
5
10
14
15
16
20
25
e
2.50
8.75
13/93
15.00
15.92
17.50
12.50
e/w
0.500
0.875
0.995
1.000
0.995
0.875
0.500
w/e
2.000
1.143
1.005
1.000
1.005
1.143
2.000
b. 15
c. Cutting wages (any wage lower than 15) would increase wages per unit of efficiency.
14. A
15. Efficiency wages are wages above the market-clearing level. Higher-thanequilibrium wages give the best workers more incentive to stay with the firm,
thereby reducing the adverse selection problem of an employer not being able to
clearly distinguish good workers from poor workers. Higher-than-equilibrium wages
give workers greater incentive to avoid shirking, a moral hazard problem when
workers are not easily monitored, by increasing the penalty (lost wages) of being
caught not working.