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ECO 302c Intermediate Macro Spring 2014 Quiz #4 1. According to the efficiency wage model, employers choose a wage rate in order to maximize the productivity per dollar spent on wages. The model also implies: (i) there may be involuntarily unemployed workers even when the labor market is working as well as we can expect. (ii) unemployed workers can obtain jobs by offering to work at a wage slightly lower than the wage currently paid to existing workers. (iii) an increase in labor supply might not change full-employment output. a. b. c. d. e. only (i) is true. only (ii) is true. only (iii) is true. only (i) and (iii) are true. (i), (ii), and (iii) are all true. 2. In the days of the gold standard, every big discovery of gold led to an expansion of the money supply. The business cycle expansions that followed the gold discoveries can be explained by the _____ theory, but not by the _____ theory. a. b. c. d. e. Keynesian classical (market-clearing) reverse causation classical (market-clearing) reverse causation reverse causation misperceptions Keynesian Keynesian misperceptions 3. Every 4 years in November the US holds a presidential election. The data show faster-than-usual increases in the money supply in the months before the election. No unusual movement of output or employment occurs. This can be explained by the _____ theory. a. b. c. d. e. Keynesian reverse causation efficiency wage misperceptions with rational expectations insider-outsider 4. According to the misperceptions model (if firms and individuals have rational expectations), then increases in the money supply CAUSE an increase in output and employment if: a. b. c. d. e. the economy is operating below full-employment. the increase in the money supply is temporary. the increase in the money supply could not have been predicted. the money demand curve also shifts to the right. there is a positive shock to productivity. 5. Every year, the money supply starts rising before the intense Christmas shopping season occurs. If one considers the intense activity of Christmas shopping to be similar to a business cycle expansion, the relationship between the growth of the money supply and the increase in economic activity is best explained by the _____ theory. a. b. c. d. e. Keynesian misperceptions efficiency wage reverse causation classical (market-clearing) 6. If one doesn’t believe that the classical (market-clearing) model gives a close approximation to what happens in real-life (because the world isn’t perfect), the market which is the most “imperfect” and is most unlike the ideal approximation used in the classical general equilibrium model is the: a. b. c. d. e. product market capital market asset market labor market money market