Question 1

For this question,assume that expectations of P and A are correct.Now suppose that there is a 4% increase in A.Given this information,which of the following will occur?
A)the PS relation will shift up by 4%.
B)the WS relation will shift up by less than 4%.
C)the WS relation will shift down by 4%.
D)the PS relation will shift down by 4%.

Accepted Answer

The PS relation will shift up by 4% because the increase in A will lead to an increase in the demand for P, which will in turn lead to an increase in the price of P.

Question 2

For this question,assume that expectations of productivity are slow to adjust.Further assume that A had been increasing by 6% a year.Now suppose that A only increases by 2% in period t.This slowdown in productivity growth will cause
A)the PS relation to shift up more than the WS relation.
B)the WS relation to shift up more than the PS relation.
C)the natural rate of unemployment to fall.
D)the real wage to fall.

Accepted Answer

The WS (Wage Setting) relation shifts up more than the PS (Price Setting) relation because the WS curve reflects workers' expectations about productivity and inflation. If workers expect high productivity growth (6%) and it slows down unexpectedly (to 2%), their wage demands based on previous higher expectations will cause the WS curve to shift up more than the PS curve, which is more directly tied to actual productivity changes. This misalignment increases the cost of labor for firms without a corresponding increase in productivity, leading to higher natural unemployment.

Question 3

Explain what effect a reduction in productivity has on wage setting behavior,price setting behavior,the equilibrium real wage,the natural rate of unemployment,and the natural level of output.

Accepted Answer

The answer of Explain what effect a reduction in productivity...

Question 4

When was the last year that GDP per capita in North Korea was approximately equal to GDP per capita in South Korea?
A)1950
B)1970
C)1990
D)2000
E)none of the above

Accepted Answer

The answer of When was the last year that GDP...

Question 5

There are some concerns that technological progress can lead to an increase in unemployment.Explain the two related but separate dimensions of technological progress.

Accepted Answer

The answer of There are some concerns that technological progress...

Question 6

Joseph Schumpeter argued that growth was a process of creative destruction.Explain what is meant by the phrase,"creative destruction."

Accepted Answer

The answer of Joseph Schumpeter argued that growth was a...

Question 7

For this question,assume that expectations of productivity are slow to adjust.An increase in productivity growth from 1% to 3% will cause
A)an increase in the real wage of 1% and an increase in un.
B)an increase in the real wage of 1% and a reduction in un.
C)an increase in the real wage of 3% and an increase in un.
D)an increase in the real wage of 3% and a reduction in un.

Accepted Answer

An increase in productivity growth from 1% to 3% will lead to an increase in real wage, as more output is being produced per unit of labor input. However, since expectations of productivity are slow to adjust, there may not be an immediate decrease in unemployment. In the long run, however, the increase in productivity will lead to more job opportunities and a reduction in unemployment.

Question 8

When the unemployment rate is on the horizontal axis and the real wage is on the vertical axis,a reduction in productivity will cause which of the following to occur?
A)the wage-setting and price-setting curves will both shift downward.
B)the wage-setting and price-setting curves will both shift upward.
C)the price-setting curve to shift downward,and no shift in the wage-setting curve.
D)the wage-setting curve to shift upward,and the price-setting curve to shift downward.
E)the wage-setting curve to shift downward,and the price-setting curve to shift upward.

Accepted Answer

A reduction in productivity decreases the ability of firms to pay high wages, shifting both the wage-setting and price-setting curves downward.

Question 9

Assume an economy experiences,for a given period,a 5% increase in output and a 1% increase in productivity.Given this information,we know that which of the following occurred for this economy during this period?
A)the unemployment rate increased during this period
B)the unemployment rate decreased during this period
C)the unemployment rate did not change during this period
D)the effects on the unemployment rate are ambiguous
E)none of the above

Accepted Answer

A 5% increase in output with only a 1% increase in productivity suggests that more labor was likely employed to achieve the additional output, leading to a decrease in the unemployment rate.

Question 10

Among the reasons that the poor countries have been unable to close the "technology gap" with the rich countries is
A)poorly established property rights.
B)poorly developed financial markets.
C)low education levels.
D)all of the above
E)none of the above

Accepted Answer

The establishment of property rights is crucial for incentivizing innovation and investment, and poor countries often lack adequate property rights protections. Additionally, poorly developed financial markets limit access to funding for research and development. Finally, low education levels hinder the ability to successfully adopt and adapt technology. All of these factors contribute to the persistent technology gap between poor and rich countries.

Question 11

Based on price setting behavior,which of the following will cause a reduction in the price level?
A)an increase in productivity
B)a reduction in the nominal wage
C)a reduction in the markup
D)all of the above
E)none of the above

Accepted Answer

An increase in productivity will lead to a decrease in the per-unit cost of production, which may prompt firms to lower their selling price, resulting in a fall in the price level. A reduction in the nominal wage will reduce the cost of labor, which may result in the cost of production decreasing along with the price level. A reduction in the markup (the difference between the cost of producing a good or service and its price) would lead to lower prices and reducing the price level. All of the above affect production costs and hence can result in a reduction in the price level.

Question 12

Suppose an economy experiences a reduction in productivity.Explain both the short-run and medium-run effects of this reduction in productivity on output,employment,and the unemployment rate.

Accepted Answer

The answer of Suppose an economy experiences a reduction in...

Question 13

For this question,assume that expectations of productivity are slow to adjust.Further assume that A had been increasing by 2% a year.Now suppose that A increases by 5% in period t.This increase in productivity growth will cause
A)the real wage to rise and no change in the natural rate of unemployment.
B)the WS relation to shift up more than the PS relation.
C)the natural rate of unemployment to fall.
D)the real wage to fall.

Accepted Answer

An increase in productivity growth will increase output and lower costs, leading to an increase in firms' willingness to hire workers and a decrease in the natural rate of unemployment. This will not directly affect the real wage or cause a shift in either the WS or PS relation.

Question 14

Based on price setting behavior,which of the following will cause a reduction in the price level?
A)an increase in productivity
B)a reduction in the nominal wage
C)a reduction in the markup
D)all of the above
E)none of the above

Accepted Answer

An increase in productivity would lead to a decrease in production costs, thus allowing firms to reduce prices. A reduction in the nominal wage would also reduce production costs and thus reduce prices. Similarly, a reduction in the markup would decrease the difference between the cost of producing goods and the price at which they are sold, also resulting in a reduction in prices. Therefore, all of the above options will cause a reduction in the price level.

Question 15

For this question,assume that expectations of P and A are correct.Now suppose that there is a 1% increase in A.Given this information,which of the following will occur?
A)a 1% increase in the real wage and a reduction in the natural rate of unemployment.
B)a 1% increase in the real wage and no change in the natural rate of unemployment.
C)no change in the real wage and an increase in the natural rate of unemployment.
D)no change in the real wage and a reduction in the natural rate of unemployment.

Accepted Answer

If expectations of P and A are correct, then the nominal wage will adjust in response to the increase in A, resulting in a 1% increase in the real wage. However, the natural rate of unemployment is determined by structural factors in the labor market and is not affected by changes in aggregate demand or supply, so it will remain unchanged. Therefore, option B is the correct answer.

Question 16

For this question,assume expectations of P and A are correct.Now suppose that there is a 3% reduction in A.Given this information,which of the following will occur?
A)the PS relation will shift up by 2%.
B)the WS relation will shift down by less than 2%.
C)the WS relation will shift down by 2%.
D)there will be no change in the real wage.

Accepted Answer

According to the question, expectations about P and A are correct. A reduction in A means that the cost of production has decreased, leading to an increase in supply. This will shift the WS curve down. The exact amount of the shift will be determined by the elasticity of labor supply, but it will be greater than 2% because the reduction in A is 3%. Therefore, choice C is the best answer.

Question 17

Some commentators will argue that increases in productivity may have no effect or even a negative effect on employment in the short run.Explain what must occur for an increase in productivity to have no effect or even a negative effect on employment in short run.

Accepted Answer

The answer of Some commentators will argue that increases in...

Question 18

Suppose workers' and firms' expectations of the price level and productivity are accurate.In this case,a reduction in productivity will cause which of the following?
A)a decrease in both the real wage and the natural rate of unemployment.
B)an increase in both the real wage and the natural rate of unemployment.
C)a decrease in the real wage and no change in the natural rate of unemployment.
D)an increase in the real wage and a decrease in the natural rate of unemployment.
E)none of the above

Accepted Answer

The answer of Suppose workers' and firms' expectations of the...

Question 19

Suppose an economy experiences an increase in productivity.The AD curve will most likely shift to the right when this increase in productivity is the result of which of the following?
A)a major technological breakthrough
B)a reorganization of production designed to reduce costs with existing technology
C)an increase in human capital
D)government subsidies for higher education
E)none of the above

Accepted Answer

A major technological breakthrough would result in increased productivity and therefore shift the AD curve to the right as it would increase potential output and increase economic growth. The other options may also lead to increased productivity, but they are unlikely to have as large an impact on potential output and economic growth as a technological breakthrough.

Question 20

Employment will increase as a result of an increase in productivity when which of the following occurs?
A)the AS curve shifts upward
B)output growth is more than productivity growth
C)productivity growth is more than output growth
D)the AD curve shifts to the left
E)none of the above

Accepted Answer

When output growth exceeds productivity growth, more workers are needed to produce the additional output, leading to an increase in employment.

Quiz 13: Technological Progress: the Short,the Medium,and the Long Run

For this question,assume that expectations of P and A are correct.Now suppose that there is a 4% increase in A.Given this information,which of the following will occur?

For this question,assume that expectations of productivity are slow to adjust.Further assume that A had been increasing by 6% a year.Now suppose that A only increases by 2% in period t.This slowdown in productivity growth will cause

Explain what effect a reduction in productivity has on wage setting behavior,price setting behavior,the equilibrium real wage,the natural rate of unemployment,and the natural level of output.

When was the last year that GDP per capita in North Korea was approximately equal to GDP per capita in South Korea?

There are some concerns that technological progress can lead to an increase in unemployment.Explain the two related but separate dimensions of technological progress.

Joseph Schumpeter argued that growth was a process of creative destruction.Explain what is meant by the phrase,"creative destruction."

For this question,assume that expectations of productivity are slow to adjust.An increase in productivity growth from 1% to 3% will cause

When the unemployment rate is on the horizontal axis and the real wage is on the vertical axis,a reduction in productivity will cause which of the following to occur?

Assume an economy experiences,for a given period,a 5% increase in output and a 1% increase in productivity.Given this information,we know that which of the following occurred for this economy during this period?

Among the reasons that the poor countries have been unable to close the "technology gap" with the rich countries is

Based on price setting behavior,which of the following will cause a reduction in the price level?

Suppose an economy experiences a reduction in productivity.Explain both the short-run and medium-run effects of this reduction in productivity on output,employment,and the unemployment rate.

For this question,assume that expectations of productivity are slow to adjust.Further assume that A had been increasing by 2% a year.Now suppose that A increases by 5% in period t.This increase in productivity growth will cause

Based on price setting behavior,which of the following will cause a reduction in the price level?

For this question,assume that expectations of P and A are correct.Now suppose that there is a 1% increase in A.Given this information,which of the following will occur?

For this question,assume expectations of P and A are correct.Now suppose that there is a 3% reduction in A.Given this information,which of the following will occur?

Some commentators will argue that increases in productivity may have no effect or even a negative effect on employment in the short run.Explain what must occur for an increase in productivity to have no effect or even a negative effect on employment in short run.

Suppose workers' and firms' expectations of the price level and productivity are accurate.In this case,a reduction in productivity will cause which of the following?

Suppose an economy experiences an increase in productivity.The AD curve will most likely shift to the right when this increase in productivity is the result of which of the following?

Employment will increase as a result of an increase in productivity when which of the following occurs?