Question 1

For this question,assume that expectations of productivity growth adjust slowly.Now,suppose that there is a 3% reduction in productivity.Explain how this 3% reduction in productivity can cause changes in the unemployment rate.

Accepted Answer

The answer of For this question,assume that expectations of productivity...

Question 2

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

A 3% reduction in A will cause a shift in the WS relation downwards by the same percentage. This implies that the real wage will decrease by 3%, reducing the wage bill for firms. As a result, the WS relation will shift down by 2%, because the full impact of the decrease in A will be spread over both wages and employment. Therefore, the right answer is (C).

Question 3

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

An increase in A, which typically represents productivity, leads to an increase in the real wage as firms can afford to pay workers more without raising prices. However, the natural rate of unemployment, which is determined by factors such as the labor market's structure and policies, does not change with short-term productivity shifts.

Question 4

Which of the following represents the wage setting relation when changes in labor productivity are allowed to occur?
A)W = PᵉF(u,z)
B)W = P(1 + m)
C)W = PᵉF(u,z)/ A
D)W = AP / (1 + m)
E) none of the above

Accepted Answer

The answer of Which of the following represents the wage...

Question 5

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 6

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 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 typically leads to an increase in real wages as firms can afford to pay workers more without raising prices. Additionally, higher productivity can lead to lower unemployment as it can stimulate economic growth, leading to more job creation.

Question 8

Because of labor hoarding,a reduction in output may signal
A)an increase in employment.
B)a reduction in employment.
C)no change in employment.
D)a reduction in productivity.

Accepted Answer

Labor hoarding occurs when companies retain more employees than needed, expecting future increases in demand. Thus, even if output decreases, employment levels may not change immediately as firms hold onto their workforce.

Question 9

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 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

Poorly established property rights make it difficult for individuals to invest in and profit from new technologies. Poorly developed financial markets limit access to capital necessary for research and development. Low education levels limit the ability of individuals to innovate and develop new technologies. Therefore, all of the above factors contribute to the inability of poor countries to close the technology gap with the rich countries.

Question 11

For this question,assume that expectations of P and A are correct.Based on price setting behavior,the real wage will be equal to which of the following?
A)A / (1 + m)
B)AP / (1 + m)
C)APF(u,z)
D)P(1 + m)
E) none of the above

Accepted Answer

According to the basic wage-setting equation, real wage (w/p) = A/(1+m). As we are given that expectations of P and A are correct, we can use this formula to calculate the real wage. Therefore, option A is the correct answer.

Question 12

Suppose the aggregate production function is represented by Y = AN.Which of the following expressions represents the number of additional workers required to increase production by one unit?
A)1 / A
B)Y / N
C)1 / N
D)1 / Y
E) none of the above

Accepted Answer

The aggregate production function Y = AN implies that output (Y) is directly proportional to the number of workers (N) with a proportionality constant A. To increase production by one unit, the number of additional workers required is the reciprocal of A, which is 1/A.

Question 13

Which of the following is not believed to cause recent increases in wage inequality?
A)international trade
B)contractionary monetary policy
C)skill-biased technological progress
D)all of the above
E) none of the above

Accepted Answer

Contractionary monetary policy is not believed to cause recent increases in wage inequality. International trade and skill-biased technological progress are both considered factors that contribute to wage inequality. Therefore, option D is also eliminated as it includes all of the above options. Option E is also not the best choice, as it suggests that all options contribute to the recent increases in wage inequality.

Question 14

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 (price-setting) relation will shift up by 4% because an increase in A (productivity) directly increases the price-setting power of firms, allowing them to set higher prices for the same cost, thus shifting the PS curve upwards.

Question 15

For this question,assume that the aggregate production function is represented by Y = A.Which of the following represents the marginal cost of producing an additional unit of output?
A)W
B)W / A
C)A / W
D)(1 +A)W

Accepted Answer

The marginal cost (MC) is the additional cost incurred in producing an additional unit of output. In this case, the production function is Y = A, which implies that the output (Y) is proportional to the factor input (A). Therefore, the marginal cost of producing an additional unit of output can be calculated as follows: 
MC = Change in cost / Change in output 
Since the production function is Y = A, the change in output is equal to the change in factor input, i.e., change in A.

Now, assume that the cost of the input (A) is given by W. Then the total cost of producing output Y is W * A. So, the marginal cost can be expressed as follows: 
MC = Change in cost / Change in A 
= W / A 
Therefore, option B is the correct choice.

Question 16

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 17

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 reduce firms' production costs, allowing them to lower their prices without reducing their profit margins. A reduction in the nominal wage will reduce firms' costs of production and allow them to lower prices without sacrificing profit margins. Similarly, a reduction in the markup will reduce the amount by which firms mark up their prices above their costs, which will lower prices without sacrificing profits. Therefore, all three choices will cause a reduction in the price level.

Question 18

For this question,assume that the aggregate production function is represented by Y = AN.Which of the following represents the price setting relation for this economy?
A)(1 + m)A
B)(1 + m)A / W
C)(1 + m)W
D)W / A
E) none of the above

Accepted Answer

The price setting relation in an economy typically involves the price level (P), wages (W), productivity (A), and possibly a markup (m). However, none of the options provided correctly represents a standard price setting relation based on the given aggregate production function Y = AN. The price setting relation would involve how firms set prices based on costs (like wages) and productivity, often with a markup, but none of the options accurately reflect this in a standard economic model.

Question 19

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 20

For this question,assume that expectations of productivity growth adjust slowly.Now,suppose that there is a 5% increase in productivity.Explain how this 5% increase in productivity can cause changes in the unemployment rate.

Accepted Answer

The answer of For this question,assume that expectations of productivity...

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

For this question,assume that expectations of productivity growth adjust slowly.Now,suppose that there is a 3% reduction in productivity.Explain how this 3% reduction in productivity can cause changes in the unemployment rate.

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?

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?

Which of the following represents the wage setting relation when changes in labor productivity are allowed to 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

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

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

Because of labor hoarding,a reduction in output may signal

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

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

For this question,assume that expectations of P and A are correct.Based on price setting behavior,the real wage will be equal to which of the following?

Suppose the aggregate production function is represented by Y = AN.Which of the following expressions represents the number of additional workers required to increase production by one unit?

Which of the following is not believed to cause recent increases in wage inequality?

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 the aggregate production function is represented by Y = A.Which of the following represents the marginal cost of producing an additional unit of output?

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

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

For this question,assume that the aggregate production function is represented by Y = AN.Which of the following represents the price setting relation for this economy?

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

For this question,assume that expectations of productivity growth adjust slowly.Now,suppose that there is a 5% increase in productivity.Explain how this 5% increase in productivity can cause changes in the unemployment rate.