Question 1

Explain how the discouraged worker effect relates to changes in output.

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Question 2

Explain why productivity figures can be misleading when used to diagnose the health of the economy over the short run?

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Question 3

A 1% increase in output tends to correspond to a less-than-1% decrease in the unemployment rate. What are the three "slippages" that occur between changes in output and changes in the unemployment rate?

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Question 4

Summarize the factors that govern firm behavior with regard to investment and employment decisions.
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Question 5

Define labor productivity.

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Question 6

When the inventory/sales ratio is high what can be said about a firm's estimation of demand and its production decisions? What production response will firms likely make?

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Question 7

Discuss some of the reasons why the relationship between output and the unemployment rate is not as simple as that believed by Arthur Okun.

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Question 8

Assume firms have inventories that they can draw down to meet an increase in demand. What impact will this have on the size of the multiplier and why?

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Question 9

Explain Okun's Law. What did later research indicate about the proposed relationship between output and unemployment?

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Question 10

What is the approximate size of the multiplier in practice? Explain why the actual multiplier is smaller than the simple multiplier presented earlier in the text.

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Question 11

Define and explain Okun's Law. Assume the economy in 1995 grew 4%. Based on Okun's Law, how would the unemployment rate be affected? Is Okun's Law really a law? Is it true all of the time?

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Question 12

Define what is meant by the "discouraged-worker effect".

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Quiz 16: Household and Firm Behavior in the Macroeconomy: a Further Look