Exam

Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
Assume that the production function for an economy is represented by the following Y = NA. Now assume the economy
experiences an increase in productivity (i.e., an increase in A). This increase in productivity will cause

1)

_______
A)
the AS curve to shift downward, and the AD curve to shift leftward.
B)
the AS curve to shift downward, and have an ambiguous effect on the AD curve.
C)
the AS curve to shift upward, but has no effect on the AD curve.
D)
the AS curve to shift downward and the AD curve to shift rightward.
E)
the AS curve to shift upward and the AD curve to shift rightward.

2)
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

2)

_______
A)
the WS relation to shift up more than the PS relation.
B)
the real wage to rise and no change in the natural rate of unemployment.
C)
the natural rate of unemployment to fall.
D)
the real wage to fall.

3)
Because of labor hoarding, an increase in output may signal

3)

_______
A)
a reduction in employment.

B)
a reduction in productivity.
C)
no change in employment.

D)

an increase in employment.

4)
The evidence suggests that recent technological change

4)

_______
A)
permanently increased the natural rate of unemployment.
B)
has increased productivity in the service sector only.
C)
has increased the wage gap between skilled and unskilled workers.
D)
is different from past technological change, in that it has no impact on productivity.
E)
has increased productivity in the manufacturing sector only.

5)
Based on our understanding of the wage setting equation, which of the following will NOT cause a reduction in the
nominal wage?

5)

_______
A)
a reduction in the expected price level
B)
an increase in unemployment
C)
a reduction in expected productivity
D)
all of the above
E)
none of the above

6)
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?

6)

_______
A)
The PS relation will shift up by 2%.
B)
There will be no change in the real wage.
C)
The WS relation will shift down by 2%.
D)
The WS relation will shift down by less than 2%.

7)
A major explanation for the decline in employment projected in textiles is

7)

_______
A)
shifts in production toward low-wage countries.
B)
social problems in the U.S.
C)
inaccurate expectations about the price level.
D)
inaccurate expectations about productivity growth.
E)
increases in income.

8)
Which of the following represents the wage setting relation when changes in labor productivity are allowed to occur?

8)

_______
A)
W = AP/(1+)
B)
W = PeF(u,z)
C)
W = P(1 + )
D)
e
W = P F(u,z)/A
E)
none of the above

9)
Based on our understanding of the price setting equation, which of the following will NOT cause a reduction in the price
level?

9)

_______
A)
a reduction in the nominal wage
B)
a reduction in productivity
C)
a reduction in the markup
D)
all of the above
E)
none of the above

10)
Suppose workers expectations of the price level and productivity are accurate. For this economy, an increase in
productivity will cause which of the following?

10)

______
A)
an increase in both the real wage and the natural rate of unemployment
B)
an increase in the real wage and a decrease in the natural rate of unemployment
C)
a decrease in the real wage and an increase in the natural rate of unemployment
D)
a decrease in both the real wage and the natural rate of unemployment
E)
none of the above

11)
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

11)

______
 A)
the WS relation to shift up more than the PS relation.
B)
the natural rate of unemployment to fall.
C)
the PS relation to shift up more than the WS relation.
D)
the real wage to fall.

12)
The empirical evidence suggests that periods of high productivity growth will cause which of the following in the short
run?

12)

______
A)
constant real wages
B)
greater equality in wages
C)
higher markups
D)
lower unemployment
E)
none of the above

13)
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?

13)

______
A)
The WS relation will shift up by less than 4%.
B)
The WS relation will shift down by 4%.
C)
The PS relation will shift down by 4%.
D)
The PS relation will shift up by 4%.

14)
Which of the following statements about the United States during the twentieth century is correct?
14)

______
A)
Output growth has been slower than employment growth.
B)
Output growth has been approximately equal to employment growth.
C)
Output has increased largely due to monetary and fiscal policy.
D)
Output growth has been faster than employment growth.

15)
For this question, assume that expectations of P and A are correct. Based on wage setting behavior, the real wage will be
equal to which of the following?

15)

______
A)
P(1 + )
B)
APF(u,z)
C)
AP/(1+)
D)
A(1+)
E)
none of the above

16)
For this question, assume that expectations of productivity are slow to adjust. An increase in productivity growth from
1% to 3% will cause

16)

______
A)
an increase in the real wage of 3% and an increase in un.
B)
an increase in the real wage of 3% and a reduction in un.
C)
an increase in the real wage of 1% and an increase in un.
D)
an increase in the real wage of 1% and a reduction in un.
 17)
Assume an economy experiences an increase in productivity that occurs as a result of a more widespread implementation
of a major technological breakthrough. Given this information, we would expect which of the following to occur?

17)

______
A)
Aggregate demand would shift to the right.
B)
Aggregate demand would shift to the left.
C)
Both the aggregate demand and aggregate supply curves would shift to the left.
D)
Aggregate demand would not change.

18)
Employment will remain constant (i.e., not change) as a result of an increase in productivity when which of the following
occurs?

18)

______
A)
the AS curve shifts downward
B)
the AD curve shifts to the right
C)
output growth exceeds productivity growth
D)
productivity growth exceeds output growth
E)
none of the above

19)
Assume an economy experiences, for a given period, a 4% increase in output and a 4% increase in productivity. Given this
information, we know that which of the following occurred for this economy during this period?

19)

______
A)
Employment increased during this period.
B)
Employment decreased during this period.
C)
The effects on employment are ambiguous.
D)
Employment not changed during this period.
E)
none of the above

20)
Assume an economy experiences, for a given period, a 4% increase in output and a 2% increase in productivity. Given this
information, we know that which of the following occurred for this economy during this period?

20)

______
A)
Employment has decreased during this period.
B)
Employment has not changed during this period.
C)
The effects on employment are ambiguous.
D)
Employment has increased during this period.
E)
none of the above

21)
Assume that the production function for an economy is represented by the following Y = NA. Which of the following
expressions is equal to labor productivity for this economy?

21)

______
A)
1/A
B)
Y/A
C)
NA
D)
A
E)
none of the above

22)
For this question, assume that workers expectations of the price level and productivity are accurate. Now suppose that the
economy experiences an increase in productivity. Which of the following will occur in the medium run?

22)

______
A)
an increase in unemployment
B)
no change in the natural level of output if the unemployment rate does not change
C)
no change in unemployment
D)
a reduction in unemployment
E)
none of the above

23)
Assume an economy experiences, for a given period, a 1% increase in output and a 5% increase in productivity. Given this
information, we know that which of the following occurred for this economy during this period?

23)

______
A)
The effects on employment are ambiguous.
B)
Employment has increased during this period.
C)
Employment has decreased during this period.
D)
Employment has not changed during this period.
E)
none of the above

24)
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?

24)

______
A)
(1 + )W
B)
(1 + )A
C)
(1 + )A/W
D)
W/A
E)
none of the above

25)
Since 1971, the annual growth rate of real wages has been

25)

______
A)
negative.
B)
remarkably high.
C)
impossible to measure accurately, and so has not been reported.
D)
positive, but low.
E)
zero.

26)
An increase in productivity will cause which of the following according to the price-setting behavior of firms?

26)

______
A)
an increase in the real wage paid by firms
B)
an increase in prices set by firms
C)
an increase in the markup set by firms
D)
all of the above
E)
none of the above

27)
In recent years, the increasing relative wage of skilled labor has been mostly due to

27)
______
A)
a decrease in the supply of, and increase in the demand for, skilled labor.
B)
government subsidies provided to college students.
C)
an increase in the demand for skilled labor that exceeds the increase in supply.
D)
a decrease in the supply of skilled labor that exceeds the decrease in demand.
E)
government laws promoting the hiring of skilled labor.

28)
Suppose the aggregate production function is represented by the following Y = AN. Given this information, labor
productivity is given by

28)

______
A)
N/A.
B)
A.
C)
Y.
D)
A/N.
E)
none of the above

29)
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?

29)

______
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 a reduction in the natural rate of unemployment
D)
no change in the real wage and an increase in the natural rate of unemployment
 30)
Suppose an economy experiences an increase in technological progress. This increase in technological progress will

30)

______
A)
lead to changes in the types of goods produced.
B)
allow the same amount of output to be produced with fewer workers.
C)
allow more output to be produced with the same number of workers.
D)
all of the above
E)
none of the above

1)

2)
C

3)
C

4)
C

5)
E

6)
C

7)
A

8)
E
 9)
B

10)
E

11)
A

12)
D

13)
D

14)
D

15)
B

16)
B

17)
A

18)
E

19)
D

20)
D

21)
D

22)
C

23)
C

24)
E

25)
A

26)
A

27)
C

28)
B

29)
B

30)
D