Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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1.
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According to the menu cost theory, unemployment may exist because
a. | it is costly for firms to frequently change their price lists. | b. | of legal
restrictions, like minimum wage laws. | c. | prices are rigid downwards. | d. | workers are paid
less than their marginal products. |
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2.
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In the classical model with search costs, the unemployment rate is
a. | zero. | b. | always less than the natural
rate. | c. | equal to the natural rate. | d. | could be different from the natural
rate. |
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3.
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Frictional unemployment refers to
a. | unemployment that takes place because of business cycles. | b. | unemployment that
takes place because of government policy. | c. | unemployment that takes place because of
inefficiencies in the labor market. | d. | unemployment that takes place because of
ordinary labor turnover. |
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4.
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Labour market equilibrium in a model with efficiency wages means that
a. | labor supplied equals labor demanded. | b. | the marginal cost of an increase in the real
wage equals the marginal benefit of reduced labor turnover. | c. | involuntary
unemployment equals zero. | d. | efficiency wages are less than the market
clearing real wage. |
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5.
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The natural rate of unemployment
a. | exists only when labor supplied equals labor demanded. | b. | is equal to zero
when labor supplied is equal to labor demanded. | c. | can exist if labor supplied is less than labor
demanded | d. | is a stock and not a flow variable. |
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6.
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When the economy is at the natural rate of unemployment
a. | the unemployment rate is zero. | b. | cyclical unemployment still
exists. | c. | inflation is zero. | d. | output is equal to the natural rate of
output. |
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7.
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Which of the following statements about efficiency wages is true?
a. | Firms do not have a choice about whether they pay wages above equilibrium or
not. | b. | Paying the lowest wage is always the most profitable for a firm. | c. | Paying above the
equilibrium wage may improve worker quality and productivity. | d. | There is little
relationship between worker effort and the wage. |
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8.
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When actual GDP lies below the natural path of output, unemployment is
a. | above the natural rate. | c. | at the natural
rate. | b. | below the natural rate. | d. | decreasing at the natural rate. |
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9.
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If the inflation rate is 1% per year, and output is growing at the natural rate
of 4% per year, then the rate of growth of the money stock must be
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10.
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If unemployment is below its natural rate and expected price inflation is zero,
then according to the new-Keynesian wage equation,
a. | the nominal wage inflation will be more than the natural growth
rate. | b. | the nominal wage inflation will be less than the natural growth
rate. | c. | the nominal wage inflation will be equal to the natural growth
rate. | d. | the growth rate of output will be lower than the natural growth
rate. |
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