Econ 409 Watson Final, FML
Terms in this set (66)
What are the major determinants of labor productivity?
land per worker, physical capital per worker, love of technology, economic institution, human capital per worker
Why has labor productivity been growing at a slower than usual rate?
Physical capital per worker has not been growing as fast, and our economic system is becoming less efficient.
What specific fiscal policies have contributed to the slow growth in labor productivity?
Unemployment insurance, disability insurance, social security payments, tops, grants, scholarships, no down payments for new homebuyers, and progressive income taxes. These slow down business investment and therefore labor productivity.
Why does inflation decrease the supply of labor?
When prices go up, it lowers the real wage.
Why is some unemployment economically beneficial to the economy?
It helps to avoid underemployment.
What monetary policies cause the political business cycle?
Inflation of the money supply right before an election. This hasn't really happened since the days of Jimmy Carter.
Why are people interested in the level of labor productivity?
It is the best indicator of real wages.
Why does the U.S. have a higher level of labor productivity than most other countries?
We have more land, human and physical capital per workers, and a more efficient economic system than most nations.
Suppose that the U.N. came to you for advice. They wanted to know what could be done to raise wages in the poorer countries of Africa. What advice would you give them?
Fight corruption. Make sure you have enough land, physical capital (tools), human capital (education) per worker. They also need good laws and economic systems. They also need to get rid of bad traditions that don't promote worker productivity and obedience to the law.
If you are seeking a job and you receive a wage offer equal to your reservation wage, then why should you accept the offer?
The expected costs of further job search = the expected benefits of further job searching.
When an economy is coming out of a recession, why does employment growth lag behind output growth during the recovery?
Businesses want to make sure that they are out of a recession before hiring new workers. They want to "play it safe."
Who is most hurt by the minimum wage? What do they lose?
Young, unskilled workers. They lose income, as it increases unemployment. They also lose human capital they could have received from on the job training, which will negatively impact their entire lifetime income stream.
Which is a better predictor or international labor productivity: standardized math test scores or the degree of economic freedom?
Economic freedom. DUH.
In what way do wages have inertia?
They have inertia due to long-term contracts and changes to the economic system (like increasing the minimum wage).
If you are seeking a job and you receive a wage offer below your reservation wage, then why should you reject the offer?
Because the expected costs of further job search is less than the expected benefits of further job search.
Why is labor productivity in North Korea lower than it is in the United States.
Have you ever tried North Korean food? Neither have they.
Did you know that in North Korea all the soldiers always march towards their left? It's because they have no rights. (inefficient economic system)
Why were millions of people willing to work for $1 a day in 1875 but today almost no one is willing to work for $1 a day?
This question is just BLOWN out of proportion. That was a higher real wage in comparison to today's real wages. This question is really inflated.
Suppose that you were on the city council and a construction company did a study that suggested that installing a traffic circle for $10 million could save 10 lives over the next 10 years. Would you vote in favor of the traffic circle? Explain why.
It depends. I'd have to consider opportunity cost. I'd have to know that that was the best possible way to spend that money towards saving lives.
List 4 fiscal policies that have discourages saving.
Unemployment insurance, social security/disability insurance, tops, scholarships, grants, loans, social security, taxes, no down-payments on first-time home-buyers
What causes unemployment to be greater than the natural rate?
Wages that are above the equilibrium level.
The labor force participation rate is equal to..
What occurs if deficit spending increases?
Government borrowing crowds out business investment
What policies would encourage growth?
a balanced F***ing budget
According to the classical economists, unemployment..
does not occur in the long run unless there is an effective minimum wage
According to the classical theory, unemployment is not a problem in the long run because..
wages wil adjust to the level that forces the number of people who wish to work into equality with the number of people that businesses wish to hire
According to the modern view of the labor market, unemployment..
always exists, but it may be above, below, or equal to the natural rate depending upon the level of wages relative to the equilibrium wage
Given the current fiscal situation, which policies will encourage the greatest level of investment?
A decrease in government expenditures to balance the budget
If a worker receives a 12% increase in wages then..
any inflation greater than 12% will result in a decrease in real wages.
If the growth in real GDP per capita is 3% then real GDP per capita will double in about...
True or false. The Natural rate of unemployment would fall if employment agencies could improve the information available to unemployed workers.
If wages are above the equilibrium level then...
the quantity of labor demanded is less than the quantity of labor supplied
Keynes suggested that a decrease in the demand for labor would cause...
unemployment because wages were "sticky", rigid, inflexible. He was a *******.
Real income rises when...
nominal income rises faster than prices
The cost of capital is..
lost present consumption
The economy would not go through period of over-full or under-full employment if...
wages were flexible enough to adjust to the equilibrium level
The level of investment is determined...
in the loanable funds market
The short-run phillips curve shows that the...
rate of unemployment falls as the actual rate of inflation rises.
The stock of capital grows when...
gross investment is greater than depreciation
the unemployment rate is equal to...
100% minus the employment rate
the unemployment rate will be greater than the natural rate if...
wages are below equilibrium
There are always some unemployed people because..
it takes time to find and accept job offers and there are always new people entering the job market
Unemployed workers will experience a longer-than-expected duration of job search if..
their expected wage distribution is higher than the actual wage distribution
When an individual engages in the act of saving, he or she is..
refraining from current consumption in order to enjoy larger consumption in the future
When the money supply increases and the price level rises, what happens to the demand and supply of labor?
Demand increase while supply decreases
When the # of job vacancies is greater than the # of unemployed people..
the rate of unemployment is greater than the natural rate of unemployment
What best describes full employment?
The level of employment that occurs when the unemployment rate is equal to the natural rate of unemployment
True or False. If the unemployment rate is above the natural rate then the only way to make it fall back to the natural rate is to increase the rate of inflation.
What has discouraged household saving in the U.S.?
taxes on interest income.
True or false. If the actual rate of inflation is greater than the expected rate of inflation, then wages will be below the equilibrium level.
What is mainly responsible for the slow growth in real GDP in the U.S.?
slow growth in the stock of capital
If the actual distribution of wages is greater than the expected distribution of wages, then..
reservation wages will be too low and people will find and accept job offers faster than they expected
If the actual rate of inflation rises from 4% to 100%, then..
unemployment remains at the natural rate in the long run
If the expected rate of inflation is greater than the actual rate of inflation, then..
the quantity of labor demanded in less than the quantity of labor supplied
If unemployment in the economy is equal to the natural rate, then what is false?
reservation wages are determined by an inaccurate view of the actual distribution of wages
If workers were expecting an inflation rate of 10% and monetary authorities decreased the inflation rate from 10% to 5%, then..
Unemployment will rise in the short run, but return to the natural state in the long run
The long run Phillips curve shifts to the left when..
the expected rate of inflation falls
The long run Phillips curve shows..
that the rate of unemployment is independent of the rate of inflation
The natural rate of unemployment falls when..
the labor force participation rate falls
The short-run Phillips curve shifts outward when the...
Expected rate of inflation rises
The short-run Phillips curve occurs because...
an increase in the inflation rate causes unemployment to rise when people do not expect inflation
Which of the following is false? a) the long run phillips curve is a vertical line at the natural rate of unemployment. b) It is economically desirable to have some unemployment. c) The natural rate of unemployment would fall if employment agencies could improve the information available to unemployed workers. d) Changes in the long run rate of inflation causes changes in the natural rate of unemployment
The Natural rate of unemployment would fall if employment agencies could improve the information available to unemployed workers.
Which of the following is false? a) If a nominal income is rising faster than prices, then real income is falling. b) If you want to receive a 5% increase in real wages, then you must receive a 9% increase in nominal wages if the inflation rate is 4%. c) The percent change in real income is equal to the percent change in nominal income minus the inflation rate. d) The real wage rate is equal to the nominal wage rate divided by the price level.
a) If a nominal income is rising faster than prices, then real income is falling. (it would rise)
What is the most important factor in determining the rate of inflation that people expect to occur in the near future?
The rate of growth in the money supply
True or False. If the actual rate of inflation is greater than the expected rate of inflation, then wages will be below the equilibrium level.
What does the rule of 7 state?
It states that the unemployment rate plus the inflation rate equals about 7%.
How did Milton Friedman suggest avoiding inflation?
By keeping money growth low and stable (3-5%, 4-6%)