Exam 7: The Economy at Full Employment

The relationship between the quantity of output produced and the quantity of inputs used to produce it is called:

Full- employment output is:

Figure 7.2 -Refer to Figure 7.2. At wage rate $12, there is a _______ of labor equal to _______ million people.

The reduction in consumption, investment or net exports that occurs when government spending increases is known as:

An improvement in technology that makes workers more productive will cause the demand for workers to decrease.

Figure 7.2 -Refer to Figure 7.2. The equilibrium wage rate is $ _______ and the equilibrium number of people employed is _______ million people.

According to the classical economists, the economy:

Explain why the production function is shaped the way it is.

Critics of the real business cycle theory find it difficult to understand:

How do diminishing returns affect the shape of the production function?

When constructing a production function between labor and output, which of the following is held constant?

Explain what would happen to the labor supply and the potential output if workers in Germany decide to take fewer vacation days.

Suppose that the U.S. has an open economy and is currently at full employment. When the federal government decreases spending on Medicare, crowding in will not take the form of:

Why do classical economists believe that the labor market always clears?

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to answer the following questions: -According to the application, the effective tax on labor for the U.S. is about the same as:

Taking into account all taxes, the tax burden in the U.S. is higher than in Japan.

Suppose the labor market is in equilibrium and the economy suddenly experiences a boom. Assuming flexible wages, explain using the marginal principle how the labor market reaches its new equilibrium quantity.

The economic theory that emphasizes how shocks to technology can cause fluctuations in economic activity is known as the:

Figure 7.4 -From Figure 7.4, crowding in is most pronounced between:

Graphically illustrate an increase in labor supply and explain its impact on the equilibrium wage rate and quantities.