Exam 7:The Economy at Full Employment

The key idea of the real business theory is that potential output itself will remain stable over time.

Draw a graph illustrating a labor market in equilibrium. Illustrate and explain the effect of an increase in the preference for leisure by workers.

One of the necessary conditions for the classical model to be true is that

Higher employment taxes lead to lower levels of employment.

Firms consider the ________ wage when considering whether to hire additional units of labor.

A closed economy refers to an economy with

Suppose bad weather in Florida unexpectedly results in a much smaller citrus crop than had been projected. This would tend to cause the labor demand curve for citrus pickers to shift to the

Real business cycle theory emphasizes the role of ________ in causing economic fluctuations.

An increase in consumption, investment, or net exports caused by a decrease in government purchases is known as

Explain the difference between an open economy and a closed economy.

Labor market equilibrium occurs at a real wage where the demand for labor exceeds the supply of labor.

As more efficient capital equipment becomes available, the demand for labor will ________, the real wage will ________, and the quantity of labor hired will ________.

As the result of a decrease in capital, the demand for labor would ________, the supply of labor would ________, and the real wage would ________.

As firms reduce their stock of capital, labor demand ________ and labor supply ________.

Draw a graph illustrating a labor market in equilibrium. Illustrate and explain the effect of a decrease in the preference for leisure by workers.

Recall the Application about European soccer stars choosing to play for clubs in countries with lower tax rates to reduce their taxes to answer the following question(s). A study conducted by economists Henrik Jacobsen Kleven, Camille Landais,and Emmanuel Saez found that top tax rates and tax breaks do matter when soccer stars choose where to locate. -Recall the Application. If country A has a lower overall income tax rate than country B, and labor can freely and easily move between the two countries, ________ in country B will tend to ________.

Suppose that technological advancement makes labor more productive. What is likely to happen wages and to potential output?

The marginal principle states that one should

Describe the relationship demonstrated by a production function.

When developing classical models, there is an assumption that wages and prices will remain fixed relative to changes in supply and demand.