Question 1

Explain how the marginal principle can be applied to a firm's decision about how much labor to hire.

Accepted Answer

The marginal benefit that a firm receives from hiring an additional worker is the money / market value of the extra output produced when that worker is hired. The marginal cost of the worker will be the worker's real wage. The firm will continue to hire additional workers as long as the marginal benefit exceeds the marginal cost.

Question 2

The phenomenon where private spending increases after a decrease in government spending is known as:

Accepted Answer

A)   Ricardian equivalence.
B)   income effect.
C)   crowding in.
D)   crowding out. C

Question 3

Another term for full- employment output is:

Accepted Answer

A)   maximum output.
B)   potential output.
C)   perfectly competitive output.
D)   actual output. B

Question 4

In a production function that is graphed with output on the y- axis and labor on the x- axis, a decrease in the capital stock is illustrated as:

Accepted Answer

A)   a downward shift in the production function.
B)   an upward shift in the production function.
C)   a downward movement along the production function.
D)   an upward movement along the production function.

Question 5

In a closed economy, how can an increase in government spending crowd out investment?

Accepted Answer

The answer of In a closed economy, how can an...

Question 6

When the economy experiences sustained economic growth, the

Accepted Answer

A)   labor demand decreases and the equilibrium wage drops.
B)   the supply decreases and the equilibrium wage decreases.
C)   labor demand increases and the equilibrium wage rises.
D)   the supply increases and the equilibrium wage increases.

Question 7

The full- employment level of output represents that maximum output that a country can produce.

Accepted Answer

A) True 
 B)False

Question 8

What does an upward- sloping labor supply curve mean?

Accepted Answer

A)   Workers choose to work less when wages are high.
B)   An increase in the wage leads to an increase in the quantity of labor supplied.
C)   An increase in wages causes a large income effect.
D)   A higher wage rate results in a higher income for all workers.

Question 9

The entire short- run production function shifts upward if:

Accepted Answer

A)   productivity decreases.
B)   the quantity of labor increases.
C)   the stock of capital increases.
D)   diminishing returns are close to zero.

Question 10

Persistent unemployment is consistent with the predictions of the classical models.

Accepted Answer

A) True 
 B)False

Question 11

Figure 7.2
-Refer to Figure 7.2. Which of the following can change the equilibrium wage rate from $8 to $7?

Accepted Answer

A)   The value people put on their leisure time increases.
B)   The productivity of workers decreases.
C)   The value of what firms produce increases.
D)   all of the above

Question 12

Real business cycle theory:

Accepted Answer

A)   emphasizes only changes in tax rates.
B)   argues that shifts in consumption spending are responsible for fluctuations in output.
C)   ignores the effects of shocks to the production technology.
D)   argues that fluctuations in output are caused by technological change.

Question 13

In a production function that is graphed with output on the y- axis and labor on the x- axis, an increase in the capital stock is illustrated as:

Accepted Answer

A)   an upward shift in the production function.
B)   a downward movement along the production function.
C)   an upward movement along the production function.
D)   a downward shift in the production function.

Question 14

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, as the U.S. population ages, the U.S. needs to

Accepted Answer

A)   decrease taxes.
B)   make changes in Social Security.
C)   increase benefits.
D)   lower the retirement age.

Question 15

What is the difference between crowding out in an open economy and in a closed economy?

Accepted Answer

The answer of What is the difference between crowding out...

Question 16

The full- employment level of output can only be achieved when the unemployment rate is zero.

Accepted Answer

A) True 
 B)False

Question 17

According to classical economists, which of the following would cause an increase in output?

Accepted Answer

A)   an increase in the price level
B)   an increase in physical capital
C)   a reduction in labor supply
D)   a decrease in the price level

Question 18

Analyze the statement below and explain why you agree or disagree.
"When a firm invests in additional capital stock, the firm will no longer need workers and this will ultimately hurt all workers in the firm."

Accepted Answer

The answer of Analyze the statement below and explain why...

Question 19

Figure 7.2
-Refer to Figure 7.2. According to classical economists if the wage rate is:

Accepted Answer

A)   $12, the wage rate will decline to eliminate the surplus.
B)   $7, the wage rate will decline to eliminate the surplus.
C)   $12, the wage rate will increase to eliminate the shortage.
D)   $12, the wage rate will decline to eliminate the shortage.

Question 20

Figure 7.1
-Please refer to Figure 7.1. Suppose the economy is at point A. An improvement in technology will:

Accepted Answer

A)   move the economy to point B.
B)   move the economy to point C.
C)   move the economy to point D.
D)   keep the economy at point A

Exam 7: The Economy at Full Employment

Explain how the marginal principle can be applied to a firm's decision about how much labor to hire.

The phenomenon where private spending increases after a decrease in government spending is known as:

Another term for full- employment output is:

In a production function that is graphed with output on the y- axis and labor on the x- axis, a decrease in the capital stock is illustrated as:

In a closed economy, how can an increase in government spending crowd out investment?

When the economy experiences sustained economic growth, the

The full- employment level of output represents that maximum output that a country can produce.

What does an upward- sloping labor supply curve mean?

The entire short- run production function shifts upward if:

Persistent unemployment is consistent with the predictions of the classical models.

Figure 7.2 -Refer to Figure 7.2. Which of the following can change the equilibrium wage rate from $8 to $7?

Real business cycle theory:

In a production function that is graphed with output on the y- axis and labor on the x- axis, an increase in the capital stock is illustrated as:

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, as the U.S. population ages, the U.S. needs to

What is the difference between crowding out in an open economy and in a closed economy?

The full- employment level of output can only be achieved when the unemployment rate is zero.

According to classical economists, which of the following would cause an increase in output?

Analyze the statement below and explain why you agree or disagree. "When a firm invests in additional capital stock, the firm will no longer need workers and this will ultimately hurt all workers in the firm."

Figure 7.2 -Refer to Figure 7.2. According to classical economists if the wage rate is:

Figure 7.1 -Please refer to Figure 7.1. Suppose the economy is at point A. An improvement in technology will: