Question 1

To determine GDP from the production function, we need to know

Accepted Answer

A)  the quantity of labor employed. 
B)  the quantity of labor available for work. 
C)  the unemployment rate. 
D)  the quantity of labor supplied by firms. 
E)  the real wage rate.

Question 2

-The above figure shows a nation's production function.Point A is

Accepted Answer

A)  attainable if the economy is inefficient. 
B)  unattainable given the state of the economy. 
C)  attainable if the nation uses resources efficiently. 
D)  the maximum amount of real GDP the nation can produce. 
E)  the labor market equilibrium quantity of employment and real GDP.

Question 3

________ adopts the view that aggregate fluctuations are a natural consequence of an expanding economy.

Accepted Answer

A)  Classical macroeconomics 
B)  Keynesian economics 
C)  The new macroeconomics 
D)  The Lucas wedge 
E)  The Okun gap

Question 4

In a labor market without an efficiency wage, minimum wage, or union wage, when the real wage rate exceeds the equilibrium real wage rate, there is a ________ of labor and the real wage rate will ________.

Accepted Answer

A)  surplus; fall 
B)  shortage; fall 
C)  shortage; rise 
D)  surplus; rise 
E)  surplus; not change because only efficiency wages or union wages can change.

Question 5

If adding an initial 100 billion labor hours per year increases real GDP by $3 trillion, diminishing returns informs us that an additional 100 billion labor hours per year will increase real GDP by

Accepted Answer

A)  exactly $3 trillion. 
B)  less than $3 trillion. 
C)  more than $3 trillion. 
D)  either exactly $3 trillion or by less than $3 trillion, depending on whether the real wage rate remains constant or rises. 
E)  some amount but there is not enough information to tell by how much.

Question 6

-If the government increases unemployment benefits, then the labor

Accepted Answer

A)  demand curve shifts rightward. 
B)  demand curve shifts leftward. 
C)  supply curve shifts rightward. 
D)  supply curve shifts leftward. 
E)  Both answers B and D are correct.

Question 7

The quantity of labor demanded is the labor hours all

Accepted Answer

A)  firms plan to hire at a given real wage rate. 
B)  firms plan to hire at a given nominal wage rate. 
C)  employees plan to work at a given real wage rate. 
D)  employees plan to work at a given nominal wage rate. 
E)  Both answers A and C are correct.

Question 8

Potential GDP is

Accepted Answer

A)  equal to the maximum amount of goods and services that can be produced at any given time. 
B)  another name for real GDP. 
C)  the level of output produced when the economy is fully employed. 
D)  a measure of the short term fluctuations in real GDP. 
E)  another name for nominal GDP.

Question 9

In the United States since 1960, the average unemployment rate was highest during the decade of the

Accepted Answer

A)  1960s. 
B)  1970s. 
C)  1980s. 
D)  1990s. 
E)  2000s.

Question 10

When the labor market is in equilibrium so that the quantity of labor supplied equals the quantity demanded,

Accepted Answer

A)  there is no unemployment. 
B)  the economy is fully employed. 
C)  nominal GDP equals real GDP. 
D)  there is no inflation. 
E)  real GDP might be more than, less than, or equal to potential GDP.

Question 11

The lower the real wage rate, the

Accepted Answer

A)  fewer workers firms can profitably hire. 
B)  more workers firms can profitably hire. 
C)  more workers will supply labor. 
D)  higher the nominal wage rate. 
E)  larger the quantity of labor supplied.

Question 12

As the quantity of labor employed increases, the production functions exhibits a

Accepted Answer

A)  positive, linear relationship. 
B)  positive relationship, with each additional unit of labor producing less additional real GDP. 
C)  positive relationship, with each additional unit of labor producing more additional real GDP. 
D)  negative, linear relationship. 
E)  U-shaped curve.

Question 13

The production function describes the relationship between

Accepted Answer

A)  the real wage and the quantity of labor supplied. 
B)  real GDP and the quantity of labor employed. 
C)  real and potential GDP. 
D)  real and nominal GDP. 
E)  potential GDP and the real wage rate.

Question 14

The idea that the production function exhibits _______implies that ________.

Accepted Answer

A)  diminishing returns; the Lucas Wedge increases at output increases. 
B)  diminishing returns; each additional unit of labor employed generates an ever-decreasing amount of real GDP. 
C)  increasing returns; potential GDP is always increasing. 
D)  increasing returns; output should increase steadily as technology grows. 
E)  constant returns; each additional unit of labor employed generates an increasing amount of real GDP.

Question 15

The increase in the average unemployment rate in the 1970s was the result of

Accepted Answer

A)  the reduction of overly generous unemployment benefits in the 1970s. 
B)  an increase in the birth rate in the early 1970s. 
C)  an increase in the birth rate in the late 1940s and early 1950s. 
D)  higher real wage rates. 
E)  repeated increases in the minimum wage.

Question 16

According the Keynesian macroeconomic model, which of the following was responsible for starting the Great Depression?

Accepted Answer

A)  Too little private spending. 
B)  Too little government spending. 
C)  High taxes. 
D)  Decreases in the quantity of money. 
E)  Decreases in technology.

Question 17

The lower the amount of unemployment benefits citizens receive, the

Accepted Answer

A)  higher the opportunity cost of job search. 
B)  lower the opportunity cost of job search. 
C)  the higher the natural unemployment rate. 
D)  the longer people search for jobs. 
E)  higher the wage people must be offered before they accept a job.

Question 18

The production function is a relationship between the amount of labor employed and

Accepted Answer

A)  the maximum quantity of real GDP that can be produced. 
B)  the maximum quantity of nominal GDP that can be produced. 
C)  the wage rate paid to the workers. 
D)  all other resources at different levels of employment. 
E)  the amount of labor workers supply.

Question 19

The supply of labor is defined as the relationship between the real wage rate and the

Accepted Answer

A)  quantity of labor supplied by firms. 
B)  amount of jobs supplied by firms. 
C)  quantity of labor supplied by households. 
D)  amount of jobs supplied by households. 
E)  equilibrium quantity of employment.

Question 20

At any given time, which factor of production is NOT fixed?

Accepted Answer

A)  labor 
B)  technology 
C)  entrepreneurship 
D)  land 
E)  money

Exam 8: Potential Gdp and the Natural Unemployment Rate