Deck 6: The Labour Market

Question 1

If efficiency wage theory is valid, we would expect a relatively low premium over the reservation wage when:

A) workers can be easily monitored.
B) workers have few other options for employment in the area.
C) the job requires very little training.
D) workers exhibit high productivity.
E) the unemployment rate is low.

Answer 1

workers can be easily monitored.

Question 2

Based on our understanding of the labour market model, we know that a decrease in the minimum wage will cause:

A) no change in the natural rate of unemployment.
B) an increase in the real wage demanded by workers.
C) an increase in the natural rate of unemployment.
D) no change in the real wage demanded by workers.
E) a decrease in the real wage demanded by workers.

Answer 2

a decrease in the real wage demanded by workers.

Question 3

The reservation wage is:

A) the lowest wage firms are allowed by law to pay workers.
B) the wage that an employer must pay workers to reduce turnover to a reasonable level.
C) the wage offer that ends a labour strike.
D) the wage that ensures a laid off individual will wait for rehire, rather than find another job.
E) the wage that would make an individual indifferent between working or not working.

Answer 3

the wage that would make an individual indifferent between working or not working.

Question 4

The natural level of employment will decrease when which of the following occurs?

A) A decrease in the actual unemployment rate.
B) A decrease in the level of employment protection.
C) A decrease in the markup of prices over costs.
D) A decrease in unemployment benefits.
E) None of the above.

Question 5

What is the effect on the PS curve when employers have to pay employment on- costs?

A) A downward movement along the PS curve.
B) An upward movement along the PS curve.
C) A downward shift in the PS curve.
D) No movement in the PS curve.
E) An upward shift in the PS curve.

Question 6

Efficiency wage theory suggests that:

A) unskilled workers will have a lower turnover rate than skilled workers.
B) firms will be more resistant to wage increases as the labour market tightens.
C) productivity might decrease if the wage rate is too low.
D) the government can only set tax rates so high before people will prefer not to work.
E) workers will be paid less than their reservation wage.

Question 7

Assume there is perfect competition in the product market. Given this information, we know that m (in the price setting equation P = (1 + m)W) equals:

A) P.
B) 0.
C) W.
D) W/P.
E) 1.

Question 8

Data on Australian unemployment since the 1960s show:

A) no trend at all, with very little year- to- year movements.
B) a moderate downward trend, with much larger year- to- year movements.
C) a dramatic downward trend, with much smaller year- to- year movements.
D) a dramatic upward trend, with much smaller year- to- year movements.
E) a moderate upward trend, with much larger year- to- year movements.

Question 9

Which of the following individuals would be considered unemployed?

A) An individual who decides to retire.
B) An individual who works only part time.
C) An individual who works full time in a family business, but is not paid.
D) An individual who is not working and is looking for work.
E) An individual who is not working and is not looking for work.

Question 10

Based on the data above, the labour force participation rate is:

A) 48.4%.
B) 72.4%.
C) 56.4%.
D) 22.4%.
E) 89.4%.

Question 11

Based on the data above, the unemployment rate is:

A) 9.3%.
B) 7.3%.
C) 11.3%.
D) 15.3%.
E) 5.3%.

Question 12

The labour force is defined as:

A) the sum of the employed and the unemployed.
B) the sum of the employed, unemployed and discouraged individuals.
C) the total number of working age individuals in the population.
D) the total number of the unemployed.
E) the total number of the employed.

Question 13

Based on the data provided in the chapter, which of the following represents the largest component of the Australian labour force?

A) The employed.
B) Discouraged workers.
C) Retired individuals.
D) Civilian labour force.
E) The unemployed.

Question 14

Assume product markets become more competitive in Australia. Given this information, we would expect to observe which of the following?

A) Both WS and PS curves shift up.
B) An upward shift in the PS curve.
C) A downward shift in the PS curve.
D) An upward shift in the WS curve.
E) A downward shift in the WS curve.

Question 15

Henry Ford's experiment with efficiency wages resulted in:

A) no noticeable effects.
B) a dramatic increase in the turnover rate.
C) new problems with the workforce, like drunkenness and reckless driving.
D) a decrease in the layoff rate.
E) a dramatic decrease in productivity.

Question 16

For this question, assume that Y = N. Based on our understanding of the labour market model, we know that an increase in the markup will cause:

A) an increase in the natural level of employment.
B) no change in the natural level of employment.
C) no change in the natural level of output.
D) a decrease in the natural level of output.
E) an increase in the natural level of output.

Question 17

What is the effect on the WS curve with the presence of direct and indirect taxes in the economy?

A) An upward shift in the WS curve.
B) No movement in the WS curve.
C) An upward movement along the WS curve.
D) A downward shift in the WS curve.
E) A downward movement along the WS curve.

Question 18

With the real wage on the vertical axis and the employment rate on the horizontal axis, we know that:

A) the PS curve is downward sloping.
B) the WS curve is downward sloping.
C) the PS curve is upward sloping.
D) the WS curve is horizontal.
E) the WS curve is upward sloping.

Question 19

Suppose the actual unemployment rate increases. This will cause:

A) an upward shift in the WS curve.
B) a downward shift in the WS curve.
C) an upward movement along the WS curve.
D) a downward movement along the WS curve.
E) None of the above.

Question 20

The natural level of output is the level of output that occurs when:

A) the unemployment rate is zero.
B) the markup is zero.
C) the economy is operating at the unemployment rate consistent with both the wage- setting and price- setting equations.
D) both the goods and financial markets are in equilibrium.
E) there are no discouraged workers in the economy.

Question 21

Which of the following describe the rising distortionary effects of taxes in the economy?

A) The wage- setting curve shifts rightwards.
B) The price- setting curve shifts downwards.
C) An increase in the natural rate of unemployment.
D) An increase in the proportional tax wedge.
E) All of the above.

Question 22

With the real wage on the vertical axis and the unemployment rate on the horizontal axis, we know that:

A) the WS curve is upward sloping.
B) the WS curve is downward sloping.
C) the PS curve is downward sloping.
D) the PS curve is upward sloping.
E) the WS curve is horizontal.

Question 23

Which of the following is associated with a falling unemployment rate?

A) Rising proportion of the unemployed finding a job.
B) Falling long- term unemployment ratio.
C) Falling separation rate.
D) All of the above.
E) None of the above.

Question 24

The Australian Labour Force Survey interviews approximately how many households each month?

A) 120,000.
B) 42,000.
C) 62,000.
D) 12,000.
E) 8200.

Question 25

Based on the data above, the employment rate is:

A) 62%.
B) 50%.
C) 40%.
D) 25%.
E) 54%.

Question 26

In the wage- setting relation, the nominal wage increases when:

A) the unemployment rate rises.
B) unemployment benefits decrease.
C) the level of employment protection decreases.
D) the minimum wage decreases.
E) the expected price level rises.

Question 27

Suppose we wish to examine the determinants of the equilibrium real wage and the equilibrium level of employment. In a graph with the real wage on the vertical axis, and the level of employment on the horizontal axis, the wage- setting relation will now be:

A) a curve that first slopes upward, then downward.
B) a vertical line.
C) an upward sloping line.
D) a horizontal line.
E) a downward sloping line.

Question 28

A decrease in the unemployment rate will tend to cause which of the following?

A) An increase in layoff rate.
B) An increase in the quit rate.
C) An increase in the separation rate.
D) A decrease in the employment rate.
E) A decrease in the duration that one is unemployed.

Question 29

Suppose the aggregate production function is given by Y = N. Given this information, we know that labour productivity is represented by:

A) N.
B) N/Y.
C) Y.
D) 1.
E) 1/N.

Question 30

Which of the following statements about wage setting is true?

A) Most workers in Australia have their wages set by collective bargaining.
B) Most workers in Australia have their wages set by owner- managers of incorporated enterprises.
C) Most workers in Australia have their wages set by awards.
D) The minimum wage in Australia is about 75% of the average wage.
E) Collective bargaining plays a more important role in Japan and most European countries than in Australia.

Question 31

For this question, assume that Y = N. Based on our understanding of the labour market model, we know that an increase in the minimum wage will cause:

A) no change in the natural level of output.
B) an increase in the natural level of output.
C) an increase in the natural level of employment.
D) no change in the natural level of employment.
E) a decrease in the natural level of output.

Question 32

Which of the following is the distortionary effect of higher taxes?

A) Higher natural rate of employment.
B) No change in the natural rate of unemployment.
C) No change in the natural rate of employment.
D) Lower natural rate of unemployment.
E) Higher natural rate of unemployment.

Question 33

When the unemployment rate is high, we would expect that:

A) the average duration of unemployment decreases.
B) the probability an unemployed individual will find another job is high.
C) the probability of losing a job is high.
D) the probability of losing a job is low.
E) the separation rate will decrease.

Question 34

In the wage setting relation W = PeF (u, z), the variable z includes which of the following variables?

A) The minimum wage.
B) The level of employment protection.
C) The amount of structural change in the economy.
D) Unemployment benefits.
E) All of the above.

Question 35

Which of the following variables is most directly determined in the labour market?

A) Prices.
B) Interest rates.
C) Bond prices.
D) Nominal wages.
E) Stock prices.

Question 36

Labour productivity is represented by which of the following?

A) The ratio of output to the labour force.
B) The ratio of output to population.
C) The ratio of output to employment.
D) Workers per unit of capital.
E) Capital per worker.

Question 37

Suppose the aggregate production function is given by Y = AN. Given this information, we know that labour productivity is represented by:

A) N/Y.
B) 1/A.
C) A.
D) 1/N.
E) Y/A.

Question 38

Suppose the actual unemployment rate decreases. This will cause:

A) a downward shift in the PS curve.
B) an upward shift in the PS curve.
C) an upward shift in the WS curve.
D) a downward shift in the WS curve.
E) None of the above.

Question 39

Suppose workers and firms expect the overall price level to decrease by 2%. Given this information, we would expect that:

A) the nominal wage will decrease by less than 2%.
B) the real wage will decrease by more than 2%.
C) the nominal wage will decrease by exactly 2%.
D) the real wage will decrease by 2%.
E) the nominal wage will decrease by more than 2%.

Question 40

Which of the following is not in the labour force?

A) Those who worked full time, but in a family business.
B) Those who worked part time at the supermarket.
C) Discouraged workers.
D) Those temporarily laid off who will be recalled soon.
E) The unemployed.

Question 41

A decrease in unemployment benefits will tend to cause which of the following?

A) A downward shift in the PS curve.
B) A downward shift in the WS curve.
C) An upward shift in the PS curve.
D) An upward shift in the WS curve.
E) Both WS and PS curves shift down.

Question 42

Graphically illustrate (using the WS and PS relations) and explain the effects of a decrease in the markup on the equilibrium real wage, the natural rate of unemployment, the natural level of employment, and the natural level of output.

Question 43

In March 2012, the participation rate in Australia was approximately equal to:

A) 60%.
B) 95%.
C) 45%.
D) 90%.
E) 65%.

Question 44

Data for 1997- 2012 on labour- force flows in Australia show that:

A) the average duration of unemployment is about 2 years.
B) in any given month, almost none of the unemployed gets jobs.
C) the average duration of unemployment is about 2 months.
D) in any given month, almost all of the unemployed gets jobs.
E) the average duration of unemployment is about 2 weeks.

Question 45

Explain what effect an increase in the unemployment rate has on the real wage based on: (1) the WS relation; and (2) the PS relation.

Question 46

Based on our understanding of the labour market model, we know that a decrease in the markup will cause:

A) a decrease in the natural rate of unemployment and no change in the real wage.
B) a decrease in the natural rate of unemployment and a decrease in the real wage.
C) an increase in the equilibrium real wage.
D) an increase in the natural rate of unemployment.
E) a decrease in the equilibrium real wage.

Question 47

Graphically illustrate (using the WS and PS relations) and explain the effects of a decrease in unemployment benefits on the equilibrium real wage, the natural rate of unemployment, the natural level of employment, and the natural level of output.

Question 48

Based on wage- setting behaviour, we know that an increase in the unemployment rate will cause:

A) a downward shift of the WS curve.
B) no change in the real wage.
C) an upward shift of the WS curve.
D) a decrease in the real wage.
E) an increase in the real wage.

Question 49

Explain how an increase in the unemployment rate will affect bargaining power and nominal wages.

Question 50

What effect does the existence of discouraged workers have on the ability of the official unemployment rate to provide accurate information about the extent to which labour is employed?

Question 51

Suppose we wish to examine the determinants of the equilibrium real wage and the equilibrium level of employment. In a graph with the real wage on the vertical axis, and the level of employment on the horizontal axis, the price- setting equation will now be:

A) a horizontal line.
B) a downward sloping line.
C) kinked at the natural rate of unemployment.
D) an upward sloping line.
E) a vertical line.

Question 52

The natural rate of unemployment is the rate of unemployment:

A) that occurs when the markup of prices over costs is zero.
B) where the markup of prices over costs is equal to its historical value.
C) that occurs when the money market is in equilibrium.
D) that occurs when both the goods and financial markets are in equilibrium.
E) consistent with both the wage- setting and price- setting equations.

Question 53

Data for 1997- 2012 on labour- force flows in Australia show that:

A) almost all separations are due to accidents.
B) almost all separations are due to death.
C) almost all separations are due to serious illness.
D) almost all separations are layoffs.
E) almost all separations are quits.

Question 54

If we know that on average 50% of unemployed leave unemployment each month, then the average duration of unemployment is:

A) 2 months.
B) 12 months.
C) 1 month.
D) 6 months.
E) More information is needed.

Question 55

Based on our understanding of the labour market model, we know that an increase in the markup will cause:

A) a decrease in the natural rate of unemployment.
B) an increase in the equilibrium real wage.
C) a decrease in the equilibrium real wage.
D) both A and C.
E) both B and C.

Question 56

As the unemployment rate falls:

A) the young and unskilled experience larger- than- average decreases in unemployment.
B) the separation rate increases.
C) the proportion of the unemployed finding a job increases.
D) both A and C are true.
E) All of the above are true.

Question 57

Which of the following represents the participation rate?

A) The ratio of the employed to the civilian population.
B) The ratio of the unemployed to the civilian population.
C) The ratio of the labour force to the civilian population.
D) The ratio of the labour force to the total number of employed and unemployed workers.
E) The ratio of the number employed to the size of the labour force.

Question 58

Based on the price- setting behaviour, we know that a decrease in the unemployment rate will cause:

A) no change in the real wage.
B) a downward shift of the PS curve.
C) an increase in the real wage.
D) a decrease in the real wage.
E) an upward shift of the PS curve.

Question 59

First, explain what the price- setting relation represents. Second, explain why it has its particular shape.

Question 60

An increase in the minimum wage will tend to cause which of the following?

A) A downward shift in the PS curve.
B) A downward shift in the WS curve.
C) An upward shift in the PS curve.
D) An upward shift in the WS curve.
E) Both WA and PS curves shift up.

Question 61

Explain why nominal wages are a function of the expected price level.

Question 62

Explain the impact on the employed and the unemployed when unemployment is high.

Question 63

(i) Discuss the effect of employment on- costs on the real wage that employers pay.

Question 64

Explain the markup and its role in influencing firms' pricing decision.

Question 65

First, provide a brief explanation of what the unemployment rate measures. Second, explain how changes in each of the components of the unemployment rate can cause changes in the unemployment rate.

Question 66

First, explain what the wage- setting relation represents. Second, explain why it has its particular shape.

Question 67

Explain the natural rate of unemployment.

Question 68

The participation rate in Australia has increased steadily over the past several decades. First, explain what the participation rate represents. Second, explain why the participation rate has increased.

Question 69

Explain several implications and characteristics of efficiency wage theories.

Question 70

Based on your understanding of the labor market model, explain what types of policies could be implemented to generate a decrease in the natural rate of unemployment.