Question 1

An increase in productivity will cause which of the following according to the price- setting behaviour of firms?
A) An increase in the markup set by firms.
B) An increase in the level of employment protection set by the government.
C) An increase in the prices set by firms.
D) An increase in the minimum wage paid by firms.
E) An increase in the real wage paid by firms.

Accepted Answer

An increase in productivity allows firms to produce more with the same amount of inputs, which often leads to higher profits. Firms may then be able to afford paying higher real wages to their employees without needing to increase prices, hence increasing the real wage paid by firms.

Question 2

Assume that expectations of productivity growth adjust slowly. Now, suppose that there is a 5% decrease in productivity. Explain how this 5% decrease in productivity can cause changes in the unemployment rate.

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Question 3

Assume that expectations of the price level and productivity are accurate. For this economy, we know that the natural rate of unemployment should depend on which of the following?
A) Neither the level of productivity nor its rate of growth.
B) The level of productivity, but not its rate of growth.
C) Both the level of productivity and its rate of growth.
D) The level of productivity, its rate of growth, and the history of its recent change.
E) The rate of growth of productivity, but not its level.

Accepted Answer

The natural rate of unemployment is primarily determined by factors such as labor market policies, labor laws, and the efficiency of the labor market, rather than the level or growth rate of productivity.

Question 4

Suppose an economy experiences a decrease in productivity. Explain both the short- run and medium- run effects of this productivity decrease on output, employment, and the unemployment rate.

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Question 5

Based on our understanding of the wage- setting equation, which of the following will not cause a decrease in the nominal wage?
A) A decrease in expected productivity.
B) An increase in unemployment.
C) A decrease in unemployment benefits.
D) A decrease in the expected price level.
E) An increase in the minimum wage.

Accepted Answer

An increase in the minimum wage would lead to an increase in the nominal wage, not a decrease. The wage-setting equation states that the nominal wage is positively related to expected productivity, and negatively related to unemployment benefits and the expected price level. An increase in unemployment (choice B) would decrease the bargaining power of workers and lead to a decrease in the nominal wage. A decrease in expected productivity (choice A) would also lead to a decrease in the nominal wage. A decrease in unemployment benefits (choice C) would increase the supply of labor and reduce the bargaining power of workers, leading to a decrease in the nominal wage. A decrease in the expected price level (choice D) would reduce the cost of hiring workers and lead to a decrease in the nominal wage.

Question 6

Joseph Schumpeter argued that growth was a process of creative destruction. Explain what is meant by the phrase, "creative destruction".

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Question 7

Some commentators will argue that increases in productivity may have no effect or even a negative effect on employment in the short run. Explain what must occur for an increase in productivity to have no effect or even a negative effect on employment in short run.

Accepted Answer

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Question 8

Explain how technological change can cause changes in wage inequality.

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Question 9

Because of labour hoarding, an increase in output may signal:
A) a decrease in productivity.
B) no change in productivity.
C) an increase in employment.
D) an increase in productivity.
E) a decrease in employment.

Accepted Answer

Labour hoarding refers to a situation where firms retain excess employees during a period of low output or demand. In this situation, an increase in output while the same level of employment is maintained signals an increase in productivity, as more output is being produced per worker.

Question 10

There are some concerns that technological progress can lead to an increase in unemployment. Explain the two related but separate dimensions of technological progress.

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Question 11

What are the three explanations researchers have offered for why China's transition from a planned economy to a market- oriented one is smoother than central and eastern European countries.

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Question 12

Assume that expectations of productivity growth adjust slowly. Now, suppose that there is a 4% increase in productivity. Explain how this 4% increase in productivity can cause changes in the unemployment rate.

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Question 13

Explain what effect a decrease in productivity has on wage- setting behaviour, price- setting behaviour, the equilibrium real wage, the natural rate of unemployment, and the natural level of output.

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Question 14

Using the AS- AD model, graphically illustrate and explain the short- run and medium- run effects of a decrease in productivity. In your graph, clearly label all curves and equilibria. For simplicity, assume that the change in productivity has no effect on aggregate demand.

Accepted Answer

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Question 15

Which of the following would increase the gap in wages between skilled and unskilled workers?
A) International trade forces companies to relocate to low- cost countries.
B) An increase in the costs of going to university.
C) New types of production technology that require workers to have more skills.
D) All of the above.
E) None of the above.

Accepted Answer

All of the options listed contribute to increasing the wage gap between skilled and unskilled workers. International trade can lead to job relocation to countries where labor is cheaper, often impacting unskilled workers more severely. An increase in the costs of higher education can limit access to the skills and qualifications needed for higher-paying jobs, widening the wage gap. New production technologies that require higher skill levels can also increase demand for skilled workers, potentially raising their wages relative to those of unskilled workers.

Question 16

Assume an economy experiences an increase in productivity that occurs as a result of the more efficient use of existing technologies. Given this information, we would expect which of the following to occur?
A) Aggregate demand would shift to the right.
B) Both the aggregate demand and aggregate supply curves would shift to the right.
C) Aggregate demand would not change.
D) Both the aggregate demand and aggregate supply curves would shift to the left.
E) Aggregate demand would shift to the left.

Accepted Answer

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Question 17

Explain some of the causes of increased wage inequality.

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Question 18

Assume that expectations of P and A are correct. Now suppose that there is a 4% decrease in A. Given this information, which of the following will occur?
A) The WS relation will shift down by 4%.
B) The WS relation will shift down by more than 4%.
C) The PS relation will shift down by less than 4%.
D) The PS relation will shift up by 4%.
E) The WS relation will shift down by less than 4%.

Accepted Answer

The WS (Wage-Setting) relation will shift down by 4% if there is a 4% decrease in A, assuming that the expectations of P and A are correct. This is because the WS curve reflects how wages are set in relation to productivity and other factors, and a decrease in A (productivity or another relevant factor) directly leads to a proportional decrease in the wage-setting curve.

Question 19

The empirical evidence suggests that periods of high productivity growth will cause which of the following in the medium run?
A) Lower unemployment.
B) Higher markups.
C) Greater equality in wages.
D) Very little churning.
E) Constant real wages.

Accepted Answer

High productivity growth will increase output per hour, which will lead to an increase in demand for labor in the long run. This will ultimately lead to lower unemployment in the medium run as firms would require more workers to increase the output.

Quiz 13: Technological Progress: the Short, the Medium and the Long Run

An increase in productivity will cause which of the following according to the price- setting behaviour of firms?

Assume that expectations of productivity growth adjust slowly. Now, suppose that there is a 5% decrease in productivity. Explain how this 5% decrease in productivity can cause changes in the unemployment rate.

Assume that expectations of the price level and productivity are accurate. For this economy, we know that the natural rate of unemployment should depend on which of the following?

Suppose an economy experiences a decrease in productivity. Explain both the short- run and medium- run effects of this productivity decrease on output, employment, and the unemployment rate.

Based on our understanding of the wage- setting equation, which of the following will not cause a decrease in the nominal wage?

Joseph Schumpeter argued that growth was a process of creative destruction. Explain what is meant by the phrase, "creative destruction".

Some commentators will argue that increases in productivity may have no effect or even a negative effect on employment in the short run. Explain what must occur for an increase in productivity to have no effect or even a negative effect on employment in short run.

Explain how technological change can cause changes in wage inequality.

Because of labour hoarding, an increase in output may signal:

There are some concerns that technological progress can lead to an increase in unemployment. Explain the two related but separate dimensions of technological progress.

What are the three explanations researchers have offered for why China's transition from a planned economy to a market- oriented one is smoother than central and eastern European countries.

Assume that expectations of productivity growth adjust slowly. Now, suppose that there is a 4% increase in productivity. Explain how this 4% increase in productivity can cause changes in the unemployment rate.

Explain what effect a decrease in productivity has on wage- setting behaviour, price- setting behaviour, the equilibrium real wage, the natural rate of unemployment, and the natural level of output.

Using the AS- AD model, graphically illustrate and explain the short- run and medium- run effects of a decrease in productivity. In your graph, clearly label all curves and equilibria. For simplicity, assume that the change in productivity has no effect on aggregate demand.

Which of the following would increase the gap in wages between skilled and unskilled workers?

Assume an economy experiences an increase in productivity that occurs as a result of the more efficient use of existing technologies. Given this information, we would expect which of the following to occur?

Explain some of the causes of increased wage inequality.

Assume that expectations of P and A are correct. Now suppose that there is a 4% decrease in A. Given this information, which of the following will occur?

The empirical evidence suggests that periods of high productivity growth will cause which of the following in the medium run?