Question 1

Which of the following statements is correct?

Accepted Answer

Economic growth and technological advances lead to both job creation and job destruction. It is a natural process of the economy.

Answer: C
 Unemployment insurance provides a financial safety net to workers who have lost their jobs. Without this safety net, people would likely have to hold out longer for a job that matches their skills and preferences.

Option A is incorrect because technological advances can create new job opportunities, leading to a shift in job roles and industries. The advancement of technology can also make some jobs less labor-intensive, leading to improved working conditions.

Option D is incorrect because frictional unemployment is a result of temporary job transitions, such as graduating from school or quitting one job to search for another. Even if there is a balance between labor supply and demand, there may still be some people experiencing frictional unemployment.

Question 2

Offering employees an efficiency wage may:

Accepted Answer

Offering employees an efficiency wage can lead to a reduction in turnover by motivating employees to work harder and produce higher quality work. It may also attract the most productive workers by offering a higher wage than competitors. Finally, by retaining skilled employees, there is a reduction in training costs. Therefore, all of the above choices are possible outcomes of offering an efficiency wage.

Question 3

If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor:

Accepted Answer

When a minimum wage law imposes a price floor above the equilibrium price, it results in a surplus of labor because employers demand less labor at the higher wage, while more workers supply their labor at the higher wage.

Question 4

During an inflationary period, those most likely to suffer reduced wealth are those who are holding their wealth in:

Accepted Answer

During an inflationary period, the value of currency decreases, causing those who are holding their wealth in currency to suffer reduced wealth. Gold and real estate often hold their value or even appreciate during inflation, and stocks can also increase in value depending on the industry and market conditions. However, currency is highly vulnerable to inflationary pressures.

Question 5

The natural rate of unemployment:

Accepted Answer

The natural rate of unemployment is the sum of frictional and structural unemployment when the economy is at full employment, not at their maximum. Cyclical unemployment, which is related to the business cycle, is not included in the natural rate.

Question 6

Which of the following statements is incorrect?

Accepted Answer

The typical unemployment compensation in the United States is not one's full salary, but rather a percentage of their prior earnings up to a maximum amount, and typically lasts for up to 26 weeks.

Question 7

The term full employment implies an unemployment rate of:

Accepted Answer

Full employment does not mean zero unemployment; rather, it acknowledges the existence of "natural unemployment" (including frictional and structural unemployment) and is often represented by an unemployment rate around 5%.

Question 8

If firms pay employees an efficiency wage:

Accepted Answer

Efficiency wages are higher than the market wage rate and are intended to increase worker productivity and reduce absenteeism. Therefore, firms paying an efficiency wage would expect absenteeism to decrease.

Choice B is incorrect because turnover is expected to decrease as the higher wages incentivize workers to remain with the firm.

Choice C is partially correct because training costs might increase due to the lower turnover rates and the need to train new workers less frequently. However, it is not necessarily a likely outcome.

Choice D is incorrect because higher wages incentivize workers to put in more effort on the job, reducing shirking.

Question 9

Which of the following statements is correct?

Accepted Answer

The efficiency wage model argues that higher wages can lead to higher productivity by motivating workers to work harder and reducing turnover. This is supported by empirical evidence that shows that firms that pay higher wages tend to have more productive workers.

Option A is false; higher wages may lead to increased unemployment as some workers may be replaced by machines, while others may lose their jobs as companies try to cut costs to pay for the higher wages.

Option B is also false; although it is not always the case, research shows that unionized workers earn higher wages on average than non-union workers.

Option D is true, according to the laws of supply and demand, if the price of labor (wages) is increased above the equilibrium level (market price), then the supply of labor will exceed the demand for labor, creating a surplus of unemployed workers.

Question 10

If the economy is operating at the natural rate of unemployment, which of the following is essentially eliminated?

Accepted Answer

When the economy is operating at the natural rate of unemployment, there is no cyclical unemployment, which is caused by fluctuations in the business cycle. However, frictional and structural unemployment may still exist due to other factors such as job search and skills mismatch. Therefore, the correct answer is C) cyclical unemployment.

Question 11

If the minimum wage law is repealed and employers begin using efficiency wages far less frequently, it would ___ unemployment and ____ the natural rate of unemployment:

Accepted Answer

Efficiency wages are wages that employers set above the equilibrium wage to boost worker productivity and morale, which can reduce turnover and shirking. If the minimum wage law is repealed and employers use efficiency wages less frequently, it could lead to a decrease in wages for some workers. This could make it more affordable for employers to hire more workers, potentially decreasing unemployment. Additionally, with lower wages and more people being hired, the natural rate of unemployment, which includes frictional and structural unemployment but not cyclical unemployment, could also decrease as the labor market adjusts to these changes.

Question 12

If firms offer an efficiency wage:

Accepted Answer

When firms offer an efficiency wage, they pay above the market-clearing level to increase productivity, reduce turnover, or improve quality. This higher wage attracts more workers than there are jobs available, leading to a situation where the quantity of labor supplied exceeds the quantity of labor demanded.

Question 13

If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor and employers increasingly used efficiency wages, it would ___ unemployment and ____ the natural rate of unemployment:

Accepted Answer

If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor, employers will be forced to increase the wages they pay to their employees. This will increase the cost of labor and cause employers to use efficiency wages, which are higher than the market wage, to motivate their workers to be more productive. Efficiency wages will reduce the number of job openings, increase the number of unemployed workers, and increase the natural rate of unemployment. Therefore, the best choice is "A" because the minimum wage law will increase unemployment and increase the natural rate of unemployment.

Question 14

Why are creditors harmed by unexpected inflation?

Accepted Answer

Creditors are harmed by unexpected inflation because they are paid back the same amount of money in nominal terms, but the money they receive has less purchasing power than they originally lent out. This means that the real value of their loan has decreased, reducing their overall returns. For example, if a creditor lent out $100 at a 5% interest rate, expecting to receive $105 in a year's time, but unexpected inflation means the value of the dollar has gone down by 5%, then they will still receive $105, but the real value of that money is only $99.50 due to the inflation, causing them to lose out.

Question 15

Inflation:

Accepted Answer

Inflation can lead to a redistribution of income from creditors to borrowers, as the value of money decreases over time. It may also discourage investment and economic growth, as uncertainty about future prices makes it difficult to plan for the future. Additionally, inflation can decrease the value of a nation's currency relative to other nations, which can have negative effects on trade and international investments. Therefore, any of the above outcomes may result from inflation.

Question 16

Which of the following groups are typically harmed by unexpected inflation?

Accepted Answer

Lenders are typically harmed by unexpected inflation because the money they will receive in repayment will be worth less than the money they originally lent out. Pensioners on fixed incomes are also typically harmed by unexpected inflation because their income remains the same, but the cost of goods and services increases, reducing their purchasing power. Borrowers, on the other hand, benefit from unexpected inflation because they are paying back loans with dollars that are worth less than the dollars they originally borrowed.

Question 17

If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor and employers increasingly used efficiency wages, it would ___ structural unemployment and ____ the natural rate of unemployment:

Accepted Answer

A minimum wage law imposing a price floor above the equilibrium price of unskilled labor would make it more expensive to hire workers, leading to an increase in structural unemployment. Employers also tend to use efficiency wages to prevent shirking behavior from employees. This increases unemployment even further and raises the natural rate of unemployment.

Question 18

Inflation exists whenever:

Accepted Answer

Inflation exists when the overall price level is rising, which means that it is not just one good or product that is experiencing an increase in price, but rather a general trend of rising prices throughout the economy.

Question 19

If the economy is operating with full employment, which of the following is essentially eliminated?

Accepted Answer

Full employment means that there is no cyclical unemployment, which is unemployment caused by a downturn in the business cycle. However, frictional and structural unemployment can still exist even at full employment. Frictional unemployment is caused by people voluntarily changing jobs or entering the workforce for the first time, while structural unemployment is caused by a mismatch of skills between available jobs and the workforce.

Question 20

Deflation exists whenever:

Accepted Answer

Deflation occurs when the overall price level falls, which means the purchasing power of money increases. This can happen due to various reasons such as a decrease in demand for goods and services, increase in productivity or efficiency, or a decrease in the money supply. Deflation does not occur with the rise in the overall price level, contraction of the economy, or decrease in the price of a single good.

Quiz 10: Consumer Choice Theory

Which of the following statements is correct?

Offering employees an efficiency wage may:

If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor:

During an inflationary period, those most likely to suffer reduced wealth are those who are holding their wealth in:

The natural rate of unemployment:

Which of the following statements is incorrect?

The term full employment implies an unemployment rate of:

If firms pay employees an efficiency wage:

Which of the following statements is correct?

If the economy is operating at the natural rate of unemployment, which of the following is essentially eliminated?

If the minimum wage law is repealed and employers begin using efficiency wages far less frequently, it would _ unemployment and __ the natural rate of unemployment:

If firms offer an efficiency wage:

If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor and employers increasingly used efficiency wages, it would _ unemployment and __ the natural rate of unemployment:

Why are creditors harmed by unexpected inflation?

Inflation:

Which of the following groups are typically harmed by unexpected inflation?

If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor and employers increasingly used efficiency wages, it would _ structural unemployment and __ the natural rate of unemployment:

Inflation exists whenever:

If the economy is operating with full employment, which of the following is essentially eliminated?

Deflation exists whenever: