Deck 3: Productivity, output, and Employment

Question 1

The marginal product of capital is the increase in

A)capital needed to produce one more unit of output.
B)output from a one-unit increase in capital.
C)labor needed to accompany a one-unit increase in capital.
D)output from a one-dollar increase in capital.

Answer 1

output from a one-unit increase in capital.

Question 2

The table below represents Freedonia's macroeconomic data for Year 1 and Year 2.
Suppose that the production function is given by Y = AK^0.25N0.75.Between Year 1 and Year 2,total factor productivity of Freedonia's economy increased by

A)-1.5%.
B)5)0%.
C)5)5%.
D)12.7%.

Answer 2

-1.5%.

Question 3

In the production function Y = AF(K,N),total factor productivity is

A)Y/A.
B)A)
C)K/N.
D)Y/N.

Answer 3

A)

Question 4

Suppose the economy's production function is Y = AK^0.3N0.7.Suppose K = 200,N = 2000,and A = 1.Calculate the marginal product of capital.

A)1)0
B)1)5
C)2)0
D)2)5

Question 5

The two main characteristics of the production function are

A)it slopes downward from left to right, and the slope becomes flatter as the input increases.
B)it slopes upward from left to right, and the slope becomes steeper as the input increases.
C)it slopes upward from left to right, and the slope becomes flatter as the input increases.
D)it slopes downward from left to right, and the slope becomes steeper as the input increases.

Question 6

Suppose the economy's production function is Y = AK^0.3N0.7.If K = 2000,N = 100,and A = 1,then Y = 246.If A rises by 10 percent,and K and N are unchanged,by how much does Y increase?

A)5%
B)10%
C)15%
D)20%

Question 7

The marginal product of labor

A)is measured by the slope of the production function relating capital to employment.
B)is larger when the labor supply is relatively larger.
C)is smaller when the labor supply is relatively smaller.
D)decreases as the number of workers already employed increases.

Question 8

A mathematical expression relating the amount of output produced to quantities of capital and labor utilized is the

A)real interest rate.
B)productivity relation.
C)production function.
D)marginal product.

Question 9

Suppose the economy's production function is Y = AK^0.3N0.7.If K = 2000,N = 100,and A = 1,then Y = 246.If K and N each increase by 5 percent,and A is unchanged,by how much does Y increase?

A)5%
B)10%
C)15%
D)20%

Question 10

If the marginal product of capital doesn't change as the amount of capital increases,a figure showing the relationship between output and capital

A)is a straight line with constant upward slope.
B)is a straight line with a slope of zero.
C)is a vertical line.
D)slopes upward with a slope that declines as the amount of capital increases.

Question 11

The fact that the production function relating output to labor becomes flatter as we move from left to right means that

A)the marginal product of labor is positive.
B)the marginal product of capital is positive.
C)there is diminishing marginal productivity of labor.
D)there is diminishing marginal productivity of capital.

Question 12

Suppose the economy's production function is Y = AK^0.3N0.7.If K = 2000,N = 100,and A = 1,then Y = 246.If K rises by 10%,and A and N are unchanged,by how much does Y increase?

A)30%
B)10%
C)6%
D)3%

Question 13

An adverse supply shock would

A)shift the production function up and decrease marginal products at every level of employment.
B)shift the production function down and decrease marginal products at every level of employment.
C)shift the production function down and increase marginal products at every level of employment.
D)shift the production function up and increase marginal products at every level of employment.

Question 14

The fact that the production function relating output to capital becomes flatter as we move from left to right means that

A)the marginal product of labor is positive.
B)the marginal product of capital is positive.
C)there is diminishing marginal productivity of labor.
D)there is diminishing marginal productivity of capital.

Question 15

Suppose the economy's production function is Y = AK^0.3N0.7.When K = 1000,N = 50,and A = 15,what is Y?

A)1842
B)6106
C)750,000
D)123

Question 16

Because of diminishing marginal productivity

A)the labor supply curve is not vertical.
B)nominal wages are sticky in a downward direction.
C)the labor demand curve is negatively sloped.
D)households save only a small share of their income.

Question 17

Suppose the economy's production function is Y = AK^0.3N0.7.If K = 2000,N = 100,and A = 1,then Y = 246.If K and N both rise by 20%,and A is unchanged,by how much does Y increase?

A)5%
B)10%
C)15%
D)20%

Question 18

Suppose that Freedonia has GDP equal to 2000 million,the capital stock is 1700 million,and the number of employees equals 70 million.The production function is Y = AK^0.25N0.75.Total factor productivity of the economy is approximately equal to

A)0)09.
B)2)61.
C)4)19.
D)12.87.

Question 19

In the production function Y = AF(K,N),A is ________,K is ________,and N is ________.

A)total factor productivity; the capital stock; the number of workers employed
B)total factor productivity; investment; the number of workers employed
C)the productivity of labor; the capital stock; the size of the labor force
D)the productivity of labor; investment; the size of the labor force

Question 20

If Y = A × N × (75 + K/N),where K = 1000,N = 20,and A = 10,what happens if K doubles and N doubles?

A)Y is unchanged.
B)Y increases by 50%.
C)Y doubles.
D)Y quadruples.

Question 21

The Widget Company has the following production function.
If widgets sell for $6 each and the wage rate is $33,how many workers will the company hire?

A)0
B)1
C)2
D)4

Question 22

An increase in the real wage rate will cause

A)the labor demand curve to shift to the right.
B)the labor demand curve to shift to the left.
C)the quantity of labor demanded to rise.
D)a movement along the labor demand curve.

Question 23

An increase in the number of workers hired by a firm could result from

A)a decrease in the marginal product of labor.
B)a decrease in the marginal revenue product of labor.
C)an increase in the real wage.
D)a decrease in the real wage.

Question 24

An increase in the real wage would result in a

A)movement along the labor demand curve, causing an increase in the number of workers hired by the firm.
B)shift of the labor demand curve, causing an increase in the number of workers hired by the firm.
C)movement along the labor demand curve, causing a decrease in the number of workers hired by the firm.
D)shift of the labor demand curve, causing a decrease in the number of workers hired by the firm.

Question 25

A supply shock that reduces total factor productivity directly affects which term in the production function Y = AF(K,N)?

A)A
B)F
C)K
D)N

Question 26

Changes in the capital stock occur ________,and changes in the amount of labor that firms employ occur ________.

A)quickly; quickly
B)slowly; slowly
C)slowly; quickly
D)quickly; slowly

Question 27

The Upstart Company has the following production function.
If the company hires 4 workers,which of the following could be the real wage rate?

A)2
B)4
C)6
D)8

Question 28

In the U.S.economy in 1991,real GDP was 4861.4 (in billions of 1987 dollars),the capital stock was 13,806.2 (in billions of 1987 dollars),and employment was 118.4 (in millions of workers).In 1992 the numbers were: real GDP 4986.3,capital stock 14,040.8,employment 119.2.Suppose the production function in both years is Y = AK^0.25N0.75.
(a)Calculate total factor productivity for 1991 and 1992.
(b)How much did total factor productivity grow from 1991 to 1992?
(c)Calculate the percent increase in real output between 1991 and 1992.
(d)Suppose tax incentives had raised the capital stock in 1992,making it 10% higher,to 15,444.9.If employment didn't change,what would have been the percent increase in real output between 1991 and 1992?
(e)Instead of the increase in the capital stock in part d,suppose employment was 10% higher in 1992,making it 131.1.With the capital stock fixed at 14,040.8,what would have been the increase in real output between 1991 and 1992?

Question 29

The real wage

A)is the nominal wage divided by the price level.
B)automatically increases with the cost of living.
C)is the price level divided by the nominal wage.
D)is the nominal wage multiplied by the price level.

Question 30

Economists often treat the economy's capital stock as fixed because

A)labor is a more important factor of production than capital, so economists ignore capital.
B)it takes a long time for new investment and the scrapping of old capital to affect the overall quantity of capital.
C)there is very little capital in the economy compared with the amount of labor.
D)unless the interest rate changes, the capital stock doesn't change.

Question 31

An invention that speeds up the Internet is an example of

A)an income effect.
B)an increase in labor.
C)a substitution effect.
D)a supply shock.

Question 32

Suppose the production function is Y = AK^0.3N0.7. Suppose in 2000,K = 1000,N = 100,and Y = 199.5.In 2010,capital,labor,and output have doubled,so K = 2000,N = 200,and Y = 399.
(a)By what percentage did productivity grow from 2000 to 2010?
(b)If output had risen to 798 instead of 399,and capital and labor doubled,by what percentage would productivity have grown from 2000 to 2010?

Question 33

One reason that firms hire labor at the point where w = MPN is

A)if w < MPN, the cost (w)of hiring additional workers exceeds the benefits (MPN)of hiring them, so they should hire fewer workers.
B)if w > MPN, the cost (w)of hiring additional workers is less than the benefits (MPN)of hiring them, so they should hire more workers.
C)if w < MPN, the cost (w)of hiring additional workers equals the benefits (MPN)of hiring them, so they have the right number of workers.
D)if w > MPN, the cost (w)of hiring additional workers exceeds the benefits (MPN)of hiring them, so they should hire fewer workers.

Question 34

Your boss wants to know if you should lay off any workers.You answer that you should lay off workers if the

A)marginal revenue product of labor is greater than the nominal wage rate.
B)marginal product of labor is greater than or equal to the real wage rate.
C)marginal revenue product of labor is equal to the nominal wage rate.
D)marginal product of labor is less than the real wage rate.

Question 35

A decrease in the real wage would result in a

A)movement along the labor demand curve, causing an increase in the number of workers hired by the firm.
B)shift of the labor demand curve, causing an increase in the number of workers hired by the firm.
C)movement along the labor demand curve, causing a decrease in the number of workers hired by the firm.
D)shift of the labor demand curve, causing a decrease in the number of workers hired by the firm.

Question 36

What two factors should you equate in deciding how many workers to employ?

A)The marginal product of labor and the marginal product of capital
B)The marginal product of labor and the real wage rate
C)The marginal product of labor and the real interest rate
D)The marginal product of capital and the real wage rate

Question 37

A favorable supply shock would

A)shift the production function up and decrease marginal products at every level of employment.
B)shift the production function down and decrease marginal products at every level of employment.
C)shift the production function down and increase marginal products at every level of employment.
D)shift the production function up and increase marginal products at every level of employment.

Question 38

Firms hire labor at the point where the

A)nominal wage rate equals the marginal product of labor.
B)real wage rate equals the marginal revenue product of labor.
C)nominal wage rate equals the marginal revenue product of labor.
D)real wage rate equals the marginal revenue product of capital.

Question 39

Suppose the economy's production function is Y = AK^0.3N0.7.Suppose K = 200,N = 2000,and A = 1.
Calculate the marginal products of labor and capital.

Question 40

A decrease in the number of workers hired by a firm could result from

A)an increase in the marginal product of labor.
B)an increase in the marginal revenue product of labor.
C)an increase in the real wage.
D)a decrease in the real wage.

Question 41

Suppose a firm's hourly marginal product of labor is given by MPN = A (200 - N).
(a)If A = 0.2 and the real wage rate is $10 per hour,how much labor will the firm want to hire?
(b)Suppose the real wage rate rises to $20 per hour.How much labor will the firm want to hire?
(c)With the real wage rate at $10 per hour,how much labor will the firm want to hire if A rises to 0.5?

Question 42

A person is more likely to increase labor supply in response to an increase in the real wage,the ________ is the income effect and the ________ is the substitution effect.

A)larger; larger
B)larger; smaller
C)smaller; larger
D)smaller; smaller

Question 43

The marginal product of labor (measured in units of output)for Relient Corp.is given by MPN = A(200 - N)
Where A measures productivity and N is the number of labor hours used in production.Suppose the price of output is $3 per unit and A = 2.0.What will be the demand for labor if the nominal wage is $30?

A)170
B)185
C)190
D)195

Question 44

Zowie! Surfboards has the following production function.
If surfboards sell for $30 and the nominal wage rate is $200,how many workers should the firm employ?

A)2
B)3
C)4
D)5

Question 45

The income effect of a higher real wage on the quantity of labor supply is the

A)idea that workers feel psychologically wealthier when wages are higher, so they work more.
B)effect that income must rise when wages rise.
C)tendency of workers to supply more labor in response to becoming wealthier.
D)tendency of workers to supply less labor in response to becoming wealthier.

Question 46

The marginal product of labor (measured in units of output)of a firm is given by
MPN = A(2000 - N)
where A measures productivity and N is the number of labor hours used in production.Suppose the price of output is $6 per unit and A = 0.002.
(a)What will be the demand for labor if the nominal wage is $18?
(b)What will be the demand for labor if the nominal wage rises to $21?

Question 47

The aggregate supply of labor is the

A)total amount of time a person works over his or her lifetime.
B)total amount of time a person spends in the labor force over his or her lifetime.
C)unemployment rate.
D)sum of the labor supplied by everyone in the economy.

Question 48

If a country's working-age population declines and its wealth increases,then the labor supply curve

A)shifts to the left if the effect of the change in wealth is bigger than the effect of the change in the working-age population.
B)shifts to the right if the effect of the change in wealth is bigger than the effect of the change in the working-age population.
C)shifts to the left.
D)shifts to the right.

Question 49

The tendency of workers to supply more labor in response to a larger reward for working is called the ________ of a higher real wage on the quantity of labor supplied.

A)homogeneous labor supply effect
B)negative correlation effect
C)income effect
D)substitution effect

Question 50

A technological breakthrough in using photons for computers will increase the productivity of those working with computers a hundredfold.You would expect this breakthrough to shift the

A)marginal product of labor curve up and to the right, raising the quantity of labor demanded at any given real wage.
B)marginal product of labor curve down and to the left, reducing the quantity of labor demanded at any given real wage.
C)labor supply curve up, reducing the quantity of labor demanded at any given real wage.
D)labor supply curve down, raising the quantity of labor demanded at any given real wage.

Question 51

A winter ice storm has paralyzed the entire east coast,reducing productivity sharply.This supply shock shifts the marginal product of labor curve

A)up and to the right, raising the quantity of labor demanded at any given real wage.
B)down and to the left, reducing the quantity of labor demanded at any given real wage.
C)up and to the right, reducing the quantity of labor demanded at any given real wage.
D)down and to the left, raising the quantity of labor demanded at any given real wage.

Question 52

If a country's working-age population increases and its wealth increases,then the labor supply curve

A)shifts to the left if the effect of the change in wealth is bigger than the effect of the change in the working-age population.
B)shifts to the right if the effect of the change in wealth is bigger than the effect of the change in the working-age population.
C)shifts to the left.
D)shifts to the right.

Question 53

A permanent increase in the real wage rate has a ________ income effect on labor supply than a temporary increase in the real wage,so labor supply is ________ with a permanent wage increase than for a temporary wage increase.

A)larger; more
B)larger; less
C)smaller; more
D)smaller; less

Question 54

If Jeff's wage rate rises,he decides to work fewer hours.From this,we can infer that

A)for Jeff, the substitution effect is greater than the income effect.
B)for Jeff, the substitution effect is equal to the income effect.
C)for Jeff, the substitution effect is less than the income effect.
D)Jeff is a nitwit.

Question 55

Which of the following events would lead to an increase in the marginal product of labor for every quantity of labor?

A)An increase in the real wage
B)A decrease in the real wage
C)A favorable supply shock such as a fall in the price of oil
D)An adverse supply shock, such as a reduced supply of raw materials

Question 56

The marginal product of labor (measured in units of output)for Expando Corp.is given by MPN = A(400 - N)
Where A measures productivity and N is the number of labor hours used in production.Suppose the price of output is $3 per unit and A = 2.0.What will be the demand for labor if the nominal wage is $18?

A)57
B)107
C)197
D)397

Question 57

As a result of the superb economics essay that you wrote during this quarter,you won the Adam Smith prize of $100.The receipt of these funds would be an example of

A)the substitution effect being stronger than the income effect.
B)the income effect being stronger than the substitution effect.
C)a pure income effect.
D)a pure substitution effect.

Question 58

If Jeff's wage rate rises,he decides to work more hours.From this,we can infer that

A)for Jeff, the substitution effect is greater than the income effect.
B)for Jeff, the substitution effect is equal to the income effect.
C)for Jeff, the substitution effect is less than the income effect.
D)Jeff is confused.

Question 59

An adverse supply shock,such as a reduced supply of raw materials,would

A)increase the marginal product of labor.
B)decrease the marginal product of labor.
C)decrease the marginal product of capital, but have no effect on the marginal product of labor.
D)not affect the marginal product of labor.

Question 60

Research on labor supply generally shows that

A)labor supply rises in response to a permanent increase in the real wage, but falls in response to a temporary increase in the real wage.
B)labor supply rises in response to a temporary increase in the real wage, but falls in response to a permanent increase in the real wage.
C)labor supply rises in response to both a temporary and a permanent increase in the real wage.
D)labor supply falls in response to both a temporary and a permanent increase in the real wage.

Question 61

Suppose the marginal product of labor is MPN = 200 - 0.5N
Where N is aggregate employment.The aggregate quantity of labor supplied is 100 + 4w,where w is the real wage.The government imposes a minimum wage of 60.What is the quantity of employment?

A)240
B)260
C)280
D)300

Question 62

Over the past 100 years,what has happened to the average workweek in the U.S.manufacturing industry? Why has this occurred? What are the implications for the size of the income and substitution effects?

Question 63

How would each of the following events affect Cheryl Shirker's supply of labor?
(a)Cheryl's firm announces a reorganization plan,in which she will get a big promotion and raise in six months.
(b)Cheryl's speculative investment in plutonium futures pays off big,netting her a profit of $300 thousand.
(c)Cheryl's father,who had planned to leave her a large bequest,must spend all his wealth on medical bills after a prolonged illness.

Question 64

Suppose the marginal product of labor is MPN = 200 - 0.5N
Where N is aggregate employment.The aggregate quantity of labor supplied is 300 + 8w,where w is the real wage.What is the equilibrium quantity of employment?

A)12
B)190
C)380
D)760

Question 65

Suppose the marginal product of labor is MPN = 200 - 0.5N
Where N is aggregate employment.The aggregate quantity of labor supplied is 300 + 8w,where w is the real wage.What is the equilibrium real wage?

A)5
B)10
C)15
D)20

Question 66

Suppose the marginal product of labor is MPN = 200 - 0.5N
Where N is aggregate employment.The aggregate quantity of labor supplied is 300 + 8w,where w is the real wage.If a supply shock increases the marginal product of labor by 10 (to MPN = 210 - 0.5 N),by how much does the real wage increase?

A)1
B)2
C)3
D)4

Question 67

The equilibrium level of employment,achieved after the complete adjustment of wages and prices,is known as the

A)zero-unemployment level of employment.
B)natural state.
C)invisible handshake.
D)full-employment level of employment.

Question 68

A sharp increase in stock prices makes people much wealthier.If the main effect of this increased wealth is felt on labor supply,what happens to current employment and the real wage rate?

A)Both employment and the real wage rate would increase.
B)Both employment and the real wage rate would decrease.
C)Employment would increase and the real wage would decrease.
D)Employment would decrease and the real wage would increase.

Question 69

An adverse oil-price shock reduces labor demand.What happens to current employment and the real wage rate?

A)Both employment and the real wage rate would increase.
B)Both employment and the real wage rate would decrease.
C)Employment would increase and the real wage would decrease.
D)Employment would decrease and the real wage would increase.

Question 70

A tremendous flood along the Mississippi River destroys thousands of factories,reducing the nation's capital stock by 5%.What happens to current employment and the real wage rate?

A)Both employment and the real wage rate would increase.
B)Both employment and the real wage rate would decrease.
C)Employment would increase and the real wage would decrease.
D)Employment would decrease and the real wage would increase.

Question 71

Suppose the marginal product of labor in the economy is given by MPN = 0.002(16,000 - N),while the supply of labor is 1000 + 1000w.
(a)Find the market-clearing real wage rate and level of employment.
(b)What happens to the wage rate and employment if wealth rises,reducing the supply of labor to 500 + 1000w?
(c)What happens to the wage rate and employment if after wealth has risen as in part (b),there is a productivity shock that increases the marginal product of labor to MPN = 0.0025(16,000 - N)?

Question 72

Suppose the marginal product of labor in the economy is given by MPN = 200 - 0.5 N,while the supply of labor is 100 + 4w.
(a)Find the market-clearing real wage rate.
(b)What happens if the government imposes a minimum wage of 40? Is there involuntary unemployment?
(c)What happens if the government imposes a minimum wage of 60? Is there involuntary unemployment?

Question 73

Suppose the marginal product of labor is MPN = 200 - 0.5N
Where N is aggregate employment.The aggregate quantity of labor supplied is 300 + 8w,where w is the real wage.If a supply shock increases the marginal product of labor by 10 (to MPN = 210 - 0.5 N),by how much does employment increase?

A)0
B)4
C)8
D)16

Question 74

A bird flu epidemic causes many people to flee the country,but does not affect labor demand significantly because almost all the goods produced within the country are exported.What happens to current employment and the real wage rate?

A)Both employment and the real wage rate would increase.
B)Both employment and the real wage rate would decrease.
C)Employment would increase and the real wage would decrease.
D)Employment would decrease and the real wage would increase.

Question 75

The government announces a tax increase on workers' wages to take effect in the future.What happens to current employment and the real wage rate?

A)Both employment and the real wage rate would increase.
B)Both employment and the real wage rate would decrease.
C)Employment would increase and the real wage would decrease.
D)Employment would decrease and the real wage would increase.

Question 76

A beneficial oil-price shock increases labor demand.What happens to current employment and the real wage rate?

A)Both employment and the real wage rate would increase.
B)Both employment and the real wage rate would decrease.
C)Employment would increase and the real wage would decrease.
D)Employment would decrease and the real wage would increase.

Question 77

Full-employment output is the level of output that firms in the economy supply when

A)taxes are zero.
B)wages and prices have fully adjusted.
C)the unemployment rate is zero.
D)all capital is fully utilized.

Question 78

In each of the following scenarios,state whether the labor supply curve would shift to the left,to the right,not shift at all,or if the shift is ambiguous because there is more than one effect and they would move the curve in opposite directions.
(a)The stock market rises sharply.
(b)Fewer teenagers work while in school than before.
(c)A large fraction of the population flees the country because of a bird flu epidemic.
(d)The expected future wage declines and the stock market crashes.
(e)The current real wage rate rises.

Question 79

Suppose the marginal product of labor is MPN = 200 - 0.5N
Where N is aggregate employment.The aggregate quantity of labor supplied is 100 + 4w,where w is the real wage.The government imposes a minimum wage of 60.How much unemployment will this create among unskilled labor?

A)0
B)60
C)80
D)100

Question 80

Suppose oil prices fall temporarily,as oil becomes more plentiful.What impact is this likely to have on the production function,the marginal products of labor and capital,labor demand,employment,and the real wage?