Question 1

The horizontal axis of the production function typically measures:

Accepted Answer

The horizontal axis of the production function usually measures inputs, such as labor, capital, and land. This is because the production function shows the relationship between the inputs used in production and the resulting output. The vertical axis measures output, which is the result of applying inputs to the production process.

Question 2

What event led economists to question the usefulness of classical models in explaining how the true economy works?

Accepted Answer

The Great Depression, which began in 1929 and lasted for a decade, led economists to question the usefulness of classical models in explaining how the true economy works. Classical economists believed that markets would naturally adjust to ensure full employment and price stability, but the severity and duration of the Depression contradicted these ideas. This led to the development of new theories and models in macroeconomics, including Keynesian economics.

Question 3

Critics of the real business cycle theory find it difficult to understand:

Accepted Answer

Critics of the real business cycle theory question the frequency and impact of adverse technological changes, as the theory relies on these changes to explain economic fluctuations.

Question 4

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to
answer the following questions:
-According to the application, as the U.S. population ages, the U.S. needs to

Accepted Answer

According to the application, as the U.S. population ages, changes need to be made to Social Security to address the issue of increasing retirement costs. Therefore, option B is the correct answer as it suggests making changes in Social Security.

Question 5

Because a tax on labor makes labor more expensive and raises the marginal cost of hiring workers, it follows that:

Accepted Answer

By raising the marginal cost of hiring workers, a tax on labor makes employers less willing to hire new workers or keep current workers, leading to an increase in unemployment. Nominal wages may or may not rise, and real wages may increase or decrease depending on the magnitude of the tax and the overall effect on the labor market. Therefore, the correct answer is B, as it is the most direct consequence of a tax on labor.

Question 6

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to
answer the following questions:
-From the application, we can infer that one way to encourage Americans to further increase their hours worked per year would be to:

Accepted Answer

The article mentions that the higher tax rates in Europe and the lower tax rates in the U.S. are one factor that influences the difference in hours worked per year. Therefore, reducing the effective tax rates experienced by workers in the U.S. could potentially encourage them to work more hours.

Question 7

When constructing a production function between labor and output, which is drawn on the Y- axis?

Accepted Answer

When constructing a production function between labor and output, the output (the amount produced) is drawn on the Y-axis as it is the dependent variable that is being predicted or explained by the amount of labor input.

Question 8

Figure 7.2
-Refer to Figure 7.2. Which of the following can change the equilibrium wage rate from $8 to $7?

Accepted Answer

A decrease in productivity of workers will decrease the demand for labor, shifting the demand curve to the left and decreasing the equilibrium wage rate from $8 to $7. An increase in the value people put on their leisure time or the value of what firms produce will not directly affect the demand for labor and therefore will not change the equilibrium wage rate.

Question 9

What happens to the equilibrium wage rate in the US and Canada when more US and Canadian workers migrate to the Europe?

Accepted Answer

When workers migrate from the US and Canada to Europe, the labor supply in the US and Canada decreases, leading to an increase in the equilibrium wage rate in both countries.

Question 10

A tax on labor causes a larger drop in equilibrium wages when:

Accepted Answer

When the labor supply curve is steeper (less elastic), the tax burden falls more heavily on workers in the form of lower wages. This is because there are fewer substitutes for labor, and workers are less able to switch to other types of jobs or industries. In contrast, when the labor supply curve is flatter (more elastic), workers have more options and can more easily shift to other jobs, which means that the burden of the tax falls more heavily on employers who must pay more to attract workers. The steepness of the labor demand curve is not relevant to the size of the drop in equilibrium wages.

Question 11

The production function described in the chapter assumes that with a fixed capital stock, increases in the labor input results in increases in output at a decreasing rate. This relationship between labor and output is known as:

Accepted Answer

According to the description given in the question, the relationship between labor and output is decreasing at a diminishing rate, which is known as diminishing returns.

Question 12

What happens to the equilibrium wage rate in the US and Canada when more American workers migrate to the Canada?

Accepted Answer

When more American workers migrate to Canada, the supply of labor in Canada will increase, causing the equilibrium wage rate to decrease. On the other hand, the decrease in the supply of labor in the US will increase the equilibrium wage rate. Therefore, the real wage in Canada will decrease while the real wage in the US will increase.

Question 13

The real wage is the wage rate to employees adjusted for:

Accepted Answer

The real wage is the wage rate adjusted for changes in the price level, meaning it takes into account the purchasing power of the employee's wage. Changes in labor laws, worker benefits, and minimum wage laws do not directly affect the real wage, although they may indirectly impact it through changes in the supply and demand for labor.

Question 14

When the economy experiences a recession, the

Accepted Answer

During a recession, businesses may cut back on production and therefore reduce their demand for labor. This decrease in demand leads to a surplus of labor, which puts downward pressure on wages. As a result, the equilibrium wage drops.

Question 15

The production function is Y = 2K^0.5L^0.5. If there are 121 units of capital and 225 units of labor, aggregate output is:

Accepted Answer

The production function is Y = 2K^0.5L^0.5. If there are 121 units of capital and 225 units of labor, aggregate output is:Y = 2(121)^0.5(225)^0.5 = 2(11)(15) = 330 units.

Question 16

Figure 7.4
-From Figure 7.4, crowding out occurs between:

Accepted Answer

Crowding out occurs when an increase in government spending leads to a decrease in private investment. In Figure 7.4, this occurs between points A and B, where the increase in government spending from G1 to G2 leads to a decrease in private investment from I1 to I2.

Question 17

In macroeconomics, the term "classical" refers to a school of economics that believed that

Accepted Answer

The classical school of economics believed in the idea of "self-regulating" markets, meaning that over a short period of time, wages and prices will adjust to ensure that the economy is at full employment equilibrium. This is known as the classical theory of the labor market, which argues that any unemployment is temporary and will be resolved by the market mechanism of wage adjustments.

Question 18

If Y is total output, K is the capital stock and L is the total labor input stock, which of the following represents a production function?

Accepted Answer

A production function shows the relationship between inputs (such as labor and capital) and outputs (total output). Therefore, Y (total output) is a function of both L (total labor input stock) and K (capital stock). Option B is incorrect because it shows K (capital stock) as a function of L (total labor input stock) and Y (total output). Option C is also incorrect because it shows L (total labor input stock) as a function of Y (total output) and K (capital stock).

Question 19

Because GDP must be divided among competing demands in the economy, we should expect:

Accepted Answer

The answer of Because GDP must be divided among competing...

Question 20

Figure 7.2
-Refer to Figure 7.2. The equilibrium wage rate is $ _______ and the equilibrium number of people employed is _______ million people.

Accepted Answer

The equilibrium wage rate and number of people employed are determined at the intersection of the supply and demand curves for labor. Based on the given options, the correct equilibrium wage rate is $8 and the equilibrium number of people employed is 150 million people.

Quiz 7: The Economy at Full Employment

The horizontal axis of the production function typically measures:

What event led economists to question the usefulness of classical models in explaining how the true economy works?

Critics of the real business cycle theory find it difficult to understand:

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to answer the following questions: -According to the application, as the U.S. population ages, the U.S. needs to

Because a tax on labor makes labor more expensive and raises the marginal cost of hiring workers, it follows that:

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to answer the following questions: -From the application, we can infer that one way to encourage Americans to further increase their hours worked per year would be to:

When constructing a production function between labor and output, which is drawn on the Y- axis?

Figure 7.2 -Refer to Figure 7.2. Which of the following can change the equilibrium wage rate from $8 to $7?

What happens to the equilibrium wage rate in the US and Canada when more US and Canadian workers migrate to the Europe?

A tax on labor causes a larger drop in equilibrium wages when:

The production function described in the chapter assumes that with a fixed capital stock, increases in the labor input results in increases in output at a decreasing rate. This relationship between labor and output is known as:

What happens to the equilibrium wage rate in the US and Canada when more American workers migrate to the Canada?

The real wage is the wage rate to employees adjusted for:

When the economy experiences a recession, the

The production function is Y = 2K^0.5L^0.5. If there are 121 units of capital and 225 units of labor, aggregate output is:

Figure 7.4 -From Figure 7.4, crowding out occurs between:

In macroeconomics, the term "classical" refers to a school of economics that believed that

If Y is total output, K is the capital stock and L is the total labor input stock, which of the following represents a production function?

Because GDP must be divided among competing demands in the economy, we should expect:

Figure 7.2 -Refer to Figure 7.2. The equilibrium wage rate is $ _ and the equilibrium number of people employed is _ million people.

Quiz 7: The Economy at Full Employment

The horizontal axis of the production function typically measures:

What event led economists to question the usefulness of classical models in explaining how the true economy works?

Critics of the real business cycle theory find it difficult to understand:

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to answer the following questions: -According to the application, as the U.S. population ages, the U.S. needs to

Because a tax on labor makes labor more expensive and raises the marginal cost of hiring workers, it follows that:

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to answer the following questions: -From the application, we can infer that one way to encourage Americans to further increase their hours worked per year would be to:

When constructing a production function between labor and output, which is drawn on the Y- axis?

Figure 7.2 -Refer to Figure 7.2. Which of the following can change the equilibrium wage rate from $8 to $7?

What happens to the equilibrium wage rate in the US and Canada when more US and Canadian workers migrate to the Europe?

A tax on labor causes a larger drop in equilibrium wages when:

The production function described in the chapter assumes that with a fixed capital stock, increases in the labor input results in increases in output at a decreasing rate. This relationship between labor and output is known as:

What happens to the equilibrium wage rate in the US and Canada when more American workers migrate to the Canada?

The real wage is the wage rate to employees adjusted for:

When the economy experiences a recession, the

The production function is Y = 2K0.5L0.5. If there are 121 units of capital and 225 units of labor, aggregate output is:

Figure 7.4 -From Figure 7.4, crowding out occurs between:

In macroeconomics, the term "classical" refers to a school of economics that believed that

If Y is total output, K is the capital stock and L is the total labor input stock, which of the following represents a production function?

Because GDP must be divided among competing demands in the economy, we should expect:

Figure 7.2 -Refer to Figure 7.2. The equilibrium wage rate is $ _______ and the equilibrium number of people employed is _______ million people.

The production function is Y = 2K^0.5L^0.5. If there are 121 units of capital and 225 units of labor, aggregate output is:

Figure 7.2 -Refer to Figure 7.2. The equilibrium wage rate is $ _ and the equilibrium number of people employed is _ million people.