Question 1

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

Accepted Answer

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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?

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.

Accepted Answer

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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?

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".

Accepted Answer

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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.

Accepted Answer

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Question 9

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

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.

Accepted Answer

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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.

Accepted Answer

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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.

Accepted Answer

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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?

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?

Accepted Answer

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Question 17

Explain some of the causes of increased wage inequality.

Accepted Answer

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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?

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?

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