Question 1

According to the efficiency wage model,during a recession,firms will not reduce real wages because
A)unions would go on strike, reducing profitability.
B)this would reduce worker effort and productivity.
C)the equilibrium real wage has increased.
D)legally, they can't.

Accepted Answer

According to the efficiency wage model, reducing real wages during a recession would lead to reduced worker effort and productivity as workers may feel demotivated if their wages are cut. This could actually harm the firm's profitability in the long run. Therefore, firms are likely to maintain the real wages of their workers, even during a recession. Option A is incorrect because not all firms have unions, and striking is not always an option or may not be effective in reducing wages. Option C may be true, but it is not relevant to the explanation of why firms would not reduce wages during a recession. Option D is incorrect because there is no legal barrier preventing firms from reducing wages.

Question 2

The effort curve is
A)horizontal, because work effort is independent of the real wage.
B)negatively sloped, because of diminishing marginal returns to labor.
C)positively sloped, because of the law of increasing cost.
D)S-shaped, because a small increase in the real wage will increase work effort more at an intermediate wage than at a low wage or at a high wage.

Accepted Answer

The effort curve is S-shaped because initially, a small increase in real wage motivates workers significantly, leading to a larger increase in work effort. However, as wages continue to rise, the incremental increase in effort diminishes, reflecting diminishing returns at higher wage levels. At very high wages, further increases in wage might not significantly boost effort, as workers may value leisure or other activities more.

Question 3

In the efficiency wage model,an increase in productivity would
A)increase output but decrease the real wage.
B)decrease the real wage but have no effect on output.
C)increase output but have no effect on the real wage.
D)have no effect on either output or the real wage.

Accepted Answer

In the efficiency wage model, firms pay employees above the market-clearing wage rate to motivate them to work harder and reduce turnover. This creates an incentive for workers to increase their productivity, but it also means that the real wage is higher than it would otherwise be. Therefore, an increase in productivity would lead to higher output but would not affect the real wage since it is already fixed at a higher level due to the efficiency wage.

Question 4

According to the efficiency wage model,firms will pay the real wage that
A)maximizes workers' marginal productivity.
B)maximizes the marginal productivity of capital and the marginal productivity of labor together.
C)maximizes effort per dollar of real wage.
D)minimizes hiring and training costs to the firm.

Accepted Answer

The efficiency wage model suggests that by paying a wage above the market rate, firms can increase the effort and productivity of their workers. Therefore, the firms will pay a real wage that maximizes effort per dollar of wages paid (i.e., C is the correct choice). Although A and B are related to productivity, they are not specific to the efficiency wage model, and D is not directly related to the model's assumptions.

Question 5

In the Keynesian model with efficiency wages
A)the full-employment line is determined where the quantity of labor demanded equals the quantity of labor supplied.
B)the full-employment level is determined at the intersection of the labor demand curve and the efficiency wage line.
C)an increase in labor supply increases employment.
D)a decrease in labor supply shifts the FE line to the left.

Accepted Answer

In the Keynesian model with efficiency wages, the full-employment level is determined at the intersection of the labor demand curve and the efficiency wage line. This is where the wage rate is at a level such that firms can attract and retain the desired quantity of labor. The full-employment line is not determined where the quantity of labor demanded equals the quantity of labor supplied (choice A), because there may be a level of wages where firms can neither attract nor retain enough workers to satisfy their demands. An increase in labor supply may not necessarily increase employment due to efficiency wage considerations (choice C) and a decrease in labor supply may not necessarily shift the FE line to the left as it depends on the reason behind the decrease in supply (choice D).

Question 6

In the Keynesian model,the full-employment level of output is the amount of output produced when
A)the quantity of labor demanded equals the quantity of labor supplied.
B)the market wage exceeds the efficiency wage.
C)labor is paid an efficiency wage, and the real wage equals the marginal product of labor.
D)the real wage exceeds the nominal wage.

Accepted Answer

The answer of In the Keynesian model,the full-employment level of...

Question 7

In the efficiency wage model with the efficiency wage above the market-clearing wage,when employment is at its full-employment level
A)labor supply equals labor demand.
B)there is an excess supply of labor.
C)there is an excess demand for labor.
D)there could be either an excess demand for, or an excess supply of, labor.

Accepted Answer

In the efficiency wage model with the efficiency wage set above the market-clearing wage, there is an excess supply of labor because the higher wage attracts more workers than there are jobs available, leading to unemployment.

Question 8

Real-wage rigidity in the Keynesian efficiency wage diagram of the labor market is depicted by
A)a vertical labor supply curve at the efficient level of employment,
B)a vertical labor demand curve at the efficient level of employment.
C)a horizontal line at the efficiency wage.
D)a steep, positively sloped labor supply curve depicting various efficiency wages at various employment levels.

Accepted Answer

Real-wage rigidity in the Keynesian efficiency wage diagram is depicted by a horizontal line at the efficiency wage level. This means that workers are not willing to accept lower wages even if the market wage falls below the efficiency wage, leading to an excess supply of labor. As a result, the labor demand curve becomes rigid or flat, and there could be involuntary unemployment in the economy.

Question 9

In the efficiency wage model,an increase in productivity will cause
A)no change in the real wage.
B)an increase in the real wage.
C)a decrease in the real wage.
D)an increase in both the real wage and the level of employment.

Accepted Answer

The answer of In the efficiency wage model,an increase in...

Question 10

In the efficiency wage model,if the real wage is higher than the market-clearing wage so that there is an excess supply of labor
A)firms will hire new workers at lower wages.
B)firms will replace high-paid workers with low-paid, formerly unemployed workers.
C)employers will not hire workers who are willing to work for a lower wage.
D)firms will demand a higher level of effort from existing employees.

Accepted Answer

In the efficiency wage model, firms pay above the market-clearing wage to increase productivity and reduce turnover. Hiring workers at lower wages would undermine this strategy, so employers will not hire workers willing to work for less.

Question 11

Assuming no change in the effort curve of employees,the efficiency wage model implies that
A)the real wage is rigid and equals the efficiency wage.
B)the real wage exceeds the marginal productivity of labor.
C)an increase in the marginal productivity of capital will increase the real wage.
D)the real wage is procyclical.

Accepted Answer

The efficiency wage model suggests that employers pay a wage higher than the equilibrium wage to increase productivity and reduce turnover, leading to a situation where the real wage is rigid and equals the efficiency wage.

Question 12

In the Keynesian model,the real wage is mildly procyclical because
A)demand for labor fluctuates with the demand for final goods.
B)firms take advantage of recessions to pay slightly lower wages, since there's excess labor supply.
C)workers' effort may depend on the unemployment rate and the real wage.
D)the supply of labor fluctuates with the business cycle.

Accepted Answer

The answer of In the Keynesian model,the real wage is...

Question 13

A model in which workers won't be concerned about the possibility of being fired if they don't work hard,because their wage is so low,is called
A)a cost-benefit model.
B)a job-stress model.
C)a gift-exchange model.
D)a shirking model.

Accepted Answer

The model described is a shirking model, as it assumes that workers may slack off or "shirk" their responsibilities if their wage is too low to incentivize hard work.

Question 14

Keynesians are skeptical of the classical theory that recessions are periods of increased mismatch between workers and jobs because
A)help-wanted advertising falls during recessions.
B)help-wanted advertising rises during recessions.
C)workers spend a lot of time searching for work in recessions.
D)people are indifferent between being employed or not.

Accepted Answer

Keynesians argue that during recessions, the demand for labor falls, which is reflected in decreased help-wanted advertising. This contradicts the classical theory's emphasis on mismatches in the labor market as the primary cause of recessions.

Question 15

The efficiency wage model can be modified to allow real wages to vary over the business cycle by assuming that
A)workers' effort may depend on the unemployment rate and the real wage.
B)during a recession, labor supply will decrease, reducing the efficiency wage.
C)during a recession, productivity will fall, causing a reduction in the efficiency wage.
D)during a boom, labor demand will increase, causing the efficiency wage to rise.

Accepted Answer

The efficiency wage model can be modified to reflect the business cycle by assuming that workers' effort may depend on the unemployment rate and the real wage. During a recession, when the unemployment rate is high, workers may work harder to retain their jobs, and as a result, employers may be willing to pay a higher efficiency wage to motivate workers. Conversely, during a boom when labor demand is strong, workers may have more bargaining power and may not need a high efficiency wage to keep them motivated. Therefore, real wages may vary over the business cycle in response to changes in labor market conditions.

Question 16

A firm faces the following relationship between the real wage it pays and the effort exerted by its workers. 
The marginal product of labor for this firm is given by MPN = E (100 - N)/9.How many workers will the firm employ?
A)96
B)92
C)88
D)80

Accepted Answer

The answer of A firm faces the following relationship between...

Question 17

A firm faces the following relationship between the real wage it pays and the effort exerted by its workers. 
The marginal product of labor for this firm is given by MPN = E (100 - N)/9.The firm will choose to pay a wage such that the effort level is
A)20.
B)24.
C)27.
D)29.

Accepted Answer

To maximize profits, the firm will choose a real wage that maximizes its marginal product of labor (MPL) which is given by:
MPL = E (100 - N)/9

To find the wage that maximizes MPL, we need to find the effort level E that makes the derivative of MPL with respect to N equal to zero:

dMPL/dN = -E/9

Setting this equal to zero and solving for E, we get:
E = 0

This means that the effort level that maximizes MPL is E = 27, which is the answer choice C. Therefore, the firm will choose to pay a real wage that induces an effort level of 27 from its workers.

Question 18

The existence of labor unions could contribute to real-wage rigidity,except that in the United States
A)labor unions are outlawed.
B)most workers aren't in unions.
C)unions are interested in benefits, not wages.
D)unions try to increase employment rather than negotiating over wages.

Accepted Answer

In the United States, the majority of workers are not members of labor unions. Therefore, the presence of labor unions is not likely to contribute to real-wage rigidity in the country.

Question 19

The gift exchange motive suggests that
A)workers value benefits like health insurance more than job security.
B)workers prefer a nice work environment, even if they must accept lower wages.
C)workers who feel well treated will work harder and more efficiently.
D)workers will shirk if they are paid a low wage.

Accepted Answer

The gift exchange motive theory suggests that workers are more likely to work harder and be more efficient if they feel well treated by their employers. This means that providing benefits like health insurance and job security may not be enough to motivate workers. It is important for employers to create a positive work environment and treat employees well in order to increase their job performance. Therefore, option C is the best choice.

Question 20

In the efficiency wage model with the efficiency wage above the market-clearing wage,the level of employment depends on
A)the intersection of labor supply and labor demand.
B)the marginal productivity of capital and the marginal productivity of labor.
C)labor demand alone.
D)labor supply alone.

Accepted Answer

In the efficiency wage model where the efficiency wage is set above the market-clearing wage, the level of employment is determined by the demand for labor. Employers pay a higher wage to increase productivity and reduce turnover, but this leads to a situation where not everyone who wants to work at that wage can find a job, making the demand for labor the limiting factor in employment levels.

Quiz 11: Keynesianism: the Macroeconomics of Wage and Price Rigidity

According to the efficiency wage model,during a recession,firms will not reduce real wages because

The effort curve is

In the efficiency wage model,an increase in productivity would

According to the efficiency wage model,firms will pay the real wage that

In the Keynesian model with efficiency wages

In the Keynesian model,the full-employment level of output is the amount of output produced when

In the efficiency wage model with the efficiency wage above the market-clearing wage,when employment is at its full-employment level

Real-wage rigidity in the Keynesian efficiency wage diagram of the labor market is depicted by

In the efficiency wage model,an increase in productivity will cause

In the efficiency wage model,if the real wage is higher than the market-clearing wage so that there is an excess supply of labor

Assuming no change in the effort curve of employees,the efficiency wage model implies that

In the Keynesian model,the real wage is mildly procyclical because

A model in which workers won't be concerned about the possibility of being fired if they don't work hard,because their wage is so low,is called

Keynesians are skeptical of the classical theory that recessions are periods of increased mismatch between workers and jobs because

The efficiency wage model can be modified to allow real wages to vary over the business cycle by assuming that

A firm faces the following relationship between the real wage it pays and the effort exerted by its workers. The marginal product of labor for this firm is given by MPN = E (100 - N) /9.How many workers will the firm employ?

A firm faces the following relationship between the real wage it pays and the effort exerted by its workers. The marginal product of labor for this firm is given by MPN = E (100 - N) /9.The firm will choose to pay a wage such that the effort level is

The existence of labor unions could contribute to real-wage rigidity,except that in the United States

The gift exchange motive suggests that

In the efficiency wage model with the efficiency wage above the market-clearing wage,the level of employment depends on