Q&A Hero

Q: Households increase the quantity of labor supplied when A) the real wage rate increases. B) the real wage rate decreases. C) job opportunities increase. D) the nominal wage decreases and the price level rises. E) income taxes increase.

Q: Households increase the quantity of labor supplied when the A) real wage rate rises because the opportunity cost of not working falls. B) nominal wage rate rises because the real wage rate must also rise. C) real wage rate rises because the opportunity cost of not working rises. D) nominal wage rate falls because the opportunity cost of not working rises. E) income tax rises because an increase in the income tax increases the demand for labor.

Q: Which of the following statements is true? A) According to the labor supply curve, as the real wage rises, employers are willing to provide more jobs. B) According to the labor supply curve, as the real wage rises, workers are willing to provide more hours of labor. C) According to the labor supply curve, as the real wage rises, employers are willing to provide fewer jobs. D) According to the labor supply curve, as the real wage rises, workers are willing to provide fewer hours of labor. E) According to the labor supply curve, as the real wage rises, more workers leave the labor force.

Q: The supply of labor is defined as the relationship between the real wage rate and the A) quantity of labor supplied by firms. B) amount of jobs supplied by firms. C) quantity of labor supplied by households. D) amount of jobs supplied by households. E) equilibrium quantity of employment.

Q: As demonstrated by the labor supply schedule, the quantity of labor supplied depends on A) the nominal wage. B) the amount of labor that firms want to hire. C) the real wage. D) the value of the dollar. E) workers' productivity.

Q: Which of the following statements is (are) true? i. As the real wage rate increases, the household's income decreases, which influences people to work more hours. ii. As the real wage rate increases, the quantity of labor demanded increases. iii. As the real wage rate increases, the opportunity cost of not working increases. A) i only B) ii only C) iii only D) i and iii E) i, ii, and iii

Q: For a household, the opportunity cost of not working is the A) nominal wage rate. B) real wage rate. C) cost of living. D) price level. E) demand for labor.

Q: To maximize profits, firms hire labor as long as A) each additional hour hired produces more additional output than the real wage rate. B) the total hours hired produces more additional output than the real wage rate. C) each additional hour hired produces more additional output than the nominal wage rate. D) the quantity of labor supplied increases as the real wage rate increases. E) workers continue to supply labor to the firm.

Q: The Bubby Gum factory produces bubble gum. Joanne is one of the employees, and she produces 10 packs of bubble gum per hour. Joanne's money wage rate is $12 per hour. If a packet of bubble gum sells for $1.00, then Joanne ________ because ________. A) is creating a $2.00 per hour loss for the firm; her real wage rate is more than her output per hour B) is creating a $2.00 per hour profit for the firm; her real wage rate is more than her output per hour C) should recommend that the Bubby Gum company should decrease the price of the bubble gum ; it would sell more and bring a larger profit D) should ask for a raise in pay; then her real wage would be less than her output per hour E) is the last person the Bubby Gump company will employ; an additional hire would produce equal the amount of additional labor to real wage per hour

Q: The Bubby Gum factory produces bubble gum. Joanne is one of the employees, and she produces 10 packs of bubble gum per hour. Joanne's money wage rate is $12 per hour. If a packet of bubble gum sells for $1.00, then A) Joanne is creating a $2.00 per hour loss for the firm. B) Joanne is creating a $2.00 per hour profit for the firm. C) the Bubby Gum company should decrease the price of the bubble gum so it sells more and makes a larger profit. D) the Bubby Gum company should pay Joanne more. E) None of the above answers is correct because more information about Joanne's real wage is needed to decide what to do.

Q: The Bubby Gum factory produces bubble gum. Joanne is one of the employees, and she produces 10 packs of bubble gum per hour. Joanne's money wage rate is $12 per hour. Based on this information, the Bubby Gum company should A) keep Joanne because she creates a profit for the firm. B) fire Joanne because she creates a loss for the firm. C) decrease Joanne's wage rate because she is paid too much. D) increase its demand for labor. E) None of the above answers is correct because more information about Joanne's real wage is needed to decide what to do.

Q: Hershey Chocolate Factory pays a money wage rate equal to $30 per hour and sells its candy bars for $1.50 each. Hershey Chocolate Factory should hire labor until an additional unit of labor produces ________ candy bars an hour. A) 45 B) 1.5 C) 20 D) 30 E) 10

Q: As long as an additional worker hired by a firm produces A) more output than the real wage rate, the firm will hire that worker. B) more output than the real wage rate, the firm will not hire that worker. C) less output than the real wage rate, the firm will hire that worker. D) some output, the firm will hire that worker. E) more output than the nominal wage rate, the firm will hire that worker.

Q: Firms hire more labor as long as A) the real wage rate is less than the additional output the labor produces. B) the real wage rate is greater than the additional output the labor produces. C) extra labor will produce more output. D) the nominal wage rate exceeds the real wage rate. E) the nominal wage rate is less than the real wage rate.

Q: A firm hires labor up to the point where the A) real wage rate equals the nominal wage rate. B) additional hour of labor produces extra output that equals the real wage rate. C) additional hour of labor produces extra output that equals the nominal wage rate. D) firm can sell the extra output. E) real wage rate exceeds the nominal wage rate.

Q: The quantity of labor demanded by a firm depends upon A) the nominal wage rate not the real wage rate. B) the real wage rate not the nominal wage rate. C) both the real wage rate and the nominal wage rate. D) neither the real wage rate nor the nominal wage rate. E) either the real wage rate or the nominal wage rate, depending whether the price level is increasing or decreasing.

Q: A firm's demand for labor depends on the A) nominal wage rate because it pays workers in dollars. B) real wage rate, which equals the nominal wage divided by the price level. C) real wage rate, which equals the nominal wage divided by the hours worked. D) nominal wage rate, which equals the real wage divided by the price level. E) supply of labor.

Q: The demand for labor curve is A) a vertical line because firms have to hire labor. B) upward sloping, showing that as the real wage rate increases, more workers are hired. C) a horizontal line because we assume that the real wage rate is fixed. D) downward sloping, showing that the quantity of labor demanded increases when the real wage falls. E) U-shaped.

Q: An increase in the real wage rate ________ the quantity of labor demanded and ________ the quantity of labor supplied. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases E) does not change; does not change

Q: The demand for labor reflects the point that the A) lower the real wage rate, the greater the quantity of labor demanded. B) higher the real wage rate, the greater the quantity of labor demanded. C) real wage rate does not affect the quantity demanded of labor. D) nominal wage rate and not the real wage rate determines the quantity of labor demanded. E) demand for labor depends on the supply of labor.

Q: The lower the real wage rate, the A) fewer workers firms can profitably hire. B) more workers firms can profitably hire. C) more workers will supply labor. D) higher the nominal wage rate. E) larger the quantity of labor supplied.

Q: When all other influences on firms' hiring plans remain the same, the A) lower the real wage rate, the greater is the quantity of labor supplied B) higher the real wage rate, the greater is the quantity of labor demanded. C) lower the real wage rate, the smaller is the quantity of labor demanded. D) lower the real wage rate, the greater is the quantity of labor demanded. E) None of the above answers is correct because firms' hiring decisions depend on how profitable hiring a worker is, which depends on how much added profit the worker can create.

Q: If the real wage rate decreases from $14.00 per hour to $13.00 per hour, the A) quantity demanded of labor increases. B) demand for labor increases. C) quantity supplied of labor increases. D) supply of labor increases. E) equilibrium quantity of employment must decrease.

Q: The total labor hours that all the firms in the economy plan to hire during a given time period at one particular real wage rate is the A) demand for labor. B) quantity of labor demanded. C) supply of labor. D) quantity of labor supplied. E) quantity of jobs supplied.

Q: The quantity of labor demanded is the labor hours all A) firms plan to hire at a given real wage rate. B) firms plan to hire at a given nominal wage rate. C) employees plan to work at a given real wage rate. D) employees plan to work at a given nominal wage rate. E) Both answers A and C are correct.

Q: The benefit to the firm of hiring another worker is A) the nominal wage. B) the price level. C) the real wage. D) the extra output produced by the worker. E) measured as the height of the production function.

Q: Suppose the price of a product is $4 and the nominal wage that the firm must pay is $20. Then the firm's real wage is A) $20. B) $80. C) $5. D) $0.20. E) $4.

Q: The real wage rate is the ________ divided by the ________. A) quantity of labor demanded; quantity of labor supplied B) nominal wage rate; price level C) quantity of labor supplied; quantity of labor demanded D) nominal wage rate; inflation rate E) equilibrium quantity of employment; potential GDP

Q: Suppose that the Australian economy initially uses 50 billion hours of labor to produce $5 trillion of real GDP. If 50 billion more hours are employed and Australia's real GDP increases by $4 trillion more, A) Australia's production function exhibits diminishing returns. B) Australia's production function exhibits increasing returns. C) Australia has an Okun Wedge of $1 trillion. D) Australia has positive Lucas Wedge. E) Australia's production possibility frontier has a positive slope.

Q: Based on the production function in the above figure, which of the following is an attainable combination of labor and real GDP?i. 300 billion hours of labor and real GDP of $20 trillionii. 300 billion hours of labor and real GDP of $8 trillioniii. 100 billion hours of labor and real GDP of $12 trillionA) i onlyB) ii onlyC) iii onlyD) ii and iiiE) i and ii

Q: The above figure that most accurately shows a production function isA) Figure A.B) Figure B.C) Figure C.D) Figure D.E) Both Figure A and Figure B; Figure A for an economy with an excess of labor and Figure B for an economy with a shortage of labor.

Q: The above figure shows a nation's production function. Point C is ________ and ________ because ________.A) attainable; inefficient; the nation is using resources inefficientlyB) attainable; efficient; the nation is using resources efficientlyC) unattainable; inefficient; the nation is using resources inefficientlyD) unattainable; inefficient; the nation is using resources efficiently but they could be more efficientE) unattainable; efficient; the nation would be using resources efficiently if they could attain this level of production

Q: The above figure shows a nation's production function. Point B is ________ and ________ because ________. A) attainable; efficient; the nation is using resources efficiently B) attainable; inefficient; the nation is using resources inefficiently C) unattainable; inefficient; the nation is using resources inefficiently D) unattainable; inefficient; the nation is using resources efficiently but they could be more efficient E) unattainable; efficient; the nation would be using resources efficiently if they could attain this level of production

Q: The above figure shows a nation's production function. Point C isA) unattainable given the nation's resource level.B) attainable if the nation uses resources efficiently.C) attainable if the nation uses resources inefficiently.D) the maximum amount of real GDP the nation can produce.E) the labor market equilibrium point.

Q: The above figure shows a nation's production function. Point B isA) unattainable.B) attainable if the nation uses resources inefficiently.C) attainable if the nation uses resources efficiently.D) the maximum amount of real GDP the nation can ever produce.E) Both answers C and D are correct.

Q: The above figure shows a nation's production function. Point A isA) attainable if the economy is inefficient.B) unattainable given the state of the economy.C) attainable if the nation uses resources efficiently.D) the maximum amount of real GDP the nation can produce.E) the labor market equilibrium quantity of employment and real GDP.

Q: In 2011, real GDP in the United States was $60 per hour worked. In major European economies, real GDP averaged on $48 per hour worked. This difference is explained by the points that ________ and ________.A) Americans work more hours than Europeans; Americans produce more per hour than EuropeansB) Americans are equally as productive as Europeans; Americans work more hours on averageC) Americans work the same number of hours per week as Europeans on average; Americans are less productive due to technology differencesD) Americans take more vacations than Europeans; Americans take more sick days than EuropeansE) Americans work less hours than Europeans; Americans take less sick days than Europeans

Q: The table above gives a nation's production function. Which of the following is NOT an attainable combination of real GDP and labor?A) real GDP of $4.0 trillion and labor of 90 billion hours per yearB) real GDP of $4.7 trillion and labor of 110 billion hours per yearC) real GDP of $4.0 trillion and labor of 70 billion hours per yearD) real GDP of $5.2 trillion and labor of 90 billion hours per yearE) real GDP of $5.5 trillion and labor of 150 billion hours per year

Q: If adding an initial 100 billion labor hours per year increases real GDP by $3 trillion, diminishing returns informs us that an additional 100 billion labor hours per year will increase real GDP byA) exactly $3 trillion.B) less than $3 trillion.C) more than $3 trillion.D) either exactly $3 trillion or by less than $3 trillion, depending on whether the real wage rate remains constant or rises.E) some amount but there is not enough information to tell by how much.

Q: Employing an additional 1 billion hours of labor increases real GDP by $12 billion. Employing another 1 billion hours beyond the first 1 billion increases real GDP by $11 billion. Hence we can conclude from this information that as employment increases, real GDP A) increases at an increasing rate. B) decreases at an increasing rate. C) decreases at a decreasing rate. D) increases at a decreasing rate. E) falls from $12 billion to $11 billion as more workers are hired.

Q: The gap in GDP between the United States and Europe can be explained by the fact that A) U.S. labor is more productive than European labor. B) prices are higher in the United States. C) the Okun Gap is larger in the United States. D) income taxes are higher in the United States. E) equilibrium employment is higher in Europe.

Q: ________ in the United States ________ in most European countries. A) GDP per hour; is greater than GDP per hour B) Average weekly hours; are greater than average weekly hours C) The Okun Gap; is equal to the Okun Gap D) The Lucas Wedge; is greater than the Lucas Wedge E) Both A and B are true.

Q: A reason a nation faces diminishing returns along a production function is because A) unemployment always exists. B) potential GDP is fixed. C) the quantity of physical capital is fixed. D) full employment is not possible. E) the wage rate is fixed while moving along the production function.

Q: As more labor is hired, moving along the production function, diminishing returns occur because A) workers are overworked and so their productivity decreases. B) the wage rate paid is too low and so workers decrease their work effort. C) there are fixed quantities of other resources. D) the real wage rate must increase in order to hire additional workers. E) real GDP increases more rapidly the more workers are hired.

Q: Diminishing returns, so that each additional hour of labor employed produces successively smaller additional amounts of real GDP, exist because A) labor is not very productive. B) extra labor produces more output. C) all other factors are held fixed. D) the price level rises as more workers are employed. E) additional workers are paid higher wage rates.

Q: The production function shows that as employment increases, real GDP A) increases at an increasing rate. B) increases at a decreasing rate. C) increases at a constant rate. D) decreases at a decreasing rate. E) increases until it reaches potential GDP and then it starts to decrease.

Q: Diminishing returns along a production function means that each additional hour of labor employed A) produces a successively smaller additional amount of real GDP. B) produces a successively larger additional amount of real GDP. C) produces a constant additional amount of real GDP. D) does not produce any additional real GDP. E) forces the real wage rate to rise.

Q: As the quantity of labor employed increases, the production functions exhibits a A) positive, linear relationship. B) positive relationship, with each additional unit of labor producing less additional real GDP. C) positive relationship, with each additional unit of labor producing more additional real GDP. D) negative, linear relationship. E) U-shaped curve.

Q: The idea that the production function exhibits _______implies that ________. A) diminishing returns; the Lucas Wedge increases at output increases B) diminishing returns; each additional unit of labor employed generates an ever-decreasing amount of real GDP C) increasing returns; potential GDP is always increasing D) increasing returns; output should increase steadily as technology grows E) constant returns; each additional unit of labor employed generates an increasing amount of real GDP

Q: As additional units of labor hours are employed, holding all other factors constant, along the production function, A) real GDP increases at an increasing rate. B) nominal GDP decreases at an increasing rate. C) real GDP increases at a decreasing rate. D) real GDP increase at a constant rate. E) real GDP initially decreases and then starts to increase.

Q: According to the production function, as the quantity of labor employed increases, real GDP increases A) at an increasing rate. B) at a decreasing rate. C) at a constant rate. D) and then eventually decreases. E) until it reaches potential GDP, and then it no longer changes.

Q: The idea of "diminishing returns" means that real GDP ________ as the quantity of labor increases. A) increases at a slower rate B) decreases at a slower rate C) increases at a faster rate D) decreases at a faster rate E) does not change

Q: Diminishing returns means that A) each additional unit of labor produces successively less real GDP. B) hiring more labor results in less real GDP. C) each extra unit of real GDP produced requires less labor. D) each additional unit of labor produces successively more real GDP. E) hiring more labor must lower the real wage rate.

Q: The production function displays A) increasing returns. B) real returns. C) diminishing returns. D) average returns. E) normal returns.

Q: The production function shows that potential GDP increases when the A) price level rises. B) price level falls. C) inflation rate falls. D) quantity of labor employed increases. E) the wage rate falls.

Q: The ________ describes the relationship between the amount of labor employed and real GDP. A) production function B) production possibilities frontier C) Lucas Wedge D) inflation rate E) Okun Gap

Q: The production function describes the relationship between A) the real wage and the quantity of labor supplied. B) real GDP and the quantity of labor employed. C) real and potential GDP. D) real and nominal GDP. E) potential GDP and the real wage rate.

Q: The production function is a relationship between the amount of labor employed and A) the maximum quantity of real GDP that can be produced. B) the maximum quantity of nominal GDP that can be produced. C) the wage rate paid to the workers. D) all other resources at different levels of employment. E) the amount of labor workers supply.

Q: At any given time, which factor of production is NOT fixed? A) labor B) technology C) entrepreneurship D) land E) money

Q: To determine GDP from the production function, we need to know A) the quantity of labor employed. B) the quantity of labor available for work. C) the unemployment rate. D) the quantity of labor supplied by firms. E) the real wage rate.

Q: A country's potential GDP is determined, in part, by A) the equilibrium price level. B) demand and supply in the labor market. C) the Lucas Wedge. D) actual real GDP. E) the Okun Gap.

Q: A country reports that its actual real GDP is greater than its potential GDP. It must be that A) an error was made when calculating actual real GDP. B) the price level is increasing. C) more workers decided to quit work in order to enjoy leisure time. D) the excess by which real GDP exceeds potential GDP is only temporary, and eventually real GDP will decrease to be equal to potential GDP. E) None of the above answers is correct because it is impossible for a country's real GDP to exceed its potential GDP.

Q: During a business cycle recession, it is very likely that real GDP will A) exceed nominal GDP. B) be less than potential GDP. C) equal nominal GDP but not equal potential GDP. D) equal nominal GDP and equal potential GDP. E) be greater than potential GDP.

Q: As an economic expansion approaches its peak, it is very likely that real GDP will A) exceed nominal GDP. B) exceed potential GDP. C) equal nominal GDP but not potential GDP. D) be less than potential GDP. E) equal nominal GDP and equal potential GDP.

Q: The sustainable upper limit of real GDP is a level of GDP that is A) greater than potential GDP, but by how much greater is unknown and controversial. B) less than potential GDP, but by how much less is unknown and controversial. C) potential GDP. D) determined only by what is the full employment equilibrium in the labor market. E) None of the above answers is correct because there is no sustainable upper limit to real GDP because real GDP can always be increased.

Q: The amount of real GDP produced at any one time depends on i) a fixed amount of capital. ii) a fixed level of technology. iii) decisions people make about leisure versus working. A) ii only B) ii and iii C) i and ii D) i only E) i, ii and iii

Q: Choose which statement is most correct. A) Real GDP can never exceed potential GDP. B) Real GDP must always equal potential GDP. C) At times, real GDP can exceed potential GDP. D) Nominal GDP can never exceed potential GDP. E) Nominal GDP must always equal potential GDP.

Q: Which of the following statement or statements are correct about potential GDP? i. Actual real GDP equals potential GDP when the economy is at full employment. ii. Real GDP can be less than potential GDP. iii. When real GDP equals potential GDP, it also equals nominal GDP. A) i only B) ii only C) ii and iii D) i and ii E) i, ii, and iii

Q: Over the business cycle, real GDP fluctuates around A) the business cycle trough. B) the business cycle peak. C) nominal GDP. D) potential GDP. E) the Lucas Wedge.

Q: Which of the following is true? A) Real GDP fluctuates around potential GDP. B) Potential GDP fluctuates around nominal GDP. C) Nominal GDP fluctuates around real GDP. D) Real GDP never equals potential GDP. E) The Okun Gaps are much larger than the Lucas Wedge.

Q: At full employment, actual ________ equals ________. A) nominal GDP; potential GDP B) real GDP; potential GDP C) real GDP; nominal GDP D) potential GDP; nominal GDP E) unemployment; zero

Q: Suppose Germany's economy is experiencing full employment. This means that, in Germany, A) the unemployment rate is equal to zero. B) real GDP is equal to potential GDP. C) real GDP is greater than potential GDP. D) potential GDP is greater than real GDP. E) real GDP equals nominal GDP.

Q: Suppose an economist stated that Brazil had achieved its potential GDP 2013. This would imply that at this level of real GDP, Brazil experienced A) peak in its business cycle in 2013. B) unemployment equal to zero. C) inflation equal to zero. D) full employment. E) a negative Okun Gap.

Q: The idea that potential GDP is the sustainable upper limit of production means that A) real GDP may be temporarily larger than potential GDP, but not permanently. B) the economy is operating environmentally efficiently. C) real GDP may be temporarily less than potential GDP. D) inflation must always occur in a growing economy. E) unemployment can only temporarily be zero in a healthy economy.

Q: If New Zealand is operating at potential GDP, which of the following is true? i) New Zealand only has frictional and structural unemployment. ii) There is no inflation in New Zealand. iii) New Zealand has positive net exports. A) i, ii and iii B) i only C) i and ii D) i and iii E) ii only

Q: Potential GDP A) is the same as real GDP. B) is the same as nominal GDP. C) is another name for the Lucas Wedge. D) is the level of output produced when the economy is fully employed. E) shows that the Okun Gap vastly exceeds the Lucas Wedge.

Q: Potential GDP is A) equal to the maximum amount of goods and services that can be produced at any given time. B) another name for real GDP. C) the level of output produced when the economy is fully employed. D) a measure of the short term fluctuations in real GDP. E) another name for nominal GDP.

Q: Potential GDP is the level of A) real GDP that the economy would produce if it was at full employment. B) nominal GDP that the economy would produce if it was at full employment. C) real GDP that the economy would produce if there was no inflation. D) nominal GDP that the economy would produce if there was no inflation. E) real GDP that the economy would produce if there was no unemployment.

Q: If the economy is fully employed, which of the following is true? A) The price level equals 100. B) Real and nominal GDP are equal. C) Real and potential GDP are equal. D) The unemployment rate is zero. E) Real GDP cannot increase.

Q: Suppose that Australia has fully employed all of its resources. This situation means that Australia A) is operating at its potential GDP. B) is growing at a faster rate than the United States. C) has a negative Okun Gap. D) has a positive Lucas Wedge. E) is experiencing zero unemployment.