Describe how each of the following changes would affect the equilibrium in the labor market in terms of the level of the real wage and quantity of employment in equilibrium:
(a) Increased immigration leads to higher labor supply at each real wage
(b) The effort curve makes a parallel shift upward
(c) Labor productivity increases (that is, the marginal product of labor increases at each level of employment).
(a) The increase in labor supply does not affect the effort curve, so does not affect the efficiency wage. Thus there is no effect on the equilibrium real wage or employment.
(b) The upward shift of the effort curve increases in efficiency wage; but with the marginal product of labor unchanged, the real wage increases and level of employment declines.
(c) The higher marginal product of labor shifts the labor demand curve to the right, increasing the equilibrium level of employment. The real wage does not change because there is no change in the effort curve.
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Assume someone organizes all farms in the nation into a single-price monopoly. As a result, the price consumers pay for food
A) does not change, that is, it remains constant. B) falls. C) rises. D) might rise or fall depending on whether the demand for food is elastic or inelastic. E) might rise or fall depending on whether the monopoly's marginal revenue curve lies above or below its demand curve.
A decrease in the interest rate reduces the opportunity cost of holding money
a. True b. False
Which of the following theories of expectations holds that individuals form expectations by looking only to past values of the variable to be forecast?
A. Rational expectations theory B. Certainty equivalent theory C. Expected value analysis D. Adaptive expectations theory
Consumption expenditures in the U.S. usually account for approximately __________ percent of GDP
A) 40 B) 50 C) 60 D) 70 E) 80