Why might firms pay an efficiency wage rather than a market-clearing wage?
What will be an ideal response?
An efficiency wage is better than a market-clearing wage in that it maximizes effort per dollar of wage income paid to labor. This means that labor productivity per dollar spent on labor is maximized, which means that labor cost per unit of output is minimized. The gift-exchange motive and the shirking model provide two explanations for why an efficiency wage that is above the market-clearing wage may increase productivity per wage dollar. The gift-exchange motive suggests that workers who believe their employer is treating them fairly will want to do a good job. The shirking model views the wage as the reward that workers risk losing if they are so unproductive that they get fired; a higher wage increases productivity by increasing the expected cost of shirking (i.e., having low productivity).
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Indicate whether the statement is true or false
If the federal budget has an actual budget surplus of $75 billion, but a cyclically adjusted budget surplus of $50 billion, then the economy must be above potential real GDP
Indicate whether the statement is true or false
A good proxy for the flow of consumption services would be
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