How would each of the following events affect the level of employment and the real wage rate?
(a) A tremendous boom occurs in the stock market, increasing people's wealth by $100 billion overnight.
(b) A major government loan-guarantee program goes bust, losing $500 billion. To pay off the loss, the government announces that tax rates will rise 30% in the future.
(c) A nuclear mishap contaminates all auto plants in the Detroit area, destroying their capital.
(d) Medical science cures the common cold, causing fewer work days lost due to illness, thus greatly increasing labor productivity.
(a) Increased wealth reduces labor supply; the shift of the labor supply curve to the left brings a new equilibrium with lower employment and a higher real wage.
(b) The loss of wealth increases labor supply, leading to higher employment and a lower real wage.
(c) The loss of capital lowers the marginal product of labor, reducing labor demand; the shift of the labor demand curve to the left lowers the real wage and employment.
(d) Increased productivity increases the demand for labor; in equilibrium the real wage and employment increase.
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The fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation is the economy's:
A. income-expenditure multiplier. B. self-correcting property. C. short-run equilibrium property. D. long-run equilibrium property.
Because of diminishing returns, an economy can continue to increase real GDP per hour worked only if
A) the per-worker production function shifts downward. B) there is technological change. C) there are decreases in human capital. D) there continue to be decreases in capital per hour worked.
The measure of saving in the National Income and Product Accounts includes
A) capital gains on stocks, bonds, houses, and other assets. B) purchases of consumer durables. C) nominal interest payments which households receive from corporations. D) all of the above.
Which of the following is the term used when average costs go down as the measure of output goes up?
a. Relative advantage b. Absolute advantage c. Comparative advantage d. Economies of scale