1) If the wage paid to workers __________ relative to the pricefirms receive for
ID: 1236759 • Letter: 1
Question
1) If the wage paid to workers __________ relative to the pricefirms receive for their output, __________.(a) rises; more people will be willing to work so profits willrise
(b) falls; firms increase the quantity of labour they demand
2) If you buy shares and bonds, the dollar value is
(a) not included in calculating GDP
(b) included in GDP if they are a new issue of shares and bonds bybusiness firms but not if they are a purchase of existingshares
(c) right, $1000 billion
(d) left, $1000 billion
3) If the mpc = 0.8 and assuming that there is no crowding-outeffect, an increase in investment expenditure of $200 billion willshift the AD curve to the ____ by ____.
(a) right, $800 billion
(b) right, $160 billion
4) Money wages may prove to be sticky because:
(a) money wage levels automatically move in line with inflation
(b) many wage levels are negotiated to hold for a set period oftime
(c) supply and demand within the labour market provide the"stickiness"
(d) demand for labour may not change
Explanation / Answer
1. B. A is wrong because more people are willing to work for a higherwage. If they hire people at this new wage, the costs ofemploying them may exceed their production, especially in perfectlycompetitive firms.. Diminishing returns certainly does not helpthis. 2. A. Nothing is actually produced, it's essentially just atransfer of funds; neither a good nor service is being supplied. Ifthey were counted, people could issue stocks and bonds forcompanies and completely bork the GDP. 3. The government spending multiplier is equal to 1 / MPS = 1 / (1- MPC) = 5 in this case. Therefore the answer is A, because $200 *5 = $1 trillion. But the amount that the multiplier actually addsis $800 billion ($1T - $200B). Basically, the total stimulus to theeconomy is $1 trillion, but the amount it was stimulated above andbeyond the amount that was put into it is $800B due to themultiplier. 4. B. Think unions. A mere change to the economy isn't going tomake their contracts suddenly vanish, so affecting them is going tobe more difficult.
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