Labor Market, Inflation, and the Short Run

Question 1

Why does the labor demand curve slope downwards?

Answer 1

Diminishing marginal product of labor.

Question 2

Would a new income tax reduce or increase the employment-population ratio.

Answer 2

Reduce.

Question 3

What happens to the labor demand curve if new regulations make it harder to fire workers?

Answer 3

Shifts downwards (thus wages and employment fall)

Question 4

The difference between the actual and the natural rate of unemployment is called the:

Answer 4

Cyclical unemployment.

Question 5

The unemployment rate without boom or recession is referred to as:

Answer 5

The natural rate of unemployment.

Question 6

The natural churning of jobs in a dynamic economic is referred to as _________ unemployment.

Answer 6

Frictional unemployment.

Question 7

Natural unemplyoment resulting from institutional misallocation of resources is referred to as ___________ unemployment.

Answer 7

Structural unemployment.

Question 8

Actual unemployment can be split into the sum of three unemployments:

Answer 8

Frictional + structural + cyclical

Question 9

What does the rate s indicate in the bathtub model?

Answer 9

Job separation rate

Question 10

What letter indicates the job finding rate in the bathtub model?

Answer 10

f

Question 11

How are the supply and wages of college grads increasing?

Answer 11

The demand for college grads is rising even faster.

Question 12

The _____ change in an economy’s overall _____ level is known as inflation.

Answer 12

Percentage, price.

Question 13

As a measure of money supply, what does ‘monetary base’ include?

Answer 13

All currency plus reserves.

Question 14

Are broader measures of money supply like M1 and M2 more or less liquid than the monetary base?

Answer 14

Less liquid.

Question 15

The quantity theory of money is MV=PY. What is each variable?

Answer 15

M = money in circulation
V = velocity of money
P = price level
Y = real GDP

Question 16

The rate at which money is exchanged in an economy is called:

Answer 16

The velocity of money.

Question 17

The right side of the quantity equation, PY, is otherwise known as _____ GDP.

Answer 17

Nominal.

Question 18

Quantity equation for price levels P = MV/Y. This tells us two ways that price levels can go up:

Answer 18

1. Supply of money increases.
2. Real GDP decreases.

Question 19

What is the concept of the neutrality of money?

Answer 19

Changes in money supply have no LONG RUN real effects on the economy, only prices.

Question 20

The nominal interest rate is the _____ rate plus the _____ rate.

Answer 20

Real, inflation.

Question 21

What three variables add together for the government budget constraint?

Answer 21

T (tax) + B (debt) + M (new money)

Question 22

What is the revenue from printing new money called?

Answer 22

Seignorage or inflation tax.

Question 23

Who pays the ‘inflation tax’?

Answer 23

Anyone who holds currency.

Question 24

Detrended output is another word for:

Answer 24

Short-run output.

Question 25

Booming economies have high inflation, slumping economies have low inflation - which curve shows this relationship?

Answer 25

The Phillips curve.

Question 26

Okun’s law claims a strong negative relationship between what two variables?

Answer 26

Output and unemployment.