mix

Question 1

Nominal vs. Real Wage

Answer 1

Nominal Wage: The actual payment received for work (not adjusted for inflation).
Real Wage: Nominal wage adjusted for changes in prices (inflation); reflects purchasing power.

Question 2

Employment Rent

Answer 2

The extra value a worker gets from their job compared to being unemployed (includes benefits, security, etc.).

Question 3

Labour Market Key Curves

Answer 3

Wage-Setting Curve: Real wage needed to motivate effort at each employment level.
Price-Setting Curve: Real wage firms pay to maximize profit.

Question 4

The Labour Force

Answer 4

Definition: People of working age either employed or looking for work.
Unemployment Rate: Percentage of the labour force not employed.

Question 5

Nash Equilibrium in Labour

Answer 5

A point where workers’ and firms’ decisions align (e.g., firms maximize profit, and workers put in effort as wages meet expectations).

Question 6

Business Cycle

Answer 6

Definition: Alternating periods of economic boom and recession.
Multiplier Effect: A change in spending causes a larger change in GDP.

Question 7

GDP Equation

Answer 7

Formula: GDP = C + G + I + (X - M)
C: Consumption
G: Government Spending
I: Investment
X-M: Exports minus Imports

Question 8

Multiplier Model equation

Answer 8

Equation: C = C₀ + C₁Y
C₀: Autonomous spending.
C₁: Marginal propensity to consume (e.g., spend 50% or 75%).

Question 9

Demand-Driven Equilibrium

Answer 9

Goods Market Equilibrium: Aggregate demand equals output.
Key Graph: 45° line shows equilibrium when output = aggregate demand

Question 10

Recession

Answer 10

Definition: Prolonged economic decline.
Cause: Decrease in consumption, investment, or confidence.
Solution: Fiscal stimulus like government spending.

Question 11

Supply and Demand

Answer 11

Demand Curve: Buyers’ willingness to pay.
Supply Curve: Sellers’ willingness to accept.
Market Equilibrium: Where demand = supply.

Question 12

Competitive Market Assumptions

Answer 12

Homogeneous goods.
Many price-takers.
No barriers to entry.
Perfect information.

Question 13

Taxes and Market

Answer 13

Effect of Tax: Raises price for consumers, lowers producer surplus.
Deadweight Loss: Lost efficiency due to reduced transactions.

Question 14

Consumer & Producer Surplus

Answer 14

Consumer Surplus: Benefit from paying less than willing to pay.
Producer Surplus: Benefit from selling for more than minimum acceptable price.

Question 15

Labour Discipline Model

Answer 15

Worker’s Best Response Curve: Shows effort for a given wage.
Key Point: Firms set wages to balance effort and cost.