ECON 2020 REVIEW EXAM QUESTIONS
WITH DETAILED VERIFIED ANSWERS
The Classical macroeconomic model proposes
That markets work efficiently to produce the best macroeconomic outcomes.
The Keynesian macroeconomic model states
That the economy is inherently unstable and government intervention is required to maintain
continued economic growth
The level of real GDP the economy produces at full employment
Potential GDP
At full employment
Real GDP = Potential GDP
At any given time, which factor of production is not fixed?
Labor
According to the production function, as the quantity of labor employed increases, real
GDP increases at a:
Decreasing Rate
If adding an initial 100 billion labor hours per year increases real GDP by $3 trillion,
diminishing returns informs us that an additional 100 billion labor hours per year will
increase real GDP by
Less than $3 trillion
The benefit of the firm hiring another worker is?
Marginal benefit / Marginal Product of Labor
Nominal Wage divided by price level
The real wage rate:
, Suppose the price of a product is $4 and the nominal wage that the firm must pay is $20.
Then the firm's real wage rate is:
$5
If the real wage rate decreases from $9 per hour to $8 per hour, then the:
Quantity demanded of labor increases
A surplus of labor is eliminated by _______ in the real wage rate and a shortage of labor is
eliminated by ______ in the real wage rate.
Decrease and Increase
The production function graphs the relationship between:
Real GDP and Labor Hours
The unemployment rate at full employment is:
The natural unemployment rate
More generous unemployment benefits ______ the opportunity cost of looking for a new
job and therefore ______ the job search process.
Lower and Extend
Wage rigidity occurs when the real wage is _____ the equilibrium level and there is a
_______ of labor.
Above and Surplus
Efficiency wages, above equilibrium minimum wage rates, and higher union wages are
likely to:
Increase the natural unemployment rate
Anytime the unemployment rate is greater than the natural unemployment rate.
Real GDP falls short of Potential GDP
WITH DETAILED VERIFIED ANSWERS
The Classical macroeconomic model proposes
That markets work efficiently to produce the best macroeconomic outcomes.
The Keynesian macroeconomic model states
That the economy is inherently unstable and government intervention is required to maintain
continued economic growth
The level of real GDP the economy produces at full employment
Potential GDP
At full employment
Real GDP = Potential GDP
At any given time, which factor of production is not fixed?
Labor
According to the production function, as the quantity of labor employed increases, real
GDP increases at a:
Decreasing Rate
If adding an initial 100 billion labor hours per year increases real GDP by $3 trillion,
diminishing returns informs us that an additional 100 billion labor hours per year will
increase real GDP by
Less than $3 trillion
The benefit of the firm hiring another worker is?
Marginal benefit / Marginal Product of Labor
Nominal Wage divided by price level
The real wage rate:
, Suppose the price of a product is $4 and the nominal wage that the firm must pay is $20.
Then the firm's real wage rate is:
$5
If the real wage rate decreases from $9 per hour to $8 per hour, then the:
Quantity demanded of labor increases
A surplus of labor is eliminated by _______ in the real wage rate and a shortage of labor is
eliminated by ______ in the real wage rate.
Decrease and Increase
The production function graphs the relationship between:
Real GDP and Labor Hours
The unemployment rate at full employment is:
The natural unemployment rate
More generous unemployment benefits ______ the opportunity cost of looking for a new
job and therefore ______ the job search process.
Lower and Extend
Wage rigidity occurs when the real wage is _____ the equilibrium level and there is a
_______ of labor.
Above and Surplus
Efficiency wages, above equilibrium minimum wage rates, and higher union wages are
likely to:
Increase the natural unemployment rate
Anytime the unemployment rate is greater than the natural unemployment rate.
Real GDP falls short of Potential GDP
