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6) The smaller the extent of job rationing, the
A) lower potential GDP.
B) lower the unemployment rate.
C) lower the labor force participation rate.
D) higher the labor supply.
E) higher the real wage rate.
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Relective thinking
8.5 Essay: Potential GDP
1) Deine potential GDP. Under what circumstances does actual real GDP fall short of
potential GDP, equal potential GDP, and exceed potential GDP?
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Written and oral communication
2) Briely deine real and potential GDP, and explain the relationship between real GDP and
potential GDP. How can we measure potential GDP?
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Written and oral communication
71
3) Discuss the production function. How does the production function relate to the labor
market and potential GDP?
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Written and oral communication
4) Deine the production function. Discuss why the production function exhibits diminishing
returns.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Written and oral communication
5) Explain how the real wage and the extra output produced by each worker determine the
quantity of labor demanded by a irm.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
72
6) Explain how the labor market and the production function determine potential GDP.
Skill: Level 3: Using models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
7) The irst table above gives the labor demand and labor supply schedules for a nation.
The second table gives its production function.
a. What are the equilibrium real wage rate and the level of employment?
b. What is potential GDP?
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
73
8) The irst table above gives the labor demand and labor supply schedules for a nation.
The second table gives its production function.
a. What are the equilibrium real wage rate and the level of employment?
b. What is potential GDP?
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
9) The irst table above gives the labor demand and labor supply schedules for a nation.
The second table gives its production function.
a. What are the equilibrium real wage rate and the level of employment?
b. What is potential GDP? If you cannot determine a precise amount, give the range in
which potential GDP must lie.
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
74
10) Over the last decade, a country experiences a signiicant increase in labor productivity.
a. Draw and label a labor market supply and demand diagram. Show how the equilibrium
real wage rate and the equilibrium quantity of labor change as productivity increases.
b. Draw and label a production function. Show how potential GDP changes as labor
productivity increases.
Skill: Level 4: Applying models
Section: Checkpoint 8.1
Status: Old
AACSB: Analytical thinking
8.6 Essay: The Natural Unemployment Rate
75
1) Looking over the last six decades since 1950, how did the average U.S. unemployment
rate during the 2000s compare to the other ive decades?
Skill: Level 1: Deinition
Section: Checkpoint 8.2
Status: Old
AACSB: Written and oral communication
2) What is the efect of an increase in unemployment beneits on the unemployment rate?
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Written and oral communication
3) For most years since 1980, the natural unemployment rate was higher in Canada than in
the United States. What possible explanation for some of this diference has been
suggested?
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Written and oral communication
76
4) What is job search and what is the relationship between job search and unemployment?
What factors can afect the amount of job search? Briely discuss the efect of each factor.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Written and oral communication
5) Explain how some structural changes can increase the natural unemployment rate while
other structural changes can decrease the natural unemployment rate.
Skill: Level 3: Using models
Section: Checkpoint 8.2
Status: Old
AACSB: Written and oral communication
77
6) What factors can lead the real wage rate to be above its full-employment equilibrium
level?
Skill: Level 4: Applying models
Section: Checkpoint 8.2
Status: Old
AACSB: Written and oral communication
7) "Job rationing occurs when the quantity of labor demanded exceeds the quantity
supplied." Is the previous statement true or false? Explain your answer.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Relective thinking
8) What is job rationing and how does it relate to unemployment? What factors can lead to
job rationing? Briely explain these factors.
Skill: Level 2: Using deinitions
Section: Checkpoint 8.2
Status: Old
AACSB: Written and oral communication
78
9) What factors can push the real wage rate above its equilibrium level? Briely explain
each factor.
Skill: Level 3: Using models
Section: Checkpoint 8.2
Status: Old
AACSB: Written and oral communication
10) What is an eiciency wage and what efect does it have in the labor market?
Skill: Level 3: Using models
Section: Checkpoint 8.2
Status: Old
AACSB: Written and oral communication
79
