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Question 01

In this Figure we see the reaction of a household to a change in the real wage from OB/OA to OB´/OA. We may conclude:

a) household labour supply has a negative slope.

b) the substitution effect from the increase is stronger than the income effect from the increase in the real wage.

c) this household would choose to remain out of the labour force even at the higher real wage.

d) the measured aggregate unemployment in this economy would include the horizontal distance R´ for this household.

Question 02

Which of the following changes could shift the labour demand curve as shown in the Figureon the left?

a) Unions are weakened by a change in legislation that only allows decentralised company level wage negotiations instead of centralized industry-level negotiations.

b) The real wage has increased.

c) Capital accumulation has increase the capital to worker ratio.

d) The income effect of the increase in the real wage is larger than the substitution effect from the increase in the real wage.

Question 03

Which of the following news headlines would be inconsistent with this figure?

a) "Minimum Wage Lowered"

b) "Immigration Quotas Relaxed for Foreign Workers"

c) "Income Tax Rates Reduced for Second Worker In Family"

d) "Free Nursery Care and Kindergarten Introduced by Blue Government"

Question 04

Which of the following statements is consistent with this figure representing a union leadership's response to a change in labour demand?

a) The positive slope of the collective labour supply curve shows the income effect is less than the substitution effect of a real wage increase for workers.

b) The household labour supply curve would lie to the left of the collective labour supply curve.

c) The slope of the collective labour supply curve would be less if the union leadership responded to growing demand for labour with relatively moderate real wage demands.

d) The slope of the collective labour supply curve is equal to the marginal product of labour.

Question 05

Assume that employment and the real wage are equal to their equilibrium levels in a labour market with collective bargaining over the real wage being conducted by employers and a union. In the length of segment BC tells us:

a) individual-involuntary = union voluntary unemployment at the equilibrium real wage.

b) individual-voluntary = union voluntary unemployment at the equilibrium real wage.

c) individual-involuntary = union involuntary unemployment at the equilibrium real wage.

d) individual-voluntary = union involuntary unemployment at the equilibrium real wage.

Question 06

When actual unemployment equals equilibrium unemployment which of the following is necessarily zero?

a) Frictional unemployment.

b) Structural unemployment.

c) Involuntary unemployment.

d) None of the above.

Question 07

Actual unemployment would exceed the equilibrium level of employment for the labour market represented in the figure on the left whenever:

a) real wages exceed the equilibrium level of wages determined by the intersection of collective supply curve and the demand for labour curves.

b) the demand for labour curve slopes sharply downward.

c) the collective labour supply curve is to the left of the individual labour supply curve.

d) the collective labour supply curve is to the right of the individual labour supply curve.

Question 08

"Discouraged" in the context of transitions between labour market states, means a transition to being:

a) unemployed.

b) voluntarily unemployed.

c) involuntarily unemployed.

d) out of the labour force.

Question 09

The reason for the existence of involuntary unemployment according to the text is:

a) insufficient employment protection.

b) inefficiencies of job search.

c) real wages do not adjust quickly to restore balance between labour market demand and labour market supply.

d) technological change.

Question 10

The Waasenaar Accord of 1982:

a) marked a significant weakening of Dutch unions through labour market reforms.

b) was a significant first step in the harmonisation of European labour institutions.

c) was a historic agreement on wage moderation.

d) appears to have been the beginning of the decades long "Eurosclerosis" to follow.

Oxford University Press, Online Resource Centre, Chapter 04.

Chapter 04

Instructions