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Question 01

The size of a firm's price mark-up over costs:

a) increases as the price elasticity of demand decreases.

b) decreases as the wage share of total costs increases.

c) increases as the wage share of total costs increases.

d) increases with the size of the firm.

Question 02

The negative relationship between the gap between actual GDP and its trend value and the difference between actual unemployment rate and its equilibrium value is called what?

a) The Aggregate Supply Curve

b) The Battle of the Markups

c) The Phillips Curve

d) Okun's Law

Question 03

The (modern) augmented Phillips Curve is augmented by:

a) money illusion.

b) core inflation and supply shocks.

c) cyclical demand pressure.

d) output gaps.

Question 04

is the description of wage negotiations used in the "battle of the markups".

The difference between the alpha terms on the left and the right side of this equation is what?

a) The left hand side alpha is expected unit labour cost where as the alpha-bar term is the historical 'normal' unit labour cost.

b) The left hand side alpha is the expected wage share where as the alpha-bar term is the actual negotiated wage share.

c) The left hand side alpha is the actual negotiated wage share where as the alpha-bar term is the historical 'normal' wage share.

d) The left hand side alpha is the union's preferred wage share where as the alpha-bar term is the employer's preferred wage share.

Question 05

Which of the following reasons would not result in a shift in the aggregate supply curve?

a) Changes in trend GDP.

b) Stagflation.

c) Supply shocks.

d) Changes in core inflation.

Question 06

Dividing nominal wages (W) by labour productivity (Y/L) yields what?

a) Real unit labour costs

b) Nominal unit labour costs

c) Total factor productivity

d) Labour share of total income

Question 07

Indexation clauses in labour contracts:

a) are a backward looking part of contracts which commit nominal wages to make up for past price increases.

b) are a forward looking part of contracts which tie current nominal wages to future price increases.

c) are used to keep unit labour costs from rising.

d) govern the terms of nonwage compensation, e.g. vacation time, sick-pay.

Question 08

At point A, inflation is equal to the core rate of inflation and output is at the level of output consistent with the NAIRU. If the economy were at point B, you would expect:

a) the core rate of inflation to accelerate because the actual inflation rate exceeds the core rate.

b) prices will decline because there is an excess supply of goods (neoclassical assumption).

c) output to decline because there is an excess supply of goods (Keynesian assumption).

d) nominal interest rates to increase because of the Fisher Principle.

Oxford University Press, Online Resource Centre, Chapter 12.

Chapter 12

Instructions