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1When a nation in the Eurozone experiences a negative shock to its competitiveness, restoring competitiveness requires adjustment in labour costs.
A)True
B)False


2The behaviour of unemployment since the 1970s has been quite similar in all euroland economies.
A)True
B)False


3The labour force consists of people who have jobs and those who are actively looking for one. The unemployment rate is the ratio of the number of people who have no job but are looking for one to the number of people in the labour force.
A)True
B)False


4The Employment to population ratio is the proportion of people of working age who hold a job.
A)True
B)False


5Which of the following statement is false?
A)In the absence of wage rigidities, the marginal productivity of labour represents the cost of employing one additional unit of labour.
B)The marginal productivity of labour is upward sloped since labour productivity increases as more hours are being performed.
C)The marginal productivity of labour curve represents the demand of labour.
D)The marginal productivity of labour is downward sloped since the amount of other factors of production being used is fixed.


6The demand curve for labour is a downward sloped curve since:
A)large firms which hire many workers are able to force down the real wage.
B)people require a higher real wage in order to work more.
C)the number of people who take early retirement is lower when real wages are high.
D)None of the above.


7The supply curve for labour is upward sloped since:
A)large firms which hire many workers are able to force down the real wage.
B)people require a higher real wage in order to work more.
C)the number of people who take early retirement is lower when real wages are high.
D)None of the above.


8Consider the following reasons for labour market institutions preventing the labour market from acting like a perfect market.

(i) The possibility for one side of the market to exercise excessive power.
(ii) A serious information asymmetry.
(iii) Firms care about profit rather than the welfare of workers.
(iv) Individual workers are highly vulnerable to uncertainty.
(v) The European Central Bank can only set one interest rate for all of euroland.
(vi) Many individual skills are acquired on the job, so individual firms may not sufficiently invest in their workers’ human capital.

Which of these are correct?
A)All of them.
B)(i), (iv) and (v).
C)(i), (ii), (iv), and (vi).
D)(ii), (iv), and (vi).



<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::Fig 8.1::/sites/dl/free/0077169654/677596/Chap8.JPG','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif">Fig 8.1 (45.0K)</a>Fig 8.1



9Consider the simple labour market depicted in the diagram. Which of the following is true?
A)The difference between L and L’’ represents the level of unemployment if wages are rigid and equal to w’.
B)A perfectly free and competitive labour market would set the real wage to w' and the employment level to L.
C)If the real wage ends up as w in this market, the difference between L' and L shows the level of unemployment.
D)A perfectly free and competitive labour market would set the real wage to w and the employment level to L'. The supply of labour is upward slope since firms are willing to pay higher wages for more skilled workers.


10Again consider the simple labour market depicted in the diagram. Which of the following is true?
A)If labour market institutions result in the real wage being set at w', the amount of labour employed will be L.
B)If labour market institutions result in the real wage being set at w', the amount of labour employed will be L''.
C)If labour market institutions result in the real wage being set at w', the rate of unemployment is given by the difference between L'' and L divided by L’’.
D)Both a. and c. are correct.


11Only one of the following reasons for involuntary employment is true. Which one is it?
A)Free movement of labour
B)Collective Negotiations.
C)Excess demand of labour
D)Low unemployment benefits.


12If the real wage ends up being higher than the market-clearing level, then:
A)some people will be unemployed, but the ones who find jobs are happy that their wage is higher.
B)firms will not have an incentive to invest in productivity enhancing technology.
C)domestic firms cannot be competitive with foreign firms.
D)the unemployment rate will rise continuously.
The diagram shows a simple labour market. Use the diagram to answer the questions; in particular refer to the labels in the diagram. <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::Fig 8.2::/sites/dl/free/0077169654/677596/Chap8_2.JPG','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif">Fig 8.2 (63.0K)</a>Fig 8.2



13Suppose the demand for labour shifts out from D to D'. In a perfectly free, competitive labour market the equilibrium would shift from to .


14If the real wage is w then the level of employment desired by people is , and if the real wage is w' then the level of employment desired by people is , but the level of employment desired by firms is ; thus if raising wages from w to w' increases unemployment, it is partly due to decrease in the number of jobs and partly due to an increase in the labour force.


15If the demand for labour shifts out from D to D', but the real wage remains unchanged at w’, then level of employment desired by firms would be shown by point and the labour force would be .


16If a country experiences a negative productivity shock that makes the labour demand curve shift to the left, which of the following statement is true?
A)In the absence of wage rigidities, the equilibrium wage will increase.
B)In the absence of wage rigidities, the equilibrium wage will decrease.
C)With wage rigidities, the equilibrium wage will increase.
D)With wage rigidities, the equilibrium wage will decrease.


17In the absence of wage rigidities, if a country experiences a positive demand shock...
A)unemployment increases.
B)wage decreases.
C)firms increase their labour demand for any level of wages.
D)employment decreases.





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