Question : 16.4   The Short-Run Relationship Between Output and Unemployment 1) Which of : 1381237

 

16.4   The Short-Run Relationship Between Output and Unemployment

 

1) Which of the following is TRUE of a change in dividend payments?

A) There is no substitution effect because a change in dividend payments does not change the trade-off between work and leisure.

B) There is no income effect because a change in dividend payments does not change the trade-off between work and leisure.

C) There is no substitution effect because a change in dividend payments does not change a household’s permanent income.

D) There is no income effect because a change in dividend payments does not change a household’s permanent income.

2) The government reduces the corporate profits tax. As a result, corporate profits increase. This will

A) have no effect on households.

B) increase the nonlabor income of households, causing consumption to increase and labor supply to increase.

C) increase the nonlabor income of households, causing consumption to increase and labor supply to decrease.

D) increase the nonlabor income of households, causing consumption to increase and labor supply to increase or decrease depending on the relative magnitude of the income and substitution effects.

 

3) The government increases the corporate profits tax. As a result, corporate profits decrease. This will

A) have no effect on households.

B) decrease the nonlabor income of households, causing consumption to decrease and labor supply to decrease.

C) decrease the nonlabor income of households, causing consumption to decrease and labor supply to increase.

D) decrease the nonlabor income of households, causing consumption to decrease and labor supply to decrease or increase depending on the relative magnitude of the income and substitution effects.

 

4) Okun’s Law states that the unemployment rate decreases about

A) 1 percentage point for every 1% increase in GDP.

B) 3 percentage points for every 1% increase in GDP.

C) 1 percentage point for every 3% increase in GDP.

D) 1 percentage point for every 2% increase in GDP.

5) According to Okun’s Law, if GDP increased by 6%, the unemployment rate would decrease by

A) 1 percentage point.

B) 2 percentage points.

C) 3 percentage points.

D) 6 percentage points.

 

6) If Okun’s Law holds true, then a 9% increase in GDP would lead to a ________ percentage point decrease in the unemployment rate.

A) 1

B) 2

C) 3

D) 6

 

7) Although the relationship between output and the unemployment rate is not as simple as Okun’s Law represents it to be, it is true that

A) a 1% increase in output tends to correspond to a greater than 1% decrease in the unemployment rate.

B) a 1% increase in output tends to correspond to a less than 1% decrease in the unemployment rate.

C) a 1% increase in output tends to correspond to a 1% decrease in the unemployment rate.

D) a 1% increase in output will have no effect on the unemployment rate.

 

8) Okun’s Law has

A) been proven to be completely incorrect—there isn’t a negative relationship between GDP and the unemployment rate.

B) proven to be correct over time in that as GDP increases by 3%, there has been a 1 percentage point decline in unemployment.

C) not turned out to be a law—the relationship between changes in GDP and the unemployment rate is more complex than Okun’s Law indicates.

D) been proven false, because there is a positive relationship between changes in GDP and the unemployment rate.

9) Which of the following is NOT one of the “slippages” between changes in output and changes in the unemployment rate?

A) As the size of the labor force increases, the interest rate increases, and therefore output falls.

B) The percentage increase in the number of jobs is less than the percentage increase in output.

C) The labor force increases when output increases.

D) The change in the number of jobs and the change in the number of people employed are not equal.

 

10) An increase in output will cause the unemployment rate to fall by a larger percentage if

A) firms are holding excess labor.

B) firms aren’t holding excess labor.

C) firms have their workers work more overtime.

D) firms hire workers who were already employed by other firms to work for them part-time.

 

 

 

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