Factors Affecting Firm's Hiring Decision in a Perfectly Competitive Market

Factor Markets Financial Sector Market Failure Inflation, Unemployment, GDP Economic Growth & Productivity Int’l Trade & Finance 100 100 100 100 100 100 200 200 200 200 200 200 300 300 300 300 300 300 400 400 400 400 400 400 500 500 500 500 500 500

A profit-maximizing firm that sells its output in a perfectly competitive market hires two additional workes, calculating that the contribution to total revenue of the last worker hired just equals the extra cost of hiring that worker. Six months later, the firm finds that the last worker’s contribution to total revenue is less than the extra cost of hiring that worker. Which of the following may have occurred in the interim to explain this change? • The firm laid off some workers. • The market supply for the firm’s product decreased. • The market demand for the firm’s product decreased. • A technological advance increased the productivity of the firm’s workforce. • The firm negotiated new contracts with workers, lowering wages. 100 C

Suppose that a large number of unskilled workers enter a nation’s labor market. If the labor market is competitive, the number of unskilled workers hired and the wage rate will most likely change in which of the following ways? • # Unskilled Workers Hired Wage Rate • Increase Increase • Increase Decrease • Increase Not change • Decrease Increase • Decrease Decrease B 200

According to the information in the table above, the twelfth worker would increase the hourly profit by • $0.20 • $1.10 • $1.30 • $2.40 • $5.20 C 300

400 • A firm’s demand curve for labor is equal to a segment of its • average variable cost curve • total revenue curve • marginal cost curve • marginal revenue product curve • average product curve D

The graph illustrates the labor market for teenage workers. The current minimum wage for all workers is W1. If Congress introduces a sub-minimum wage, W2 that applies only to teenagers, what is the most likely effect on teenage employment? • Teenage employment will increase because firms will want to hire more teenagers at W2 than at W1. • Teenage employment will increase because more teenagers will want to work at W2 than at W1. • Teenage employment will decrease because fewer teenagers will want to work at W2 than at W1. • Teenage employment will decrease because firms will want to hire fewer teenagers at W2 than at W1. • Teenage employment will stay the same because the market-clearing wage is lower than W1 and W2. A 500

100 • Under a fractional reserve banking system, banks are required to • keep part of their demand deposits as reserves • expand the money supply when requested by the central bank • insure their deposits against losses and bank runs • pay a fraction of their interest income in taxes • charge the same interest rate on all their loans A

200 • When the United States government engages in deficit spending, that spending is primarily financed by • increasing the required reserve ratio • borrowing from the World Bank • issuing new bonds • appreciating the value of the dollar • depreciating the value of the dollar C

300 • If a commercial bank has no excess reserves and the reserve requirement is 10 percent, what is the value of new loans this single bank can issue if a new customer deposits $10,000? • $100,000 • $90,333 • $10,000 • $9,000 • $1,000 D

400 • When a central bank sells securities in the open market, which of the following set of events is most likely to follow? • An increase in the money supply, a decrease in interest rates, and an increase in aggregate demand • An increase in the money supply, an increase in interest rates, and a decrease in aggregate demand • An increase in interest rates, an increase in the government budget deficit, and a movement toward trade surplus • A decrease in the money supply, an increase in interest rates, and a decrease in aggregate demand • A decrease in the money supply, a decrease in interest rates, and a decrease in aggregate demand D

500 • The federal funds rate is the interest rate that • the Federal Reserve charges the federal government on its loans • banks charge one another for short-term loans • banks charge their best customers • equalizes the yield on government bonds and corporate bonds • is equal to the inflation rate B

A society that wishes to achieve greater income equality is most likely to have which of the following? • A regressive income tax system and high estate and gift taxes • A regressive income tax system and low estate and gift taxes • A progressive income tax system and high estate and gift taxes • A progressive income tax system and low estate and gift taxes • A proportional income tax system and high estate and gift taxes C 100

Characteristics of a pure public good include which of the following? • Nonpaying consumers cannot be excluded from consuming the good. • Consumption by any one person does not reduce the availability of the good to others. • The amount consumed depends on the price paid. • I only • II only • III only • I and II only • II and III only 200 D

300 • Which of the following tends to increase the gap in earnings between skilled and unskilled workers over time? • An increase in the demand for unskilled workers relative to skilled workers • An increase in the supply of skilled workers relative to unskilled workers. • A decrease in the demand for unskilled workers relative to skilled workers • A decrease in both the demand for and the supply of skilled workers • An increase in both the demand for and supply of unskilled workers C

If the two firms collude, Firm A’s and Firm B’s profits would be which of the following? • Firm A Firm B • $150 $50 • $100 $100 • $100 $150 • $50 $100 • $50 $50 B 400

If each firm simultaneously chooses its pricing strategy without collusion, Firm A’s and Firm B’s profits would be which of the following? • A’s Profit B’s Profit • $150 $50 • $100 $100 • $100 $150 • $50 $100 • $50 $50 E 500

100 • Federal budget deficits occur when • more money is being spent on entitlement programs than has been allocated • the Internal Revenue Service spends more than it collects in taxes in a given year • the federal government spends more than it collects in taxes in a given year • high levels of unemployment use up tax collections • interest payments on the national debt increase from one year to the next C

200 • An increase in which of the following will increase aggregate demand? • Taxes • Government spending • The federal funds rate • Reserve requirements • The discount rate B

300 • When the Federal Reserve buys government securities on the open market, which of the following will decrease in the short run? • Interest rates • Taxes • Investment • The amount of money loaned by banks • The money supply A

400 • According to the short-run Phillips Curve, there is a trade-off between • interest rates and inflation • the growth of the money supply and interest rates • unemployment and economic growth • inflation and unemployment • economic growth and interest rates D

500 • A favorable supply shock, such as a decrease in energy prices, is most likely to have which of the following short-run effects on the price level and output? • Price Level Output • Decrease No effect • Decrease Increase • Increase Increase • Increase Decrease • No effect No effect B

100 • Changes in which of the following factors would affect the growth of an economy? • Quantity and quality of human and natural resources • Amount of capital goods available • Technology • I only • I and II only • I and III only • II and III only • I, II, and III E

200 If AD and AS represent aggregate demand and aggregate supply curves, respectively, and the arrows indicate the movement of the curves, which of the following graphs best illustrates long-run equilibrium growth? D

300 • The long-run growth rate of an economy will be increased by an increase in all of the following EXCEPT • capital stock • labor supply • real interest rate • rate of technological change • spending on education and training C

400 • An increase in which of the following is consistent with an outward shift of the production possibilities curve? • Transfer payments • Aggregate demand • Long-run aggregate supply • Income tax rates • Exports C

500 • GDP per capita refers to • nominal GDP • real GDP • GNP • GDP adjusted in inflationary terms • GDP calculated per person E

100 • Which of the following best explains why many United States economists support free international trade? • Workers who lose their jobs can collect unemployment compensation. • It is more important to reduce world inflation than to reduce United States unemployment. • Workers are not affected; only businesses suffer. • The long-run gains to consumers and some producers exceed the losses to other producers. • Government can protect United States industries while encouraging free trade. D

200 • If Mexicans increase their investment in the United States, the supply of Mexican pesos to the foreign exchange market and the dollar price of the peso will most likely change in which of the following ways? • Supply of Pesos Dollar Price of Peso • Increase Increase • Increase Decrease • Decrease Increase • Decrease Decrease • Decrease Not change B

300 • If the real interest rate in Country X increases relative to the real interest rate in Country Y and there are no trade barriers between the two countries, then for Country X which of the following will be true of its capital flow, the value of its currency, and its exports? • Capital Flow Currency Exports • Inflow Appreciation Increase • Inflow Appreciation Decrease • Inflow Depreciation Increase • Outflow Depreciation Increase • Outflow Appreciation Decrease B

400 • If a country has a current account deficit, which of the following must be true? • It must also show a deficit in its capital account. • It must show a surplus in its capital account. • It must increase the purchases of foreign goods and services. • It must increase the domestic interest rates on its bonds. • It must limit the flow of foreign capital investment. B

500 • With an increase in investment demand in the United States, the real interest rate rises. In this situation, the most likely change in the capital stock in the United States and in the international value of the dollar would be which of the following? • Capital Stock in US International Value of $ • Increase Decrease • Increase No change • Increase Increase • Decrease Increase • No change Decrease C

Factors Affecting Firm's Hiring Decision in a Perfectly Competitive Market