Question 1

Consider the aggregate production function $$Y = A F(K, N). If $$both capital ($$K) $$and labor ($$N) $$are doubled, and the production function exhibits constant returns to scale, what happens to output ($$Y$$)?

Accepted Answer

Output ($$Y) $$exactly doubles.

Question 2

Suppose the production function is Cobb-Douglas: $$Y = AK$$^{0.3}$$N^{0.7}. If $$only labor ($$N) is $$doubled while capital ($$K) is $$held constant, by what factor does output ($$Y$) increase?

Accepted Answer

$$Y$$ increases by a factor of $$2^{0.7}.$$

Question 3

What does the marginal product of labor (MPN) represent in the context of the production function $$Y = A F(K, N)$$?

Accepted Answer

The increase in output from a small increase in labor, holding capital constant.

Question 4

Refer to the second image (diminishing marginal product). Why is $$Y_3$$ - $$Y_2$$ \u003c $$Y_2$$ - $$Y_1$$ when increasing $$N$$ from $$N_2 to$$ $$N_3$$ compared to $$N_1 to$$ $$N_2$$?

Accepted Answer

Because of diminishing marginal productivity of labor.

Question 5

If total factor productivity ($$A) $$increases in the production function $$Y = A F(K, N)$$, what happens to the marginal product of labor (MPN) curve?

Accepted Answer

It shifts upward.

Question 6

Given the growth accounting equation for a Cobb-Douglas production function $$Y = AK$$^{\omega}$$N^{1-\omega}$$, which of the following best expresses the growth rate of output ($$\frac{\Delta Y}{Y}$)?

Accepted Answer

$$\frac{\Delta Y}{Y} = \frac{\Delta A}{A} + \omega \frac{\Delta K}{K} + (1-\omega) \frac{\Delta N}{N}$$

Question 7

Which of the following is NOT a reason for unemployment according to the study materials?

Accepted Answer

The classical model assumes persistent unemployment.

Question 8

Based on the labor market flows diagram, which of the following transitions would increase the unemployment rate?

Accepted Answer

A large number of people move from 'Employed' to 'Unemployed'.

Question 9

Which type of unemployment is most likely to increase during a recession?

Accepted Answer

Cyclical unemployment

Question 10

If the labor force participation rate increases while the number of employed remains constant, what happens to the unemployment rate?

Accepted Answer

It increases.

Question 11

In the classical labor market equilibrium, what happens if the aggregate labor supply curve shifts to the right?

Accepted Answer

The equilibrium real wage decreases and employment increases.

Question 12

Suppose the marginal product of labor (MPN) is given by $$MPN = a - bN. If $$the real wage ($$w) $$increases, what happens to the quantity of labor demanded?

Accepted Answer

It decreases.

Question 13

Which of the following best describes the effect of a positive supply (productivity) shock on the labor market?

Accepted Answer

It shifts the labor demand curve to the right (upward).

Question 14

If leisure is a normal good, what is the effect of a permanent increase in real wages on labor supply?

Accepted Answer

The income effect dominates, decreasing labor supply.

Question 15

Which of the following equations correctly expresses GDP per capita in terms of labor productivity and labor force participation?

Accepted Answer

$$\frac{Y}{L} = \frac{N}{L} 	imes \frac{Y}{N}$$

Question 16

Which of the following is a plausible explanation for the observed decline in average annual working hours per worker over the last century, despite rising real wages?

Accepted Answer

The income effect of higher wages leads workers to choose more leisure.

Question 17

Skill-biased technological change is most likely to:

Accepted Answer

Increase the productivity and wages of skilled workers more than unskilled workers.

Question 18

If the marginal product of capital (MPK) declines as $$K$$ increases, this is an example of:

Accepted Answer

Diminishing marginal productivity of capital.

Production, Productivity, and Labour Markets in Macroeconomics

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