TRUE OR FALSE
If the statement is true, skip it. If the statement is false, write a sentence that explains why the statement is false.
PART I : TRUE OR FALSE
1. The short run aggregate production function shows how GDP changes as the price level changes, holding constant the capital stock and the level of technology.
2. Holding all other things constant, as more workers are employed, the marginal product of labor increases.
3. The money wage is equal to the real wage divided by the price level.
4. If money wages are doubled and prices are doubled, it is likely that the quantity of labor demanded will double.
5. The demand for labor curve is also the marginal product of labor curve.
6. The substitution effect of a wage increase will cause workers to supply less labor.
7. An increase in the reservation wage of the labor force will increase the labor force participation rate.
8. The flexible wage theory of the labor market implies that the short run aggregate supply curve is vertical.
9. The flexible wage theory implies that there can be no shifts of the aggregate supply curve.
10. The flexible wage theory implies that there can never be any involuntary unemployment.
11. In "sticky" wage theory the money wage is generally set at a level where the expected quantity supplied of labor is greater than the expected quantity demanded.
12. In "sticky" wage theory, the real wage is fixed in advance and the money wage depends on the actual price level.
13. In "sticky' wage theory, the level of employment is determined by households willingness to supply labor.
14. The "sticky" wage theory generates an upward sloping short run aggregate supply curve.
15. In "sticky" wage theory, the long run aggregate supply curve is vertical.
PART II: FILL IN THE BLANKS
1. A ______________________ function is the relation between the amount of labor input and the resulting output.
2. An improvement in technology will shift the ___________________ curve for labor.
3. The __________________________ effect notes that a higher wage allows workers to buy more leisure time and to work fewer hours.
4. The __________________ wage theory assumes that wages adjust so that the labor market is always in equilibrium.
5. In "sticky" wage theory, an increase in the price level results in an _______________________ in the amount of labor employed.