ECO557 - QUIZ 2

One factor which did not influence the levels of real output and employment in the classical system was the

• stock of capital.

• Level of technology.

• the price level

• size of the labor force

The supply-determined nature of output and employment is a crucial feature of

• the Keynesian theory

• the classical system

• monetarism

• the rational expectations model

The supply of labor in the classical system is a function of the

• marginal product of labor

• money wage

• real wage and the public’s preference for leisure

The author of The Wealth of Nations; The author of the General Theory

• David Ricardo; John Maynard Keynes

• Adam Smith; A. C. Pigou

• Adam Smith; David Ricardo

• Adam Smith; John Maynard Keynes.*

Which of the following factors will not determine output and employment in the classical model?

• Taxes that affect the incentive to work or hire labor

• The level of government spending

• The quantity of capital

• Preferences for leisure

Diminishing marginal returns refers to the fact that

• holding other inputs constant, additional increases in labor lead to smaller changes in output

• holding other inputs constant, additional increases in labor lead to lower output.

• additional increases in labor always lead to smaller changes in output

• the returns to labor fall as real wages rise

In the classical model, the factors determining output and employment are the factors that ascertain the position(s) of

• the labor supply curve only

• the labor demand curve only

• the aggregate production function

• both the labor supply curve and the labor demand curve

• the aggregate production function, both the labor supply curve and the labor demand curve

An increase in taxes on labor earnings, everything else equal

• shifts the labor supply curve to the left and increases the real wage.*

• shifts the labor supply curve to the right and increases the real wage

• shifts the labor supply curve to the right and reduces the real wage.

• shifts the labor supply curve to the left and reduces the real wage

In contrast to the mercantilists, classical economists emphasized the importance of real factors in determining the “wealth of nations” and stressed the optimizing tendencies of the free market in the absence of state control

• yes

• no

An increase in the capital stock leads to an upward shift in the labor demand curve, which increases the equilibrium real wage and quantity of labor. 

• yes

• no

• not sure