Consider the Keynesian Efficiency Wage Model. a. Draw the effort curve as it was discussed in class and explain the shape. b. Explain and show graphically how firms set real wages in the Keynesian Efficiency Wage model? c. What are the implications for the full-employment level of employment Ñ and the level of unemployment u? d. Explain why firms hesitate to lower wages even if the level of unemployment is high, e.g., during recessions.

Consider the Keynesian Efficiency Wage Model. a. Draw the effort curve as it was discussed in class and explain the shape. b. Explain and show graphically how firms set real wages in the Keynesian Efficiency Wage model? c. What are the implications for the full-employment level of employment Ñ and the level of unemployment u? d. Explain why firms hesitate to lower wages even if the level of unemployment is high, e.g., during recessions.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations

Section: Chapter Questions

Problem 7P

See similar textbooks

Similar questions

4. Consider the Keynesian Efficiency Wage Model. a. Draw the effort curve as it was discussed in class and explain the shape. b. Explain and show graphically how firms set real wages in the Keynesian Efficiency Wage model?
Which of the following is incorrect about the Keynesian model shown below? Price Level P₁ AD₁ E₁ Y₁ Real GDP SRAS AD E₁ Yp
Assume a Keynesian AS curve. In the short run, when there is a large negative output gap (AD-AS intersection to the left of the full employment level of output), then O the government should use contractionary demand management policy expansionary demand management policy is likely to be highly inflationary O expansionary demand management policy does not cause much inflation contractionary demand management policy is likely to be highly inflationary
Assume that an economy operates according to the sticky-wage model. The nominal wagewas set to make labor supply and labor demand equal when the expected price levelequaled 120 (as measured by the consumer price index).a. Use a graph of the labor market to illustrate what happens to the quantity oflabor employed if the actual price level over the time period when wages arestuck equals 110.b. Use a graph of the production function to illustrate how the quantity of outputproduced changes if the actual price level equals 110 when the expected pricelevel is 120.c. Given the unexpectedly low price level, will this economy be operating above,below, or at the natural rate?
If a Keynesian model shows that aggregate demand for both goods and labor has shifted to the left, while wages are sticky and remain at the same level and prices remain at the same prices, what will be the result in the labor market? a a shortage of labor b depression c coordinated wage reductions d a surplus of labor
According to the Keynesian and New Keynesian theories; a. Show and explain the existence of involuntary unemployment in the labor market by using the Efficiency Wage Theory. b. Is the employment level that you found same with the full employment level indicated by the classical labor market theory? Why? Why not? c. According to the Keynesian theory, what would be the effect of the “A wave of investor and consumer pessimism about the future profitability of capital investments and lower future income” on output (Y), the real interest rate (r), employment (L) and the price level (P)? Distinguish between the short run and the long run effects by using the IS-LM-FE and AD-AS models and the effective labor demand theory.
Consider the basic neoclassical model of labour market. Other things equal, a decrease in demand for labour decreases unemployment and decreases wages decreases employment and decreases wages O decreases employment and increases wages O increases unemployment and decreases wages OOOO
Consider the Keynesian sticky wage model. Assume that the economy is operating close to, but not at, its zero lower bound (ZLB). Discuss the following: 1. Could a negative shock to the IS curve make the ZLB bind? Explain and illustrate graph- ically. 2. Could a shock to current productivity z make the ZLB bind? What would need to be the sign of this shock to make the ZLB bind? 3. In the data, in most episodes where the ZLB binds (the US in the wake of the Great Recession, Japan during the 1990s, and the US during the Great Depression), output is low. Given this, would a supply shock as the reason for a binding ZLB make empirical sense? 4. Intuitively, explain why changes in government spending have a bigger effect on output at the ZLB than away from it.
QUESTION 20 why is there NO persistent unemployment in the clancal model O The rate of econeme rowth in always high enough ta alow those who wart to work at ument wages to find jobs O Unionation creates job security for workers O The wage level adjusts to eliminate unemployment O The interest rate adusts to elminate unemployment QUESTION 21 Higher unemployment tends to be asociated with O higher real GDR O higher nominal GDR O the classical model. O lower real GDR QUESTION 22 The concept of Say's law can be summed up by the phvase, Osupply and demand are irrelevant concepes. Oupply and demand are equivalent concepts O"demand creates its own supply." Osupply creates its own demand
Is Keynesian economics relevant in today's new normal? In what way? Explain...
Which of the following shifts SRAS down in the Keynesian model with nominal wage rigidity? Select one: O a. An increase in the expected future price of output. Ob. An expected increase in the government's purchases of goods and services. Oc. c. An announcement of lower tax rates on new capital investment. Od. An expected decrease in the supply of nominal money.
“Is wage and/or price rigidity necessary for Keynesian economics to explain involuntary unemployment?” Evaluate with reference to: Keynes’s General Theory. The orthodox Keynesian school. New Keynesian economics.