Question

1. Suppose you read the following headline in the Wall Street Journal: “Brisk Jobs Growth Puts Fed on Notice” (3/7-8/15, p. A1), and suppose in the article you read that the Labor Department’s “official” “unemployment rate [U3] fell [in February] to 5.5% …” Ceteris paribus, one would reasonably expect the:

A. Natural Rate to equal the U-4 rate plus the U-3 rate.

B. Department’s U-4 rate to be greater than 5.5%.

C. Department’s U-6 rate to be less than 6%.

D. Natural Rate to equal the U-4 rate minus the U-3 rate.

____________________________________________________________________

2. Efficiency wages create a labor

A. shortage and so decrease unemployment.

B. surplus and so decrease unemployment.

C. shortage and so increase unemployment.

D. surplus and so increase unemployment.

Answer 1

Ans 2 : Efficiency wages are the wages paid to workers that is more than the market wages. As a result of this, firms pay more wages to labour above the equilibrium point, which will bring increased productivity and reduced labour turnover to firms. It will create unemployment because higher wages attract more people to apply for job and hence create unemployment. In brief, efficiency labour create labour surplus because of higher wages offered and increase unemployement. Therefore, option D is the correct answer.