Question

In: Economics

The relation between the unemployment rate and real wage (the wage-setting relation) can be shown by drawing a ______ line

QUESTION 4

The relation between the unemployment rate and real wage (the wage-setting relation) can be shown by drawing a ______ line, with the unemployment rate measured on the x-axis and the real wage rate measured on the y-axis.


a.

negative sloping


b.

vertical


c.

horizontal


d.

positive sloping


QUESTION 5

Efficiency wage theory suggests that __________.


a.

productivity might drop if the wage rate is too low


b.

workers will be paid less than their reservation wage


c.

unskilled workers will have a lower turnover rate than skilled workers


d.

firm will be more resistant to wage increases as the labour market tightens

Solutions

Expert Solution

(4) (a)

The wage-setting line is downward sloping, because higher (lower) unemployment rate is associated with lower (higher) bargaining power of workers, leading to lower (higher) nominal wage rate and lower (higher) real wage rate, price level remaining constant.

(5) (a)

Efficiency wage is a wage rate set above market wage rate to compensate for high productivity in workers. So if wage rate is too low, productivity is likely to fall.

Rahul Sunny answered 2 years ago
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