Growth of the Supply of Labour

Questions and Answers

What happens when there is a shortage of labour in the labour market?

The quantity of labour supplied decreases.

There is no impact on the real wage.

The real wage falls to eliminate the shortage.

The real wage rises to eliminate the shortage. (correct)

At what point does equilibrium occur in the labour market?

When quantity of labour supplied is greater than quantity of labour demanded.

When quantity of labour demanded equals quantity of labour supplied. (correct)

When real GDP is less than potential GDP.

When unemployment is above the natural rate.

What effect does an increase in the real wage rate have on the quantity of labour supplied?

It creates a surplus in the labour market.

It decreases the quantity of labour supplied.

It increases the quantity of labour supplied. (correct)

It has no effect on labour supply.

Which condition indicates that an economy is at full employment?

Unemployment is at the natural rate. Signup and view all the answers

What occurs in the labour market when there is a surplus of labour?

The real wage falls to eliminate the surplus. Signup and view all the answers

What happens to the supply of labour curve when there is an increase in the labour supply?

It shifts rightward Signup and view all the answers

Which of the following factors does NOT affect the quantity of labour supplied?

Real wage rate Signup and view all the answers

What is likely to occur when there is a surplus of labour due to population growth?

Unemployment will be above the natural rate Signup and view all the answers

How is labour productivity defined?

The amount of output produced per hour of labour Signup and view all the answers

Which outcome is associated with an increase in labour productivity?

Expansion of production possibilities Signup and view all the answers

Study Notes

Growth of Labour Supply

Labour supply curve shifts rightward with growth in labour supply.
Changes in labour quantity are influenced by:
- Average hours worked per employee.
- Employment-to-population ratio.
- Size of the working-age population.
Population growth increases labour supply while demand remains unchanged:
- Results in labour surplus.
- Unemployment rises above the natural rate.
- Real wages decline to balance surplus.

Growth of Labour Productivity

Labour Productivity defined as the output of real GDP per hour of labour.
Increased labour productivity expands production possibilities.
Labour quantity supplied is influenced by the real wage rate:
- Higher real wages lead to increased supply of labour due to the upward slope of the supply curve.

Aggregate Labour Market Dynamics

Labour shortage occurs when demand exceeds supply:
- Real wages increase to resolve shortages.
Labour surplus occurs when supply outstrips demand:
- Real wages decrease to eliminate surpluses.
Equilibrium is achieved when supply equals demand:
- Economy operates at full employment.
- Real GDP matches potential GDP.
- Unemployment stabilizes at the natural rate.

Demand for Labour

Quantity of labour demanded relates inversely to real wage rates:
- Higher wages decrease the quantity of labour demanded.
- Demand curve slopes downward, indicating this relationship.

Real Wage Rate Calculation

Real wage rate is determined by the nominal wage adjusted for the price level:
- Formula: Real Wage Rate = Nominal Wage Rate / Price Level.

Overview of the Labour Market in Macroeconomics

Assumes a unified labour market defining employed labour quantity and real GDP production.
Supply of labour represents the connection between the quantity of labour and real wage rates.

Description

Explore the dynamics of labour supply and its effects on the economy. This quiz addresses how different factors like working hours, employment ratios, and population growth influence the labour market, shifting the supply curve. Understand the implications of a growing labour supply, including potential surpluses and unemployment trends.