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Questions and Answers
What happens in the labour market when there is a surplus of labour?
What happens in the labour market when there is a surplus of labour?
- The real wage falls to eliminate the surplus of labour. (correct)
- The economy moves towards a state of full employment.
- The quantity of labour demanded exceeds the quantity of labour supplied.
- The real wage increases to attract more workers.
What characterizes the equilibrium in the labour market?
What characterizes the equilibrium in the labour market?
- Real GDP exceeds potential GDP.
- Real wages are fixed and do not change.
- Unemployment rates are above the natural rate.
- There is a balance between the quantity of labour demanded and supplied. (correct)
What occurs in the labour market when there is a rightward shift in the supply of labour curve?
What occurs in the labour market when there is a rightward shift in the supply of labour curve?
- A decrease in the real wage rate. (correct)
- A rise in unemployment below the natural rate.
- An increase in the demand for labour.
- A restriction in the working-age population.
Which of the following factors does NOT contribute to a change in the quantity of labour supplied?
Which of the following factors does NOT contribute to a change in the quantity of labour supplied?
What is the effect of an increase in the real wage rate on the quantity of labour supplied?
What is the effect of an increase in the real wage rate on the quantity of labour supplied?
Under which condition is the economy said to be at full employment?
Under which condition is the economy said to be at full employment?
If the working-age population increases without a corresponding increase in demand for labour, what is the likely outcome?
If the working-age population increases without a corresponding increase in demand for labour, what is the likely outcome?
Which statement accurately describes labour productivity?
Which statement accurately describes labour productivity?
What is likely to occur if the quantity of labour demanded surpasses the quantity of labour supplied?
What is likely to occur if the quantity of labour demanded surpasses the quantity of labour supplied?
What impact does an increase in labour productivity typically have on production possibilities?
What impact does an increase in labour productivity typically have on production possibilities?
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Study Notes
Growth of the Supply of Labour
- Rightward shift in the supply of labour curve indicates growth.
- Factors influencing changes in the quantity of labour:
- Average hours per worker
- Employment-to-population ratio
- Working-age population
- Population growth leads to a higher quantity of labour supplied while demand remains unchanged, resulting in:
- Surplus of labour
- Unemployment rates exceeding the natural rate
- Decrease in real wage rates to address surplus
Growth of Labour Productivity
- Labour productivity is defined as the amount of real GDP produced per hour of labour.
- An increase in labour productivity expands production possibilities and can lead to:
- Increased quantity of labour supplied as real wage rates rise.
- Firms planning to employ more labour hours based on wage rates.
Aggregate Labour Market
- Shortage of labour occurs when demand exceeds supply:
- Real wages increase to eliminate the labour shortage.
- Surplus of labour arises when supply surpasses demand:
- Real wages decrease to eliminate the surplus.
- Equilibrium in the labour market is achieved when there is no surplus or shortage:
- Economy operates at full employment.
- Real GDP aligns with potential GDP.
- Unemployment levels are at the natural rate.
Demand for Labour
- Quantity of labour demanded is influenced by the real wage rate:
- Demand for labour increases when the real wage rate falls (downward-sloping demand curve).
- Real wage rate calculated as:
- Real Wage Rate = Nominal Wage Rate / Price Level
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