The Wealth of Nations by Adam Smith: Division of Labor

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What does the photograph in the text depict?

People waiting in line to receive relief checks during the Great Depression (correct)

People waiting in line to vote during an election

People waiting in line for food distribution during a natural disaster

People waiting in line for employment opportunities during the Great Depression

What is the purpose of the macroeconomic framework?

To measure the size of a country's economy

To determine the policy tools the federal government uses to influence the macro economy

To establish the most important goals for the macro economy

To analyze changes in macroeconomic factors like inflation and recession (correct)

What is the main purpose of GDP?

To measure the total value of a country's consumer and business spending

To measure the total value of a country's exports

To measure the total value of all final goods and services produced within a country in a given year (correct)

To measure the total value of a country's government spending

What are the four main components of demand for a country's production?

Consumption, investment, government spending, and net exports Signup and view all the answers

What percentage of the 2022 U.S. GDP was made up of consumer spending?

The text does not provide this information Signup and view all the answers

How does GDP measure the size of a nation's overall economy?

By the total dollar value of what the country produces Signup and view all the answers

What was the key idea introduced by Adam Smith in his famous 1776 book, The Wealth of Nations?

The division of labor into discrete tasks Signup and view all the answers

What is the main purpose of the division of labor in production?

To increase the overall quantity of output produced Signup and view all the answers

How does specialization allow businesses to take advantage of economies of scale?

It leads to a decline in the average cost of producing each individual unit Signup and view all the answers

What was the groundbreaking work that earned Esther Duflo, Abhijit Banerjee, and Michael Kremer the Nobel Prize?

They established experimental methods to understand poverty and the outcomes of initiatives to address it Signup and view all the answers

Which of the following is an example of the division of labor in production?

Workers on an assembly line Signup and view all the answers

What is the main reason why the division of labor increases production?

It produces a greater quantity of output by dividing and subdividing the tasks involved Signup and view all the answers

What is the key idea behind the implicit contract theory of wage stickiness?

Employers try to keep wages from falling when the economy is weak, and employees do not expect large salary increases when the economy is strong. Signup and view all the answers

According to the efficiency wage theory, how does paying workers higher wages affect their productivity?

Higher wages increase worker productivity either individually or as a group. Signup and view all the answers

What is the key idea behind the adverse selection of wage cuts argument?

If employers reduce wages for all workers, the best workers will leave the firm. Signup and view all the answers

What is the key idea behind the insider-outsider model of wage stickiness?

Insiders are those already working for the firm, while outsiders are recent or prospective hires. Signup and view all the answers

According to the relative wage coordination argument, why are across-the-board wage cuts difficult to implement in an economy?

Workers fight against across-the-board wage cuts because they want their wages to be higher than other workers. Signup and view all the answers

In a labor market where wages are able to rise, what happens when the demand for labor increases from $D_0$ to $D_1$?

The equilibrium quantity of labor hired increases from $Q_0$ to $Q_1$, and the equilibrium wage increases from $W_0$ to $W_1$. Signup and view all the answers

What is the approximate value of real GDP in the United States in 2020, measured in 2012 dollars?

$18.4 trillion Signup and view all the answers

During the business cycle, what term is used to describe the highest point of output before a recession begins?

Peak Signup and view all the answers

What is the exchange rate used in the example to convert Brazil's GDP from reals to U.S. dollars?

2.362 reals per $1 U.S. Signup and view all the answers

Based on the example, what was Brazil's GDP in 2020 when converted to U.S. dollars?

$3.1 trillion Signup and view all the answers

What term is used to describe the value or price of one currency in terms of another currency?

Exchange rate Signup and view all the answers

What is the term used to describe the economy's relatively short-term movement in and out of recession?

Business cycle Signup and view all the answers

What are the three types of problems caused by inflation when other economic variables do not adjust accordingly?

Unintended redistributions of purchasing power, blurred price signals, and difficulties in long-term planning Signup and view all the answers

Which groups are likely to be hurt the most by inflation, according to the text?

People holding cash and those with fixed-income investments Signup and view all the answers

According to the charts, which country experienced hyperinflation between the mid-1980s and mid-1990s?

Both Brazil and Russia Signup and view all the answers

Which of the following is NOT mentioned as a factor contributing to people being hurt by inflation?

Owning real estate Signup and view all the answers

Which country, according to the charts, experienced relatively high inflation rates in the mid-1990s, but not hyperinflation?

China Signup and view all the answers

What is the primary reason for wage adjustments lagging behind inflation, according to the text?

Wage adjustments are often somewhat sticky and occur only once or twice a year Signup and view all the answers