pp. 281-88 ONLY
1. What is meant by the “supply of labor”?
What is meant by the “demand for labor”?
2. Summarize the following features of the “classical” theory of the labor market:
a. what does the supply of labor depend on?
b. what does the demand for labor depend on?
c. how are the equilibrium quantity of labor and the equilibrium wage rate determined?
3. If the existing wage rate were higher than the equilibrium wage rate, would there be an excess supply of labor or an excess demand for labor? Explain how the labor market is supposed to return to equilibrium (i.e. to full employment), according to classical theory.
4. Ignore the section on “The classical labor market and the Aggregate Supply curve.”
5. How is unemployment explained, according to classical theory?
6. Summarize the following Keynesian explanations of unemployment (i.e. an excess supply of labor):
a. “sticky” wages.
b. “efficiency” wages.
c. imperfect information.
d. minimum wage laws.
7. Summarize the authors’ conclusion in “An Open Question.”
8. Ignore the rest of the chapter.
7. Explain the relation between the short-run aggregate supply curve and the short-run “Phillips
curve” (which is relation between the rate of unemployment and the rate of inflation).
8. Summarize the historical evidence related to the Phillips curve in Figures 15.6 and 15.7.
9. What are some of the factors that caused the Phillips curve to shift to the right (or the short-run aggregate supply curve to shift to the left) in the 1970s?
10. Is there a “trade-off” between unemployment and inflation in the short-run? in the long-run?
11. Explain how expansionary fiscal policy may temporarily increase the equilibrium output above the “potential” output. Then explain why the equilibrium output will soon return to the potential output.
Illustrate your explanation with a graph of aggregate demand and aggregate supply, as in Figure 15.10
12. Explain why the long-run Phillips curve is vertical.
13. What is meant by the “natural rate of unemployment.”