Suppose your neighbor owns a restaurant and boasts that he is able to turn a handsome accounting profit because of his low labor costs. He attributes this to the fact that he uses his sons and daughters as cooks and waiters
His point is that he offers them below-market wages. How would you respond to your neighbor's statement? What would you tell him to expect as his children continue to work for him while they are in college and beyond?
Your neighbor might believe that he has low labor costs because of the low wages he is paying them. However, he must think carefully about their opportunity cost. If his children could earn higher wages at a job outside the restaurant than the extra-added profitability that they bring to the firm then their true cost must be taken into account. As his children go through college their opportunity cost will rise since they will become more valuable in the labor market.
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If the per-worker production function shifts up
A) it now takes more capital per hour worked to get the same amount of real GDP per hour worked. B) the per-worker production function becomes flatter. C) an economy can increase its real GDP per hour worked without changing the level of capital per hour worked. D) negative technological change has occurred in the economy.
The problems of raising the level of the inflation target include
A) if the zero-lower-bound problem is rare, then the benefits of a higher inflation target are not very large. B) the costs of higher inflation in terms of the distortions it produces in the economy are high. C) it is more difficult to stabilize the inflation rate at a higher targeting level. D) all of the above.