1. Suppose the supply of labor increases. Draw a graph to show how potential output and wages change.
2. Draw a graph to show how potential output and wages change when the stock of capital decreases.
3. The typical European works more hours per year than the typical U.S. worker. _________(True/False)
4. Another term for potential output is ___________.
5. Estimates of the Natural Rate and Full Employment. Two economists differ on their estimates of the natural rate. One economist believes it is 6 percent, while the other believes it is 5 percent. All else being equal, which economist will estimate a higher value for potential output?
6. Germany and the United States. Per-capita output is higher in the United States than in Germany. According to recent studies, what is the main cause of this difference?
7. A Bad Analogy. People without economic training sometimes think of full employment as the maximum possible level of employment reaching it is like hitting a barrier. Explain carefully why this analogy is wrong.