Suppose That the Equilibrium Wage in the Low- Skilled Labor

question 54

Multiple Choice

Suppose that the equilibrium wage in the low- skilled labor market is $6.25 per hour. Further, suppose the federal government raises the minimum wage to $6.00 an hour from its present level of
$5.15. The government's action of increasing the minimum wage will result in:

• A)a shortage of low- skilled labor.
• B)an increase in unemployment.
• C)a decrease in unemployment.
• D)neither a shortage nor a surplus of labor in the low- skilled labor market.

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Definitions:

Actual Price Level

The current average of all prices of goods and services in an economy, indicating the cost of living and the economic environment.

Potential Output

The maximum amount of goods and services an economy can produce when it is fully employing its resources.

Aggregate Demand

The total demand for all goods and services in an economy at various price levels, over a specific time period.

Expansionary Gap

A situation where the actual output in an economy is higher than the potential output, often leading to inflation.