1. A distinction is made between a “classical cycle” and a “growth cycle”.
What is the difference between the two? Would you expect the extent of any increase in the unemployment rate to be different as we go from the peak to the trough of a “classical cycle” as compared with going from the peak to the trough “growth cycle”? Why? (In answering this question assume that the level of output at the peak – the starting point – is the same.)
2. Explain clearly each of the following terms:
(a) Perfectly competitive model of the labour market
(b) The marginal product of labour
(c) Diminishing returns to labour
(d) The value of the marginal product of each worker
(e) The real wage