Greetings. Please write your name on the line above and write your quiz number but NOT your name on the cover of your blue book. You must turn in BOTH your test copy AND your blue book to receive a passing grade for the quiz.
    Please answer each of the quiz questions as well as you can. Available quiz points are distributed in proportion to the recommended time limits listed in the quiz. The recommended times sum to 40 minutes, but you will be given 55 minutes to complete the quiz. Do the best you can on each question, and keep in mind that plenty of partial credit is available.

Don't forget the Oxy spirit of honor. Please do NOT discuss this quiz AT ALL until 2:30 this afternoon. Good luck!

    1. (8 minutes) Answer in your blue book any one of the Cooperative Learning Lab (CLL) questions which appears on the page attached to the end of this exam.  (Available only at CLL.)

    2. (5 minutes) What type of unemployment is illustrated in the Doonesbury cartoon on the front page of this test (from Los Angeles Times, January 11, 1992). Does this type of unemployment equal zero when the economy operates at what economists consider to be "full employment"? If so, explain why. If not, explain why not, and indicate what type of unemployment does equal zero at full employment.

    3. (9 minutes) In California, the minimum wage rose from $3.35 per hour in 1981 to $4.25 per hour in 1989. The CPI (1982-84=100.0) rose from 90.9 to 124.0 over the same time period.
    a. Calculate values for the real minimum wage in 1981 and 1989.
    b. Use a supply and demand diagram for unskilled labor (with the real wage on the vertical axis) to illustrate the impact of the change in the real minimum wage on the unemployment of unskilled workers. (Hint: don't forget that the minimum wage is a price floor. Also, be sure to indicate where the number of unemployed workers shows up in your diagram.

    4. (6 minutes) This question concerns the downward slope of the aggregate demand (AD) curve.
    a. Why is it that the "law of demand" applies to demand curves for individual product markets but not to the aggregate demand curve for the economy as a whole?
    b. What accounts for the inverse relationship between consumption and the price level? Explain briefly how this relationship works.
    c. What is another reason covered in class for the downward slope of the AD curve? Again, explain briefly how this relationship works.

    5. (12 minutes)
    a. Draw two AD/AS diagrams showing the economy at an initial full-employment equilibrium.
    b. Use your diagrams to show two distinctly different ways that the macroeconomy can move from a full-employment equilibrium into a recession. Consider each case separately, and provide an example of an event which can account for each case.
    c. Illustrate in your diagrams how the self-correction mechanism can eliminate the recession in the long run. Does the self-correction you illustrated work in the same way in both cases? If so, provide a single careful explanation of how it works. If not, provide two separate explanations for how it works in each case.