Exam 3: National Income: Where It Comes From and Where It Goes

In the classical model with fixed income, if the demand for goods and services is greater than the supply, the interest rate will:

Assume that the production function is given by Y = AK0.5L0.5, where Y is GDP, K is capital stock, and L is labor. The parameter A is equal to 10. Assume also that capital is 100, labor is 400, and both capital and labor are paid their marginal products. a. What is Y? b. What is the real wage of labor? c. What is the real rental price of capital (the amount of output paid per unit of capital)?

In an economy with flexible prices, competitive factor markets and fixed supplies of the factors of production, graphically illustrate the impact of an advance in technology that greatly improves the productivity of capital, ceteris paribus. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; and the terminal equilibrium values. Explain in words how the equilibrium values change.

An increase in the supply of capital will:

In a neoclassical economy, if consumption increases as the interest rate decreases, then a $10 billion rise in government spending would:

The demand for the economy's output:

When saving (the supply of loanable funds) increases as the interest rate increases, an increase in investment demand results in a interest rate and in the quantity of investment.

All of the following actions increase government purchases of goods and services except the:

Assume that equilibrium GDP (Y) is 5,000. Consumption is given by the equation C = 500 + 0.6(Y - T). Taxes (T) are equal to 1,000. Government spending is 600. In this case, equilibrium investment is:

According to the model developed in Chapter 3, when government spending increases but taxes are not raised, interest rates:

Assume that equilibrium GDP (Y) is 5,000. Consumption is given by the equation C = 500 + 0.6 (Y - T). Taxes (T) are equal to 600. Government spending is equal to 1,000. Investment is given by the equation I = 2,160 - 100r, where r is the real interest rate in percent. In this case, the equilibrium real interest rate is:

Assume that a competitive economy can be described by a constant returns to scale (Cobb- Douglas) production function and all factors of production are fully employed. Holding other factors constant, including the quantity of labor and technology, carefully explain how a one-time, 50-percent decrease in the quantity of capital (perhaps the result of war damage) will change each of the following: a. the level of output produced; b. the real wage of labor; c. the real rental price of capital; d. capital's share of total income.

Investment goods as measured in the GDP are purchased by:

In fourteenth-century Europe, the bubonic plague:

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + 0.2Y, and Y = 50K0.5L0.5, where K = 100. If L increases from 100 to 144, then consumption increases by:

The property of diminishing marginal product means that, after a point, when additional quantities of:

In a closed economy, Y - C - G equals:

In the classical model with fixed income a decrease in the real interest rate could be the result of a(n):

The factor that makes national saving equal investment, in equilibrium, is:

In the neoclassical model with fixed income, if there is a decrease in government spending with no change in taxes, then public saving and private saving .