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

The real wage is the return to labor measured in:

Price flexibility plays a key role in the classical model by ensuring that the markets reach equilibrium. a. Explain which price adjusts to bring equilibrium in the labor market. Describe how the price adjusts when demand exceeds supply in this market. b. Explain which price adjusts to bring equilibrium in the loanable funds market. Describe how the price adjusts when supply exceeds demand in this market.

The supply and demand for loanable funds determines the:

If the production function describing an economy is Y = 100 K.25L.75, then the share of output going to labor:

When government spending increases and taxes are increased by an equal amount, interest rates:

According to the model developed in Chapter 3, when taxes are increased but government spending is unchanged, interest rates:

Crowding out occurs when an increase in government spending the interest rate and investment .

In the classical model with fixed income, a reduction in the government budget deficit will lead to a:

In the classical model with fixed income, if households want to save more than firms want to invest, then:

The supply of loanable funds is equivalent to:

If an increase of an equal percentage in all factors of production results in an increase in output of the same percentage, then a production function has the property called:

In an economy with flexible prices, competitive factor markets and fixed supplies of the factors of production, graphically illustrate the impact of a change in immigration policy in a country that permits a huge influx of foreign workers into the labor market, 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.

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 capital and technology, carefully explain how a one-time, 10-percent increase in the quantity of labor (perhaps the result of a special immigration policy) 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. labor's share of total income.

Use the model developed in Chapter 3 and assume that consumption does not depend on the interest rate. In this case, when the government lowers taxes on business investment, thus increasing desired investment, but does not change government spending or change any taxes that affect disposable income:

In the circular flow model, households receive income from the market and save through the market.

If disposable income is 4,000, consumption is 3,500, government spending is 1,000, and tax revenues are 800, national saving is equal to:

A competitive, profit-maximizing firm hires labor until the:

The marginal product of capital is:

The neoclassical theory of distribution:

Assume that GDP (Y) is 6,000. Consumption (C) is given by the equation C = 600 + 0.6(Y - T). Investment (I) is given by the equation I = 2,000 - 100r, where r is the real rate of interest in percent. Taxes (T) are 500 and government spending (G) is also 500. a. What are the equilibrium values of C, I, and r? b. What are the values of private saving, public saving, and national saving? c. If government spending rises to 1,000, what are the new equilibrium values of C, I, and r? d. What are the new equilibrium values of private saving, public saving, and national saving?