Question 1

If bread is produced by using a constant returns to scale production function, then if the:

Accepted Answer

A) number of workers is doubled, twice as much bread will be produced. 
B) amount of equipment is doubled, twice as much bread will be produced. 
C) amounts of equipment and workers are both doubled, twice as much bread will be produced. 
D) amounts of equipment and workers are both doubled, four times as much bread will be produced. 
A) number of workers is doubled, twice as much bread will be produced. 
B) amount of equipment is doubled, twice as much bread will be produced. 
C) amounts of equipment and workers are both doubled, twice as much bread will be produced. 
D) amounts of equipment and workers are both doubled, four times as much bread will be produced.

Question 2

Economic profit is zero if:

Accepted Answer

A) all factors are paid their marginal products and the law of diminishing returns is valid. 
B) all factors are paid their marginal products and there are constant returns to scale. 
C) all firms maximize profits and none are competitive. 
D) all firms maximize profits and all factors are paid their marginal products. 
A) all factors are paid their marginal products and the law of diminishing returns is valid. 
B) all factors are paid their marginal products and there are constant returns to scale. 
C) all firms maximize profits and none are competitive. 
D) all firms maximize profits and all factors are paid their marginal products.

Question 3

If income is 4,800, consumption is 3,500, government spending is 1,000, and tax revenues are 800, public saving is:

Accepted Answer

A) -200. 
B) 200. 
C) 500. 
D) 1,800. 
A) -200. 
B) 200. 
C) 500. 
D) 1,800.

Question 4

A consumption function shows the relationship between consumption and:

Accepted Answer

A) income. 
B) personal income. 
C) disposable income. 
D) taxes. 
A) income. 
B) personal income. 
C) disposable income. 
D) taxes.

Question 5

The marginal product of labor is:

Accepted Answer

A) output divided by labor input. 
B) additional output produced when one additional unit of labor is added. 
C) additional output produced when one additional unit of labor and one additional unit of capital are added. 
D) value of additional output when one dollar's worth of additional labor is added. 
A) output divided by labor input. 
B) additional output produced when one additional unit of labor is added. 
C) additional output produced when one additional unit of labor and one additional unit of capital are added. 
D) value of additional output when one dollar's worth of additional labor is added.

Question 6

Assume that a firm wants to build a factory that will cost $5 million. It believes that it can get a return of $600,000 in one year and then can sell the used factory for its original cost. The rate of return on this investment would be:

Accepted Answer

A) 6 percent. 
B) 12 percent. 
C) 18 percent. 
D) 30 percent. 
A) 6 percent. 
B) 12 percent. 
C) 18 percent. 
D) 30 percent.

Question 7

Assume that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 1,000 + 0.3(Y
- T). Investment (I) is given by the equation I = 1,500 - 50r, where r is the real interest rate in percent. Taxes (T) are 1,000 and government spending (G) is 1,500.
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. Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2,000 - 50r. What are the new equilibrium values of C, I, and r?
d. What are the new values of private saving, public saving, and national saving?

Accepted Answer

a. 2,200; 1,300; 4 percent 
b.

Question 8

Consumption depends on disposable income, and investment depends on the real interest rate.

Accepted Answer

A) positively; positively 
B) positively; negatively 
C) negatively; negatively 
D) negatively; positively 
A) positively; positively 
B) positively; negatively 
C) negatively; negatively 
D) negatively; positively

Question 9

According to the neoclassical theory of distribution, total output is divided between payments to capital and payments to labor depending on their:

Accepted Answer

A) supply. 
B) equilibrium growth rates. 
C) relative political power. 
D) marginal productivities. 
A) supply. 
B) equilibrium growth rates. 
C) relative political power. 
D) marginal productivities.

Question 10

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

Accepted Answer

A) increase. 
B) decrease. 
C) remain unchanged. 
D) either increase or decrease, depending on whether consumption is greater or less than investment. 
A) increase. 
B) decrease. 
C) remain unchanged. 
D) either increase or decrease, depending on whether consumption is greater or less than investment.

Question 11

A firm's economic profit is:

Accepted Answer

A) the price of output minus the wage minus the rental price of capital. 
B) revenue minus costs. 
C) revenue plus capital costs. 
D) the price of output minus labor costs. 
A) the price of output minus the wage minus the rental price of capital. 
B) revenue minus costs. 
C) revenue plus capital costs. 
D) the price of output minus labor costs.

Question 12

An example of increasing returns to scale is when capital and labor inputs:

Accepted Answer

A) both increase 10 percent and output increases 5 percent. 
B) both increase 10 percent and output increases 10 percent. 
C) both increase 5 percent and output increases 10 percent. 
D) do not change and output decreases 5 percent. 
A) both increase 10 percent and output increases 5 percent. 
B) both increase 10 percent and output increases 10 percent. 
C) both increase 5 percent and output increases 10 percent. 
D) do not change and output decreases 5 percent.

Question 13

In the long run, the level of national income in an economy is determined by its:

Accepted Answer

A) factors of production and production function. 
B) real and nominal interest rate. 
C) government budget surplus or deficit. 
D) rate of economic and accounting profit. 
A) factors of production and production function. 
B) real and nominal interest rate. 
C) government budget surplus or deficit. 
D) rate of economic and accounting profit.

Question 14

In equilibrium, total investment equals:

Accepted Answer

A) private saving. 
B) public saving. 
C) national saving. 
D) household saving. 
A) private saving. 
B) public saving. 
C) national saving. 
D) household saving.

Question 15

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

Accepted Answer

A) increase in government spending. 
B) decrease in government spending. 
C) decrease in desired investment. 
D) increase in taxes. 
A) increase in government spending. 
B) decrease in government spending. 
C) decrease in desired investment. 
D) increase in taxes.

Question 16

When the demand for loanable funds exceeds the supply of loanable funds, households want to save than firms want to invest and the interest rate .

Accepted Answer

A) more; rises 
B) more; falls 
C) less; rises 
D) less; falls 
A) more; rises 
B) more; falls 
C) less; rises 
D) less; falls

Question 17

(Exhibit: Saving, Investment, and the Interest Rate 1)   Reference: Ref 3-1   (Exhibit: Saving, Investment, and the Interest Rate 1) The economy begins in equilibrium at
Point E, representing the real interest rate, r1 , at which saving, S1 , equals desired
Investment, I1 . What will be the new equilibrium combination of real interest rate, saving, and
Investment if the government raises taxes, holding other factors constant?

Accepted Answer

A) Point A 
B) Point B 
C) Point C 
D) Point D 
A) Point A 
B) Point B 
C) Point C 
D) Point D

Question 18

At any particular point in time, the output of the economy:

Accepted Answer

A) is fixed because the supplies of capital and labor and the technology are fixed. 
B) is fixed because the demand for goods and services is fixed. 
C) varies because the supplies of capital and labor vary. 
D) varies because the technology for turning capital and labor into goods and services varies. 
A) is fixed because the supplies of capital and labor and the technology are fixed. 
B) is fixed because the demand for goods and services is fixed. 
C) varies because the supplies of capital and labor vary. 
D) varies because the technology for turning capital and labor into goods and services varies.

Question 19

According to the model developed in Chapter 3, when government spending increases without a change in taxes:

Accepted Answer

A) consumption increases. 
B) consumption decreases. 
C) investment increases. 
D) investment decreases. 
A) consumption increases. 
B) consumption decreases. 
C) investment increases. 
D) investment decreases.

Question 20

Public saving is:

Accepted Answer

A) income minus consumption minus government spending. 
B) disposable income minus consumption. 
C) disposable income minus government spending. 
D) government revenue minus government spending. 
A) income minus consumption minus government spending. 
B) disposable income minus consumption. 
C) disposable income minus government spending. 
D) government revenue minus government spending.

If bread is produced by using a constant returns to scale production function, then if the:

Economic profit is zero if:

If income is 4,800, consumption is 3,500, government spending is 1,000, and tax revenues are 800, public saving is:

A consumption function shows the relationship between consumption and:

The marginal product of labor is:

Assume that a firm wants to build a factory that will cost $5 million. It believes that it can get a return of $600,000 in one year and then can sell the used factory for its original cost. The rate of return on this investment would be:

Consumption depends on disposable income, and investment depends on the real interest rate.

According to the neoclassical theory of distribution, total output is divided between payments to capital and payments to labor depending on their:

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

A firm's economic profit is:

An example of increasing returns to scale is when capital and labor inputs:

In the long run, the level of national income in an economy is determined by its:

In equilibrium, total investment equals:

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

When the demand for loanable funds exceeds the supply of loanable funds, households want to save than firms want to invest and the interest rate .

At any particular point in time, the output of the economy:

According to the model developed in Chapter 3, when government spending increases without a change in taxes:

Public saving is:

The Science of Macroeconomics

The Data of Macroeconomics

Money and Inflation

The Open Economy

Unemployment

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand II: Applying the Is-Lm Model

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

Stabilization Policy

Government Debt and Budget Deficits

Introduction to the Financial System

Asset Prices and Interest Rates

Securities Markets

Banking

Financial Crises

Filters

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

If bread is produced by using a constant returns to scale production function, then if the:

Economic profit is zero if:

If income is 4,800, consumption is 3,500, government spending is 1,000, and tax revenues are 800, public saving is:

A consumption function shows the relationship between consumption and:

The marginal product of labor is:

Assume that a firm wants to build a factory that will cost $5 million. It believes that it can get a return of $600,000 in one year and then can sell the used factory for its original cost. The rate of return on this investment would be:

Consumption depends on disposable income, and investment depends on the real interest rate.

According to the neoclassical theory of distribution, total output is divided between payments to capital and payments to labor depending on their:

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

A firm's economic profit is:

An example of increasing returns to scale is when capital and labor inputs:

In the long run, the level of national income in an economy is determined by its:

In equilibrium, total investment equals:

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

When the demand for loanable funds exceeds the supply of loanable funds, households want to save than firms want to invest and the interest rate .

At any particular point in time, the output of the economy:

According to the model developed in Chapter 3, when government spending increases without a change in taxes:

Public saving is:

The Science of Macroeconomics

The Data of Macroeconomics

Money and Inflation

The Open Economy

Unemployment

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand II: Applying the Is-Lm Model

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

Stabilization Policy

Government Debt and Budget Deficits

Introduction to the Financial System

Asset Prices and Interest Rates

Securities Markets

Banking

Financial Crises

Filters