Question 1

The circular flow model shows that households use income for:

Accepted Answer

A) consumption, saving, and factor payments. 
B) consumption, taxes, and factor payments. 
C) taxes, saving, and factor payments. 
D) consumption, taxes, and saving. 
A) consumption, saving, and factor payments. 
B) consumption, taxes, and factor payments. 
C) taxes, saving, and factor payments. 
D) consumption, taxes, and saving.

Question 2

(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 cuts 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 3

Disposable personal income is personal income minus:

Accepted Answer

A) personal tax and nontax payments. 
B) taxes plus dividends. 
C) taxes plus dividends plus net interest. 
D) social insurance contributions. 
A) personal tax and nontax payments. 
B) taxes plus dividends. 
C) taxes plus dividends plus net interest. 
D) social insurance contributions.

Question 4

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

Accepted Answer

A) 300. 
B) 500. 
C) 1,000. 
D) 1,300. 
A) 300. 
B) 500. 
C) 1,000. 
D) 1,300.

Question 5

According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed:

Accepted Answer

A) only to the labor used in production. 
B) partly between labor and capital used in production, with the surplus going to the owners of the firm as profits. 
C) equally between the labor and capital used in production. 
D) between the labor and capital used in production, according to their marginal productivities. 
A) only to the labor used in production. 
B) partly between labor and capital used in production, with the surplus going to the owners of the firm as profits. 
C) equally between the labor and capital used in production. 
D) between the labor and capital used in production, according to their marginal productivities.

Question 6

What determines the distribution of national income between labor and capital in a competitive, profit-maximizing economy with constant returns to scale?

Accepted Answer

A) the relative quantity of labor to capital 
B) the interest rate 
C) the ratio of public saving to private saving 
D) the marginal productivity of labor relative to the marginal productivity of capital 
A) the relative quantity of labor to capital 
B) the interest rate 
C) the ratio of public saving to private saving 
D) the marginal productivity of labor relative to the marginal productivity of capital

Question 7

A competitive firm:

Accepted Answer

A) is small relative to the market in which it trades. 
B) has to charge a lower price when it wants to sell more goods. 
C) has several large competitors with whom it engages in fierce competition. 
D) can set the wage at which it hires workers. 
A) is small relative to the market in which it trades. 
B) has to charge a lower price when it wants to sell more goods. 
C) has several large competitors with whom it engages in fierce competition. 
D) can set the wage at which it hires workers.

Question 8

If the consumption function is given by C = 500 + 0.5(Y - T), and Y is 6,000 and T is given by T = 200 + 0.2Y, then C equals:

Accepted Answer

A) 2,500. 
B) 2,800. 
C) 3,500. 
D) 4,200. 
A) 2,500. 
B) 2,800. 
C) 3,500. 
D) 4,200.

Question 9

In a neoclassical economy, assume that the government lowers both government spending and taxes by $100 billion. If the marginal propensity to consume is 0.6, investment will:

Accepted Answer

A) rise $100 billion. 
B) rise $60 billion. 
C) rise $40 billion. 
D) not change. 
A) rise $100 billion. 
B) rise $60 billion. 
C) rise $40 billion. 
D) not change.

Question 10

In a neoclassical economy, assume that the government lowers both government spending and taxes by the same amount. By doing so:

Accepted Answer

A) investment falls and the interest rate rises. 
B) investment rises and the interest rate falls. 
C) investment and the interest rate both fall. 
D) investment and the interest rate both rise. 
A) investment falls and the interest rate rises. 
B) investment rises and the interest rate falls. 
C) investment and the interest rate both fall. 
D) investment and the interest rate both rise.

Question 11

Suppose that GDP (Y) is 5,000. Consumption is given by the equation C = 500 + 0.5(Y - T). Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate in percent. Government spending (G) is 1,000 and taxes (T) is also 1,000. When a technological innovation changes the investment function to I = 3,000 - 100r:

Accepted Answer

A) I rises by 1,000 and r rises by 10 percentage points. 
B) I rises by 1,000 and r is unchanged. 
C) I is unchanged and r rises by 10 percentage points. 
D) I is unchanged and r rises by 15 percentage points. 
A) I rises by 1,000 and r rises by 10 percentage points. 
B) I rises by 1,000 and r is unchanged. 
C) I is unchanged and r rises by 10 percentage points. 
D) I is unchanged and r rises by 15 percentage points.

Question 12

The marginal propensity to consume is:

Accepted Answer

A) normally expected to be between zero and one. 
B) equal to consumption divided by disposable income. 
C) normally assumed to decrease as disposable income increases. 
D) normally assumed to increase as disposable income increases. 
A) normally expected to be between zero and one. 
B) equal to consumption divided by disposable income. 
C) normally assumed to decrease as disposable income increases. 
D) normally assumed to increase as disposable income increases.

Question 13

Use the model developed in Chapter 3 and assume that consumption does not depend on the interest rate. In this case, when there is a technological advance that leads to an increase in investment demand:

Accepted Answer

A) investment increases and the interest rate rises. 
B) investment is unchanged and the interest rate rises. 
C) investment and the interest rate are both unchanged. 
D) investment increases and the interest rate falls. 
A) investment increases and the interest rate rises. 
B) investment is unchanged and the interest rate rises. 
C) investment and the interest rate are both unchanged. 
D) investment increases and the interest rate falls.

Question 14

An example of decreasing 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 increases 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 increases 5 percent.

Question 15

If the productivity of farmers has risen substantially over time because of technological progress, and workers can move freely between being farmers and barbers, the neoclassical theory of distribution predicts that the real wage(s) of:

Accepted Answer

A) both barbers and farmers should have remained constant over time. 
B) both barbers and farmers should have risen over time. 
C) farmers should have risen while the real wage of barbers should have remained constant. 
D) barbers should have risen while the real wage of farmers should have remained constant. 
A) both barbers and farmers should have remained constant over time. 
B) both barbers and farmers should have risen over time. 
C) farmers should have risen while the real wage of barbers should have remained constant. 
D) barbers should have risen while the real wage of farmers should have remained constant.

Question 16

The two most important factors of production are:

Accepted Answer

A) goods and services. 
B) labor and energy. 
C) capital and labor. 
D) saving and investment. 
A) goods and services. 
B) labor and energy. 
C) capital and labor. 
D) saving and investment.

Question 17

An economy's factors of production and its production function determine the economy's:

Accepted Answer

A) labor force participation rate. 
B) budget surplus or deficit. 
C) population growth rate. 
D) output of goods and services. 
A) labor force participation rate. 
B) budget surplus or deficit. 
C) population growth rate. 
D) output of goods and services.

Question 18

In a Cobb-Douglas production function the marginal product of capital will increase if:

Accepted Answer

A) the quantity of labor increases. 
B) the quantity of capital increases. 
C) labor's share of output increases. 
D) average capital productivity decreases. 
A) the quantity of labor increases. 
B) the quantity of capital increases. 
C) labor's share of output increases. 
D) average capital productivity decreases.

Question 19

If a neutral technological advance improves the production function, the neoclassical theory of distribution predicts:

Accepted Answer

A) the real wage will rise and the real rental price of capital will fall. 
B) both the real wage and the real rental price of capital will fall. 
C) both the real wage and the real rental price of capital will rise. 
D) the real wage will fall and the real rental price of capital will rise. 
A) the real wage will rise and the real rental price of capital will fall. 
B) both the real wage and the real rental price of capital will fall. 
C) both the real wage and the real rental price of capital will rise. 
D) the real wage will fall and the real rental price of capital will rise.

Question 20

National saving refers to:

Accepted Answer

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

The circular flow model shows that households use income for:

Disposable personal income is personal income minus:

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

According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed:

What determines the distribution of national income between labor and capital in a competitive, profit-maximizing economy with constant returns to scale?

A competitive firm:

If the consumption function is given by C = 500 + 0.5(Y - T), and Y is 6,000 and T is given by T = 200 + 0.2Y, then C equals:

In a neoclassical economy, assume that the government lowers both government spending and taxes by $100 billion. If the marginal propensity to consume is 0.6, investment will:

In a neoclassical economy, assume that the government lowers both government spending and taxes by the same amount. By doing so:

The marginal propensity to consume is:

Use the model developed in Chapter 3 and assume that consumption does not depend on the interest rate. In this case, when there is a technological advance that leads to an increase in investment demand:

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

If the productivity of farmers has risen substantially over time because of technological progress, and workers can move freely between being farmers and barbers, the neoclassical theory of distribution predicts that the real wage(s) of:

The two most important factors of production are:

An economy's factors of production and its production function determine the economy's:

In a Cobb-Douglas production function the marginal product of capital will increase if:

If a neutral technological advance improves the production function, the neoclassical theory of distribution predicts:

National saving refers to:

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

The circular flow model shows that households use income for:

Disposable personal income is personal income minus:

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

According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed:

What determines the distribution of national income between labor and capital in a competitive, profit-maximizing economy with constant returns to scale?

A competitive firm:

If the consumption function is given by C = 500 + 0.5(Y - T), and Y is 6,000 and T is given by T = 200 + 0.2Y, then C equals:

In a neoclassical economy, assume that the government lowers both government spending and taxes by $100 billion. If the marginal propensity to consume is 0.6, investment will:

In a neoclassical economy, assume that the government lowers both government spending and taxes by the same amount. By doing so:

The marginal propensity to consume is:

Use the model developed in Chapter 3 and assume that consumption does not depend on the interest rate. In this case, when there is a technological advance that leads to an increase in investment demand:

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

If the productivity of farmers has risen substantially over time because of technological progress, and workers can move freely between being farmers and barbers, the neoclassical theory of distribution predicts that the real wage(s) of:

The two most important factors of production are:

An economy's factors of production and its production function determine the economy's:

In a Cobb-Douglas production function the marginal product of capital will increase if:

If a neutral technological advance improves the production function, the neoclassical theory of distribution predicts:

National saving refers to:

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