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

If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then savings:

A competitive firm chooses the:

Other things equal, an increase in the interest rate leads to:

Public saving is:

Consider two competitive economies that have the same quantities of labor (L = 400) and capital (K = 400), and the same technology (A = 100). The economies of the countries are described by the following Cobb-Douglas production functions: North Economy: Y = A L.3K.7 South Economy: Y = A L.7K.3 a. Which economy has the larger total production? Explain. b. In which economy is the marginal product of labor larger? Explain. c. In which economy is the real wage larger? Explain. d. In which economy is labor's share of income larger? Explain.

The production function feature called "constant returns to scale" means that if we:

Consider a competitive economy in which factor prices adjust to keep the factors of production fully employed and the interest rate adjusts to keep the supply and demand for goods and services in equilibrium. The economy can be described by the following set of equations: L = $\bar { L }$ , K = $\bar { K }$ , G = $\bar { G }$ , T = $\bar { T }$ , Y = AKa L(1-a) Y = C + I + G C = C (Y - T) I = I(r) How does an increase in government spending, holding other factors constant, affect the level of: a. public saving? b. private saving? c. national saving? d. the equilibrium interest rate? e. the equilibrium quantity of investment?

When factor supply is fixed and quantity of the factor is graphed on the horizontal axis while factor price is graphed on the vertical axis, the factor:

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + t Y, and Y = 50K0.5L0.5, where K = 100 and L = 100. If t Increases from 1 0)2 to 0.25, then consumption decreases by: 1

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. No government exists. In this case, equilibrium investment is:

The home that would have the highest mortgage payment on a 30-year fixed-rate mortgage would be a home with a mortgage of:

In the circular flow diagram, firms receive revenue from the market, which is used to purchase inputs in the market.

The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, investment:

The government spending component of GDP includes all of the following except:

Consider a competitive economy in which factor prices adjust to keep the factors of production fully employed and the interest rate adjusts to keep the supply and demand for goods and services in equilibrium. The economy can be described by the following set of equations: L = $\bar { L }$ , K = $\bar { K }$ , G = $\bar { G }$ , T = $\bar { T }$ , Y = AK^a L^(1-a) Y = C + I + G C = C (Y - T) I = I (r) Suggest at least two policies that a government could use to increase the equilibrium quantity of investment in the economy, and carefully explain how these policies produce this result.

Accounting profit is:

If output is described by the production function Y = AK 0.2L0.8, then the production function has:

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

The neoclassical theory of distribution explains the allocation of:

(Exhibit: Saving, Investment, and the Interest Rate 2) Reference: Ref 3-2 (Exhibit: Saving, Investment, and the Interest Rate 2) 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 there is a tax law change that makes investment projects less profitable and decreases the demand for investment goods (but does not change the amount of taxes collected in the economy)?