Question 1

If an earthquake destroys some of the capital stock, the neoclassical theory of distribution predicts:

Accepted Answer

A) the real wage will rise and the real rental price of capital will fall. both the real 
B) wage and the real rental price of capital will fall. both the real 
C) 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. both the real 
B) wage and the real rental price of capital will fall. both the real 
C) 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 2

Assume that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 1,200 + 0.3(Y
- T) - 50 r, where r is the real interest rate. Investment (I) is given by the equation I = 1,500
- 50r. 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 3

According to the model developed in Chapter 3, when government spending increases and taxes increase by an equal amount:

Accepted Answer

A) consumption and investment both increase. 
B) consumption and investment both decrease. 
C) consumption increases and investment decreases. 
D) consumption decreases and investment increases. 
A) consumption and investment both increase. 
B) consumption and investment both decrease. 
C) consumption increases and investment decreases. 
D) consumption decreases and investment increases.

Question 4

The real rental price of capital is the price per unit of capital measured in:

Accepted Answer

A) dollars. 
B) units of output. 
C) units of labor. 
D) units of capital. 
A) dollars. 
B) units of output. 
C) units of labor. 
D) units of capital.

Question 5

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, private saving:

Accepted Answer

A) rises by $40 billion. 
B) rises by $60 billion. 
C) falls by $60 billion. 
D) falls by $40 billion. 
A) rises by $40 billion. 
B) rises by $60 billion. 
C) falls by $60 billion. 
D) falls by $40 billion.

Question 6

Consider a production function for an economy:
Y = 20 (L.5K.4N.1)
where L is labor, K is capital, and N is land. In this economy the factors of production are in fixed supply with L = 100, K = 100, and N = 100.
a. What is the level of output in this country?
b. Does this production function exhibit constant returns to scale. Demonstrate by example. c. If the economy is competitive so that factors of production are paid the value of their marginal products, what is the share of total income that will go to land?

Accepted Answer

a. 2,000
b. Yes, the productio

Question 7

The demand for output in a closed economy is the sum of:

Accepted Answer

A) public saving and private saving. 
B) the quantity of capital and labor and production technology. 
C) consumption, investment, and government spending. 
D) government purchases and transfer payments minus tax receipts. 
A) public saving and private saving. 
B) the quantity of capital and labor and production technology. 
C) consumption, investment, and government spending. 
D) government purchases and transfer payments minus tax receipts.

Question 8

In the classical model with fixed income, if the interest rate is too high, then investment is too and the demand for output the supply.

Accepted Answer

A) high; exceeds 
B) high; falls short of 
C) low; exceeds 
D) low; falls short of 
A) high; exceeds 
B) high; falls short of 
C) low; exceeds 
D) low; falls short of

Question 9

When economists speak of "the" interest rate, they mean:

Accepted Answer

A) the rate on 90-day Treasury bills. 
B) the rate on 30-year government bonds. 
C) the "prime" rate on loans. 
D) no particular interest rate, since it is assumed that various interest rates tend to move up and down together. 
A) the rate on 90-day Treasury bills. 
B) the rate on 30-year government bonds. 
C) the "prime" rate on loans. 
D) no particular interest rate, since it is assumed that various interest rates tend to move up and down together.

Question 10

If Y = AK0.5L0.5 and A, K, and L are all 100, the marginal product of capital is:

Accepted Answer

A) 50. 
B) 100. 
C) 200. 
D) 1000. 
A) 50. 
B) 100. 
C) 200. 
D) 1000.

Question 11

(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, I 1. What will be the new equilibrium combination of real interest rate, saving, and
Investment if the government increases spending, 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 12

In the United Kingdom between 1730 and 1920, during wartime, government spending tended to increase:

Accepted Answer

A) but the interest rate did not increase. 
B) and the interest rate also increased. 
C) but the interest rate decreased. 
D) and the interest rate remained constant. 
A) but the interest rate did not increase. 
B) and the interest rate also increased. 
C) but the interest rate decreased. 
D) and the interest rate remained constant.

Question 13

Assume that the production function is Cobb-Douglas with parameter $\alpha$ = 0.3. In the neoclassical model, if the labor force increases by 10 percent, then output:

Accepted Answer

A) increases by about 10 percent. 
B) increases by about 7 percent. 
C) increases by about 3 percent. 
D) does not increase since the new workers are unemployed. 
A) increases by about 10 percent. 
B) increases by about 7 percent. 
C) increases by about 3 percent. 
D) does not increase since the new workers are unemployed.

Question 14

Since 1960, the U.S. ratio of labor income to total income has:

Accepted Answer

A) been about 2.5 to 1. 
B) been about 0.7. 
C) increased steadily. 
D) decreased steadily. 
A) been about 2.5 to 1. 
B) been about 0.7. 
C) increased steadily. 
D) decreased steadily.

Question 15

National saving is:

Accepted Answer

A) private saving. 
B) public saving. 
C) private saving plus public saving. 
D) private saving minus public saving. 
A) private saving. 
B) public saving. 
C) private saving plus public saving. 
D) private saving minus public saving.

Question 16

A production function is a technological relationship between:

Accepted Answer

A) factor prices and the marginal product of factors. 
B) factors of production and factor prices. 
C) factors of production and the quantity of output produced. 
D) factor prices and the quantity of output produced. 
A) factor prices and the marginal product of factors. 
B) factors of production and factor prices. 
C) factors of production and the quantity of output produced. 
D) factor prices and the quantity of output produced.

Question 17

In a closed economy with fixed output, when government spending increases:

Accepted Answer

A) private saving decreases. 
B) private saving increases. 
C) public saving decreases. 
D) public saving increases. 
A) private saving decreases. 
B) private saving increases. 
C) public saving decreases. 
D) public saving increases.

Question 18

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

Accepted Answer

A) consumption and investment both increase. 
B) consumption and investment both decrease. 
C) consumption increases and investment decreases. 
D) consumption decreases and investment increases. 
A) consumption and investment both increase. 
B) consumption and investment both decrease. 
C) consumption increases and investment decreases. 
D) consumption decreases and investment increases.

Question 19

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, national saving:

Accepted Answer

A) rises by $100 billion. 
B) rises by $60 billion. 
C) falls by $60 billion. 
D) falls by $100 billion. 
A) rises by $100 billion. 
B) rises by $60 billion. 
C) falls by $60 billion. 
D) falls by $100 billion.

Question 20

Assume that the consumption function is given by C = 150 + 0.85(Y - T), the tax function is given by T = t
+ t Y, and Y is 5,000. If t
Decreases from 0.3 to 0.2, then consumption
0 1
Increases by:
1

Accepted Answer

A) 85. 
B) 425. 
C) 500. 
D) 525. 
A) 85. 
B) 425. 
C) 500. 
D) 525.

If an earthquake destroys some of the capital stock, the neoclassical theory of distribution predicts:

According to the model developed in Chapter 3, when government spending increases and taxes increase by an equal amount:

The real rental price of capital is the price per unit of capital measured in:

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, private saving:

The demand for output in a closed economy is the sum of:

In the classical model with fixed income, if the interest rate is too high, then investment is too and the demand for output the supply.

When economists speak of "the" interest rate, they mean:

If Y = AK0.5L0.5 and A, K, and L are all 100, the marginal product of capital is:

In the United Kingdom between 1730 and 1920, during wartime, government spending tended to increase:

Assume that the production function is Cobb-Douglas with parameter $\alpha$ = 0.3. In the neoclassical model, if the labor force increases by 10 percent, then output:

Since 1960, the U.S. ratio of labor income to total income has:

National saving is:

A production function is a technological relationship between:

In a closed economy with fixed output, when government spending increases:

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

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, national saving:

Assume that the consumption function is given by C = 150 + 0.85(Y - T), the tax function is given by T = t + t Y, and Y is 5,000. If t Decreases from 0.3 to 0.2, then consumption 0 1 Increases by: 1

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 an earthquake destroys some of the capital stock, the neoclassical theory of distribution predicts:

According to the model developed in Chapter 3, when government spending increases and taxes increase by an equal amount:

The real rental price of capital is the price per unit of capital measured in:

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, private saving:

The demand for output in a closed economy is the sum of:

In the classical model with fixed income, if the interest rate is too high, then investment is too and the demand for output the supply.

When economists speak of "the" interest rate, they mean:

If Y = AK0.5L0.5 and A, K, and L are all 100, the marginal product of capital is:

In the United Kingdom between 1730 and 1920, during wartime, government spending tended to increase:

Assume that the production function is Cobb-Douglas with parameter α\alphaα = 0.3. In the neoclassical model, if the labor force increases by 10 percent, then output:

Since 1960, the U.S. ratio of labor income to total income has:

National saving is:

A production function is a technological relationship between:

In a closed economy with fixed output, when government spending increases:

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

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, national saving:

Assume that the consumption function is given by C = 150 + 0.85(Y - T), the tax function is given by T = t + t Y, and Y is 5,000. If t Decreases from 0.3 to 0.2, then consumption 0 1 Increases by: 1

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

Assume that the production function is Cobb-Douglas with parameter $\alpha$ = 0.3. In the neoclassical model, if the labor force increases by 10 percent, then output: