Question 1

Private saving is:

Accepted Answer

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

Question 2

What effect does advancement in technology have on the equilibrium real rental price and capital, assuming that the supply of capital is fixed?

Accepted Answer

Provided that the supply of capital is fixed, advancement in technology will increase the demand for capital. But as the supply is fixed, the real rental price will increase. So the new equilibrium will be the same supply amount of capital with an increased real rental price.

Question 3

The real wage will increase if:

Accepted Answer

A) the supply of labour increases. 
B) the productivity of labour increases. 
C) the price of output increases. 
D) the supply of capital decreases. 
A) the supply of labour increases. 
B) the productivity of labour increases. 
C) the price of output increases. 
D) the supply of capital decreases. B

Question 4

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 technological innovation that increases the demand for investment goods?

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 5

What determines the ratio of the wage to rental rate of capital in a competitive, profit-maximizing economy with constant returns to scale?

Accepted Answer

A) the quantity of economic profits earned by firm owners 
B) the interest rate 
C) the ratio of public saving to private saving 
D) the marginal productivity of labour relative to the marginal productivity of capital 
A) the quantity of economic profits earned by firm owners 
B) the interest rate 
C) the ratio of public saving to private saving 
D) the marginal productivity of labour relative to the marginal productivity of capital

Question 6

In a neoclassical economy, assume that the government lowers both government spending and taxes by the same amount. This causes:

Accepted Answer

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

Question 7

Consider a competitive economy in which factor prices adjust to keep the factors of production fully employed. In addition, 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:
​
Y = AKa 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.
​

Accepted Answer

The government could cut spending (G), w

Question 8

If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y = 50K0.5L0.5, where K = 100 and L = 100, then C equals:

Accepted Answer

A) 1,000. 
B) 2,500. 
C) 3,000. 
D) 5,000. 
A) 1,000. 
B) 2,500. 
C) 3,000. 
D) 5,000.

Question 9

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 labour and technology, carefully explain how a one-time, 50-percent decrease in the quantity of capital (perhaps the result of war damage) will change each of the following:
​
a.the level of output produced
b.the real wage of labour
c.the real rental price of capital
d.capital's share of total income​​

Accepted Answer

a.Output decreases by less than 50 perce

Question 10

The supply and demand for loanable funds determine the:

Accepted Answer

A) real wage. 
B) real rental price of capital. 
C) real interest rate. 
D) nominal interest rate. 
A) real wage. 
B) real rental price of capital. 
C) real interest rate. 
D) nominal interest rate.

Question 11

The marginal product of labour is:

Accepted Answer

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

Question 12

The real wage is the return to labour measured in:

Accepted Answer

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

Question 13

Total investment in Canada averages about _____ percent of GDP.

Accepted Answer

A) 9 
B) 12 
C) 18 
D) 27 
A) 9 
B) 12 
C) 18 
D) 27

Question 14

Assume that an increase in consumer confidence raises consumers' expectations of future income and thus the amount they want to consume today for any given level of disposable income. This shift, in a neoclassical economy, will:

Accepted Answer

A) lower investment and raise the interest rate. 
B) raise investment and lower the interest rate. 
C) lower both investment and the interest rate. 
D) raise both investment and the interest rate. 
A) lower investment and raise the interest rate. 
B) raise investment and lower the interest rate. 
C) lower both investment and the interest rate. 
D) raise both investment and the interest rate.

Question 15

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 16

According to the model developed in Chapter 3, when government spending increases but taxes stay the same, interest rates:

Accepted Answer

A) increase. 
B) are unchanged. 
C) decrease. 
D) can vary. 
A) increase. 
B) are unchanged. 
C) decrease. 
D) can vary.

Question 17

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

Accepted Answer

A) federal spending on goods. 
B) provincial and municipal spending on goods. 
C) federal spending on transfer payments. 
D) federal spending on services. 
A) federal spending on goods. 
B) provincial and municipal spending on goods. 
C) federal spending on transfer payments. 
D) federal spending on services.

Question 18

If bread is produced 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 19

The marginal propensity to consume is:

Accepted Answer

A) expected to be between zero and one. 
B) equal to disposable income divided by consumption. 
C) the amount by which consumption changes when wealth increases by one dollar. 
D) normally assumed to increase as taxes increase. 
A) expected to be between zero and one. 
B) equal to disposable income divided by consumption. 
C) the amount by which consumption changes when wealth increases by one dollar. 
D) normally assumed to increase as taxes increase.

Question 20

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.

Private saving is:

What effect does advancement in technology have on the equilibrium real rental price and capital, assuming that the supply of capital is fixed?

The real wage will increase if:

What determines the ratio of the wage to rental rate of capital in a competitive, profit-maximizing economy with constant returns to scale?

In a neoclassical economy, assume that the government lowers both government spending and taxes by the same amount. This causes:

If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y = 50K^0.5L^0.5, where K = 100 and L = 100, then C equals:

The supply and demand for loanable funds determine the:

The marginal product of labour is:

The real wage is the return to labour measured in:

Total investment in Canada averages about _____ percent of GDP.

Assume that an increase in consumer confidence raises consumers' expectations of future income and thus the amount they want to consume today for any given level of disposable income. This shift, in a neoclassical economy, will:

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.

According to the model developed in Chapter 3, when government spending increases but taxes stay the same, interest rates:

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

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

The marginal propensity to consume is:

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

The Science of Macroeconomics

The Data of Microeconomics

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Islm Model

Aggregate Demand Ii: Applying the Islm Model

The Open Economy Revisited: the Mundellfleming Model and the Exchange-Rate Regime

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

A Dynamic Model of Economic Fluctuations

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

The Microfoundations of Consumption and Investment

Filters

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

Private saving is:

What effect does advancement in technology have on the equilibrium real rental price and capital, assuming that the supply of capital is fixed?

The real wage will increase if:

What determines the ratio of the wage to rental rate of capital in a competitive, profit-maximizing economy with constant returns to scale?

In a neoclassical economy, assume that the government lowers both government spending and taxes by the same amount. This causes:

If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y = 50K0.5L0.5, where K = 100 and L = 100, then C equals:

The supply and demand for loanable funds determine the:

The marginal product of labour is:

The real wage is the return to labour measured in:

Total investment in Canada averages about _____ percent of GDP.

Assume that an increase in consumer confidence raises consumers' expectations of future income and thus the amount they want to consume today for any given level of disposable income. This shift, in a neoclassical economy, will:

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.

According to the model developed in Chapter 3, when government spending increases but taxes stay the same, interest rates:

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

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

The marginal propensity to consume is:

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

The Science of Macroeconomics

The Data of Microeconomics

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Islm Model

Aggregate Demand Ii: Applying the Islm Model

The Open Economy Revisited: the Mundellfleming Model and the Exchange-Rate Regime

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

A Dynamic Model of Economic Fluctuations

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

The Microfoundations of Consumption and Investment

Filters

If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y = 50K^0.5L^0.5, where K = 100 and L = 100, then C equals:

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.