Question 1

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

Question 2

When saving (the supply of loanable funds) increases as the interest rate increases, an increase in investment demand results in a _____ interest rate and _____ in the quantity of investment.

Accepted Answer

A) higher; no change 
B) higher; an increase 
C) lower; no change 
D) lower; an increase 
A) higher; no change 
B) higher; an increase 
C) lower; no change 
D) lower; an increase

Question 3

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 4

Price flexibility plays a key role in the classical model by ensuring that the markets reach equilibrium.
​
a.Explain which price adjusts to bring equilibrium in the labour market. Describe how the price adjusts when demand exceeds supply in this market.
b.Explain which price adjusts to bring equilibrium in the loanable funds market. Describe how the price adjusts when supply exceeds demand in this market.

Accepted Answer

a.The real wage adjusts to make labour d

Question 5

The neoclassical theory of distribution explains the allocation of:

Accepted Answer

A) output between goods and services. 
B) output among consumption, investment, and government spending. 
C) income among factors of production. 
D) income between saving and investment. 
A) output between goods and services. 
B) output among consumption, investment, and government spending. 
C) income among factors of production. 
D) income between saving and investment.

Question 6

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 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 7

If disposable income is 4,000, consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, national saving is equal to:

Accepted Answer

A) 300. 
B) 500. 
C) 700. 
D) 1,000. 
A) 300. 
B) 500. 
C) 700. 
D) 1,000.

Question 8

If the consumption function is given by C = 150 + 0.85(Y - T) and T increases by 1 unit, then saving

Accepted Answer

A) decreases by 0.85 units. 
B) decreases by 0.15 units. 
C) increases by 0.15 units. 
D) increases by 0.85 units. 
A) decreases by 0.85 units. 
B) decreases by 0.15 units. 
C) increases by 0.15 units. 
D) increases by 0.85 units.

Question 9

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 10

An example of decreasing returns to scale is when capital and labour 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 11

When there is a fixed supply of loanable funds, an increase in investment demand results in:

Accepted Answer

A) a higher interest rate. 
B) a lower interest rate. 
C) an increase in investment. 
D) a decrease in investment. 
A) a higher interest rate. 
B) a lower interest rate. 
C) an increase in investment. 
D) a decrease in investment.

Question 12

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + t1Y, and Y = 50K0.5L0.5, where K = 100 and L = 100. If t1 increases from 0.2 to 0.25, then consumption decreases by:

Accepted Answer

A) 70. 
B) 140. 
C) 175. 
D) 250. 
A) 70. 
B) 140. 
C) 175. 
D) 250.

Question 13

According to a recent report from the OECD, the increasing income inequality of recent decades in Canada is the result of:

Accepted Answer

A) decreases in the rates of skill-biased technological advancement and increases in the self-employment rates. 
B) decreases in the rates of skill-biased technological advancement and in the self-employment rates. 
C) increases in the rate of skill-biased technological advancement and in the self-employment rates. 
D) decreases in the rates of skill-biased technological advancement and stagnant self-employment rates. 
A) decreases in the rates of skill-biased technological advancement and increases in the self-employment rates. 
B) decreases in the rates of skill-biased technological advancement and in the self-employment rates. 
C) increases in the rate of skill-biased technological advancement and in the self-employment rates. 
D) decreases in the rates of skill-biased technological advancement and stagnant self-employment rates.

Question 14

An increase in the supply of capital will:

Accepted Answer

A) increase the real rental price of capital. 
B) decrease the real rental price of capital. 
C) increase the productivity of capital. 
D) increase the marginal product of capital. 
A) increase the real rental price of capital. 
B) decrease the real rental price of capital. 
C) increase the productivity of capital. 
D) increase the marginal product of capital.

Question 15

The government of an economy has increased its spending and its taxes by the same amount. What is the effect on investment?

Accepted Answer

With increased taxes, people will have l

Question 16

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 17

Suppose that GDP (Y) is 5,000. Consumption (C) 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 18

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 19

If government purchases exceed taxes minus transfer payments, then the government budget is:

Accepted Answer

A) balanced. 
B) in deficit. 
C) in surplus. 
D) endogenous. 
A) balanced. 
B) in deficit. 
C) in surplus. 
D) endogenous.

Question 20

The real interest rate is the:

Accepted Answer

A) rate of interest actually paid by consumers. 
B) rate of interest actually paid by banks. 
C) rate of inflation minus the nominal interest rate. 
D) nominal interest rate minus the rate of inflation. 
A) rate of interest actually paid by consumers. 
B) rate of interest actually paid by banks. 
C) rate of inflation minus the nominal interest rate. 
D) nominal interest rate minus the rate of inflation.

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

When saving (the supply of loanable funds) increases as the interest rate increases, an increase in investment demand results in a _ interest rate and _ in the quantity of investment.

The circular flow model shows that households use income for:

The neoclassical theory of distribution explains the allocation of:

If disposable income is 4,000, consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, national saving is equal to:

If the consumption function is given by C = 150 + 0.85(Y - T) and T increases by 1 unit, then saving

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

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

When there is a fixed supply of loanable funds, an increase in investment demand results in:

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + t₁Y, and Y = 50K^0.5L^0.5, where K = 100 and L = 100. If t₁ increases from 0.2 to 0.25, then consumption decreases by:

According to a recent report from the OECD, the increasing income inequality of recent decades in Canada is the result of:

An increase in the supply of capital will:

The government of an economy has increased its spending and its taxes by the same amount. What is the effect on investment?

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

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:

If government purchases exceed taxes minus transfer payments, then the government budget is:

The real interest rate is the:

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

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

When saving (the supply of loanable funds) increases as the interest rate increases, an increase in investment demand results in a _____ interest rate and _____ in the quantity of investment.

The circular flow model shows that households use income for:

The neoclassical theory of distribution explains the allocation of:

If disposable income is 4,000, consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, national saving is equal to:

If the consumption function is given by C = 150 + 0.85(Y - T) and T increases by 1 unit, then saving

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

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

When there is a fixed supply of loanable funds, an increase in investment demand results in:

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + t1Y, and Y = 50K0.5L0.5, where K = 100 and L = 100. If t1 increases from 0.2 to 0.25, then consumption decreases by:

According to a recent report from the OECD, the increasing income inequality of recent decades in Canada is the result of:

An increase in the supply of capital will:

The government of an economy has increased its spending and its taxes by the same amount. What is the effect on investment?

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

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:

If government purchases exceed taxes minus transfer payments, then the government budget is:

The real interest rate is the:

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

When saving (the supply of loanable funds) increases as the interest rate increases, an increase in investment demand results in a _ interest rate and _ in the quantity of investment.

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + t₁Y, and Y = 50K^0.5L^0.5, where K = 100 and L = 100. If t₁ increases from 0.2 to 0.25, then consumption decreases by: