Question 1

According to the model developed in Chapter 3, when taxes are increased but government spending is unchanged, interest rates:

Accepted Answer

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

Question 2

In the neoclassical model with fixed income, if there is a decrease in taxes with no change in government spending, then public saving _____ and private saving _____.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; does not change 
A) increases; increases 
B) increases; decreases 
C) decreases; increases 
D) decreases; does not change

Question 3

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

Accepted Answer

A) a decrease in the quantity of investment goods demanded. 
B) no change in the quantity of investment goods demanded. 
C) an increase in the quantity of investment goods demanded. 
D) sometimes an increase and sometimes a decrease in the quantity of investment goods demanded. 
A) a decrease in the quantity of investment goods demanded. 
B) no change in the quantity of investment goods demanded. 
C) an increase in the quantity of investment goods demanded. 
D) sometimes an increase and sometimes a decrease in the quantity of investment goods demanded.

Question 4

Use the model developed in Chapter 3 and assume that consumption does not depend on the interest rate. Holding other things constant, when the government lowers taxes on business investment, thus increasing investment demand, the quantity of investment:

Accepted Answer

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

Question 5

If the production function describing an economy is Y = 100 K.25L.75, then the share of output going to labour:

Accepted Answer

A) is 25 percent. 
B) is 75 percent. 
C) depends on the quantities of labour and capital. 
D) depends on the state of technology. 
A) is 25 percent. 
B) is 75 percent. 
C) depends on the quantities of labour and capital. 
D) depends on the state of technology.

Question 6

In a neoclassical economy, if consumption increases as the interest rate decreases, then a $10 billion rise in government spending would:

Accepted Answer

A) still crowd out exactly $10 billion of investment. 
B) crowd out between zero and $10 billion of investment. 
C) not crowd out any investment. 
D) crowd out more than $10 billion of investment. 
A) still crowd out exactly $10 billion of investment. 
B) crowd out between zero and $10 billion of investment. 
C) not crowd out any investment. 
D) crowd out more than $10 billion of investment.

Question 7

A competitive, profit-maximizing firm hires labour until the:

Accepted Answer

A) marginal product of labour equals the wage. 
B) price of output multiplied by the marginal product of labour equals the wage. 
C) real wage equals the real rental price of capital. 
D) wage equals the rental price of capital. 
A) marginal product of labour equals the wage. 
B) price of output multiplied by the marginal product of labour equals the wage. 
C) real wage equals the real rental price of capital. 
D) wage equals the rental price of capital.

Question 8

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

Accepted Answer

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

Question 9

Skill-biased technological change _____ the demand for high-skilled workers, while a slowdown in the pace of educational advancement reduces the supply of skilled workers. If we observed both of these phenomena, we would expect _____ wages for skilled workers.

Accepted Answer

A) increases; higher 
B) increases; lower 
C) decreases; higher 
D) decreases; lower 
A) increases; higher 
B) increases; lower 
C) decreases; higher 
D) decreases; lower

Question 10

The factor that makes national saving equal investment, in equilibrium, is:

Accepted Answer

A) the interest rate. 
B) private saving. 
C) public saving. 
D) fiscal policy. 
A) the interest rate. 
B) private saving. 
C) public saving. 
D) fiscal policy.

Question 11

An example of increasing 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 decreases 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 decreases 5 percent.

Question 12

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

Accepted Answer

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

Question 13

The two most important factors of production are:

Accepted Answer

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

Question 14

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. In addition, assume G=0. In this case, equilibrium investment is:

Accepted Answer

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

Question 15

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

Accepted Answer

A) goods; financial 
B) factor; financial 
C) goods; factor 
D) factor; goods 
A) goods; financial 
B) factor; financial 
C) goods; factor 
D) factor; goods

Question 16

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + 0.2Y, and Y = 50K0.5L0.5, where K = 100. If L increases from 100 to 144, then consumption increases by:

Accepted Answer

A) 560. 
B) 840. 
C) 1,120. 
D) 2,120. 
A) 560. 
B) 840. 
C) 1,120. 
D) 2,120.

Question 17

After studying the circular flow of dollars in the economy, explain with an example how saving done by households goes back into the circular flow. In reality, is all household saving used as investment?

Accepted Answer

According to the circular flow diagram,

Question 18

Assume that the consumption function is given by C = 150 + 0.85(Y - T), the tax function is given by T = t0 + t1Y, and Y is 5,000. If t1 decreases from 0.3 to 0.2, then consumption increases by:

Accepted Answer

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

Question 19

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6(Y - T). Taxes (T) are equal to 1,000. Government spending is 600. In this case, equilibrium investment is:

Accepted Answer

A) 600. 
B) 1,100. 
C) 1,500. 
D) 2,200. 
A) 600. 
B) 1,100. 
C) 1,500. 
D) 2,200.

According to the model developed in Chapter 3, when taxes are increased but government spending is unchanged, interest rates:

In the neoclassical model with fixed income, if there is a decrease in taxes with no change in government spending, then public saving _ and private saving _.

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

Use the model developed in Chapter 3 and assume that consumption does not depend on the interest rate. Holding other things constant, when the government lowers taxes on business investment, thus increasing investment demand, the quantity of investment:

If the production function describing an economy is Y = 100 K^.25L^.75, then the share of output going to labour:

In a neoclassical economy, if consumption increases as the interest rate decreases, then a $10 billion rise in government spending would:

A competitive, profit-maximizing firm hires labour until the:

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

Skill-biased technological change _ the demand for high-skilled workers, while a slowdown in the pace of educational advancement reduces the supply of skilled workers. If we observed both of these phenomena, we would expect _ wages for skilled workers.

The factor that makes national saving equal investment, in equilibrium, is:

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

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

The two most important factors of production are:

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. In addition, assume G=0. In this case, equilibrium investment is:

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

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + 0.2Y, and Y = 50K^0.5L^0.5, where K = 100. If L increases from 100 to 144, then consumption increases by:

After studying the circular flow of dollars in the economy, explain with an example how saving done by households goes back into the circular flow. In reality, is all household saving used as investment?

Assume that the consumption function is given by C = 150 + 0.85(Y - T), the tax function is given by T = t₀ + t₁Y, and Y is 5,000. If t₁ decreases from 0.3 to 0.2, then consumption increases by:

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6(Y - T). Taxes (T) are equal to 1,000. Government spending is 600. In this case, equilibrium investment is:

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

According to the model developed in Chapter 3, when taxes are increased but government spending is unchanged, interest rates:

In the neoclassical model with fixed income, if there is a decrease in taxes with no change in government spending, then public saving _____ and private saving _____.

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

Use the model developed in Chapter 3 and assume that consumption does not depend on the interest rate. Holding other things constant, when the government lowers taxes on business investment, thus increasing investment demand, the quantity of investment:

If the production function describing an economy is Y = 100 K.25L.75, then the share of output going to labour:

In a neoclassical economy, if consumption increases as the interest rate decreases, then a $10 billion rise in government spending would:

A competitive, profit-maximizing firm hires labour until the:

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

Skill-biased technological change _____ the demand for high-skilled workers, while a slowdown in the pace of educational advancement reduces the supply of skilled workers. If we observed both of these phenomena, we would expect _____ wages for skilled workers.

The factor that makes national saving equal investment, in equilibrium, is:

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

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

The two most important factors of production are:

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6Y. In addition, assume G=0. In this case, equilibrium investment is:

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

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + 0.2Y, and Y = 50K0.5L0.5, where K = 100. If L increases from 100 to 144, then consumption increases by:

After studying the circular flow of dollars in the economy, explain with an example how saving done by households goes back into the circular flow. In reality, is all household saving used as investment?

Assume that the consumption function is given by C = 150 + 0.85(Y - T), the tax function is given by T = t0 + t1Y, and Y is 5,000. If t1 decreases from 0.3 to 0.2, then consumption increases by:

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.6(Y - T). Taxes (T) are equal to 1,000. Government spending is 600. In this case, equilibrium investment is:

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

In the neoclassical model with fixed income, if there is a decrease in taxes with no change in government spending, then public saving _ and private saving _.

If the production function describing an economy is Y = 100 K^.25L^.75, then the share of output going to labour:

Skill-biased technological change _ the demand for high-skilled workers, while a slowdown in the pace of educational advancement reduces the supply of skilled workers. If we observed both of these phenomena, we would expect _ wages for skilled workers.

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

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + 0.2Y, and Y = 50K^0.5L^0.5, where K = 100. If L increases from 100 to 144, then consumption increases by:

Assume that the consumption function is given by C = 150 + 0.85(Y - T), the tax function is given by T = t₀ + t₁Y, and Y is 5,000. If t₁ decreases from 0.3 to 0.2, then consumption increases by: