Question 1

Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate.

Accepted Answer

A)  positively; positively 
B)  positively; negatively 
C)  negatively; negatively 
D)  negatively; positively 
A)  positively; positively 
B)  positively; negatively 
C)  negatively; negatively 
D)  negatively; positively

Question 2

All of the following actions increase government purchases of goods and services except the:

Accepted Answer

A)  federal government's sending a Social Security check to Betty Jones. 
B)  federal governments sending a paycheck to the president of the United States. 
C)  federal government's buying a Patriot missile. 
D)  city of Boston's buying a library book. 
A)  federal government's sending a Social Security check to Betty Jones. 
B)  federal governments sending a paycheck to the president of the United States. 
C)  federal government's buying a Patriot missile. 
D)  city of Boston's buying a library book.

Question 3

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 4

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: $$\begin{array} { l } 
L = \bar { L } , K = \bar { K } , G = \bar { G } , T = \bar { T } \
Y = A K ^ { \pi } L ^ { ( 1 - \omega ) } \
Y = C + I + G \
C = C ( Y - T ) \
I = I ( r )
\end{array}$$ 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?

Accepted Answer

a. Public saving equals @#LAT-DLM&. An increase in

Question 5

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 6

What is the effect of an increase in interest rate on keeping government spending constant on consumption and investment?

Accepted Answer

With increase in interest rates, firms f

Question 7

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 8

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 9

The production of an economy is explained by a function: Y = 20 (L.5K.5) where L is labor and K is capital with L = 400 and K = 400. Does this economy support constant returns to scale?

Accepted Answer

When increase in percentage of output eq

Question 10

An example of decreasing returns to scale is when capital and labor 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

At any particular point in time, the output of the economy:

Accepted Answer

A)  is fixed because the supplies of capital and labor and the technology are fixed. 
B)  is fixed because the demand for goods and services is fixed. 
C)  varies because the supplies of capital and labor vary. 
D)  varies because the technology for turning capital and labor into goods and services varies. 
A)  is fixed because the supplies of capital and labor and the technology are fixed. 
B)  is fixed because the demand for goods and services is fixed. 
C)  varies because the supplies of capital and labor vary. 
D)  varies because the technology for turning capital and labor into goods and services varies.

Question 12

A competitive firm:

Accepted Answer

A)  is small relative to the market in which it trades. 
B)  has to charge a lower price when it wants to sell more goods. 
C)  has several large competitors with whom it engages in fierce competition. 
D)  can set the wage at which it hires workers. 
A)  is small relative to the market in which it trades. 
B)  has to charge a lower price when it wants to sell more goods. 
C)  has several large competitors with whom it engages in fierce competition. 
D)  can set the wage at which it hires workers.

Question 13

In an economy with flexible prices, competitive factor markets, and fixed supplies of the factors of production, graphically illustrate the impact of an advance in technology that greatly improves the productivity of capital, ceteris paribus. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; and v. the terminal equilibrium values. Explain in words how the equilibrium values change.

Accepted Answer

@#IMG-DLM& The demand for capital increa

Question 14

According to the neoclassical theory of distribution, in an economy described by a Cobb-Douglas production function, workers should experience high rates of real wage growth when:

Accepted Answer

A)  real interest rates are high. 
B)  real interest rates are low. 
C)  average labor productivity is growing rapidly. 
D)  capital's share of income is growing rapidly. 
A)  real interest rates are high. 
B)  real interest rates are low. 
C)  average labor productivity is growing rapidly. 
D)  capital's share of income is growing rapidly.

Question 15

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 16

In a neoclassical economy, assume that the government lowers both government spending and taxes by $100 billion. If the marginal propensity to consume is 0.6, investment will:

Accepted Answer

A)  rise $100 billion. 
B)  rise $60 billion. 
C)  rise $40 billion. 
D)  not change. 
A)  rise $100 billion. 
B)  rise $60 billion. 
C)  rise $40 billion. 
D)  not change.

Question 17

a. Suppose a government decides to reduce spending and (lump-sum) income taxes by the same amount. Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of the equal reductions in spending and taxes. Be sure to label:
i. the axes  
ii. the curves 
iii. the initial equilibrium values 
iv. the direction curves shift
v. the terminal equilibrium values.

b. State in words what happens to: 
i. the real interest rate
ii. national saving 
iii. investment. 
iv. consumption  
v. output.

Accepted Answer

a. @#IMG-DLM& 
b.  i. real interest rate decreases

Question 18

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.

Question 19

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 20

Disposable personal income is defined as income after the payment of all:

Accepted Answer

A)  taxes. 
B)  interest. 
C)  loans. 
D)  social insurance contributions. 
A)  taxes. 
B)  interest. 
C)  loans. 
D)  social insurance contributions.

Consumption depends on disposable income, and investment depends on the real interest rate.

All of the following actions increase government purchases of goods and services except the:

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

National saving is:

What is the effect of an increase in interest rate on keeping government spending constant on consumption and investment?

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 .

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

The production of an economy is explained by a function: Y = 20 (L^.5K^.5) where L is labor and K is capital with L = 400 and K = 400. Does this economy support constant returns to scale?

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

At any particular point in time, the output of the economy:

A competitive firm:

According to the neoclassical theory of distribution, in an economy described by a Cobb-Douglas production function, workers should experience high rates of real wage growth when:

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

In a neoclassical economy, assume that the government lowers both government spending and taxes by $100 billion. If the marginal propensity to consume is 0.6, investment will:

The real interest rate is the:

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:

Disposable personal income is defined as income after the payment of all:

The Science of Macroeconomics

The Data of Macroeconomics

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labor 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 Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

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

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

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

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

Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate.

All of the following actions increase government purchases of goods and services except the:

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

National saving is:

What is the effect of an increase in interest rate on keeping government spending constant on consumption and investment?

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 ______.

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

The production of an economy is explained by a function: Y = 20 (L.5K.5) where L is labor and K is capital with L = 400 and K = 400. Does this economy support constant returns to scale?

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

At any particular point in time, the output of the economy:

A competitive firm:

According to the neoclassical theory of distribution, in an economy described by a Cobb-Douglas production function, workers should experience high rates of real wage growth when:

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

In a neoclassical economy, assume that the government lowers both government spending and taxes by $100 billion. If the marginal propensity to consume is 0.6, investment will:

The real interest rate is the:

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:

Disposable personal income is defined as income after the payment of all:

The Science of Macroeconomics

The Data of Macroeconomics

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labor 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 Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

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

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

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

Consumption depends on disposable income, and investment depends on the real interest rate.

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 .

The production of an economy is explained by a function: Y = 20 (L^.5K^.5) where L is labor and K is capital with L = 400 and K = 400. Does this economy support constant returns to scale?

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: