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

The total output of the closed economy Moneyland is 10,000. Consumption is explained by the function C = 3,800 + 0.7T - 150r, 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 3,500. What are the values of consumption, investment, and real interest rate?

In the classical model with fixed income, if households want to save more than firms want to invest, then:

The economy of Miniland has an income of $400, consumption is $200, government expenditure is $200, and the tax earnings of government is $150. a. Calculate private saving. b. Calculate public saving. c. Calculate national saving.

Use the following to answer questions : Exhibit: Saving, Investment, and the Interest Rate 2 -(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 tax law change that makes investment projects less profitable and decreases the demand for investment goods (but does not change the amount of taxes collected in the economy)?

A competitive firm chooses the:

A consumption function shows the relationship between consumption and:

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

In a closed economy, private saving equals:

The production function feature called "constant returns to scale" means that if we:

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

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

a. Suppose there is a technological breakthrough that increases the productivity of all capital and, consequently, increases the demand for investment. Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of the increased investment demand. Be sure to label: i. the axes ii. the curves iii. the initial eqilibrium values iv. the direction curves shift v. the terminal equilibrium values b. State in words what happens to i. the real interest rate ii. nafional saving iii. investment iv. consumption v. output.

With a Cobb-Douglas production function, the share of output going to labor:

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

Public saving is:

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

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 capital and technology, carefully explain how a one-time, 10-percent increase in the quantity of labor (perhaps the result of a special immigration policy) will change each of the following: a. the level of output produced; b. the real wage of labor; c. the real rental price of capital; d. labor's share of total income.

The closed economy of Moneyland has total income of $5000, consumption function is C = 2000 - 30r, investment function I = 1500 - 20r, government spending is $2000, r is nominal interest rate. Inflation is 6 percent. Find the real rate of interest.

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

In the classical model with fixed income, an increase in the real interest rate could be the result of a(n):