Question 1

Government transfer payments:

Accepted Answer

A)  are included as part of government purchases, G. 
B)  can be viewed as negative tax payments, T. 
C)  are received as payment for inputs in the factor market. 
D)  do not affect the level of public or private saving. 
A)  are included as part of government purchases, G. 
B)  can be viewed as negative tax payments, T. 
C)  are received as payment for inputs in the factor market. 
D)  do not affect the level of public or private saving.

Question 2

In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on _____ , the amount of investment spending depends on _____, and the amount of government spending is determined _____.

Accepted Answer

A)  the interest rate; disposable income; by tax revenue 
B)  the real wage; the real rental price of capital; by factor prices 
C)  labor's share of output; capital's share of output; by the interest rate 
D)  disposable income; the interest rate; exogenously 
A)  the interest rate; disposable income; by tax revenue 
B)  the real wage; the real rental price of capital; by factor prices 
C)  labor's share of output; capital's share of output; by the interest rate 
D)  disposable income; the interest rate; exogenously

Question 3

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 600. Government spending is equal to 1,000. Investment is given by the equation I = 2,160 - 100r, where r is the real interest rate in percent. In this case, the equilibrium real interest rate is:

Accepted Answer

A)  5 percent. 
B)  8 percent. 
C)  10 percent. 
D)  13 percent. 
A)  5 percent. 
B)  8 percent. 
C)  10 percent. 
D)  13 percent.

Question 4

If saving exceeds investment demand, and consumption is not a function of the interest rate:

Accepted Answer

A)  the demand for loans exceeds the supply of loans. 
B)  the interest rate will fall. 
C)  the interest rate will rise. 
D)  saving will fall. 
A)  the demand for loans exceeds the supply of loans. 
B)  the interest rate will fall. 
C)  the interest rate will rise. 
D)  saving will fall.

Question 5

Assume that GDP (Y) is 5,000. Consumption (C). is given by the equation C = 1,000 + 0.3(Y - T). Investment (I) is given by the equation I = 1,500 - 50r, where r is the real interest rate in percent. Taxes (T) are 1,000 and government spending (G) is 1,500. a. What are the equilibrium values of $C , l$, and $r$ ?
b. What are the values of private saving, public saving, and national saving?
c. Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to $I = 2,000 - 50 r$. What are the new equilibrium values of $C$, $I$, and $r$ ?
d. What are the new values of private saving, public saving, and national saving?

Accepted Answer

a. 2,@#LAT-DLM& perc

Question 6

The marginal product of capital is:

Accepted Answer

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

Question 7

a. Suppose a government education program succeeds in getting households to save more (you may interpret this as a downward shift in the consumption function). Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of the higher saving rate by households. 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. nafional saving 
iii. investment 
iv. consumption
v. output.

Accepted Answer

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

Question 8

Economic profit is zero if:

Accepted Answer

A)  all factors are paid their marginal products and the law of diminishing returns is valid. 
B)  all factors are paid their marginal products and there are constant returns to scale. 
C)  all firms maximize profits and none are competitive. 
D)  all firms maximize profits and all factors are paid their marginal products. 
A)  all factors are paid their marginal products and the law of diminishing returns is valid. 
B)  all factors are paid their marginal products and there are constant returns to scale. 
C)  all firms maximize profits and none are competitive. 
D)  all firms maximize profits and all factors are paid their marginal products.

Question 9

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

Accepted Answer

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

Question 10

What determines the distribution of national income between labor and capital in a competitive, profit-maximizing economy with constant returns to scale?

Accepted Answer

A)  the relative quantity of labor to capital 
B)  the interest rate 
C)  the ratio of public saving to private saving 
D)  the marginal productivity of labor relative to the marginal productivity of capital 
A)  the relative quantity of labor to capital 
B)  the interest rate 
C)  the ratio of public saving to private saving 
D)  the marginal productivity of labor relative to the marginal productivity of capital

Question 11

Accounting profit is:

Accepted Answer

A)  economic profit minus the return to capital. 
B)  equal to economic profit. 
C)  economic profit plus the return to capital. 
D)  equal to the economic return to capital. 
A)  economic profit minus the return to capital. 
B)  equal to economic profit. 
C)  economic profit plus the return to capital. 
D)  equal to the economic return to capital.

Question 12

Investment goods as measured in the GDP are purchased by:

Accepted Answer

A)  business firms alone. 
B)  households alone. 
C)  business firms and households. 
D)  business firms, households, and governments. 
A)  business firms alone. 
B)  households alone. 
C)  business firms and households. 
D)  business firms, households, and governments.

Question 13

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, does all saving go back as an investment?

Accepted Answer

According to the circular flow of dollar

Question 14

Use the following to answer questions :
Exhibit: Saving, Investment, and the Interest Rate 1  
-(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 cuts taxes, 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 15

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

Accepted Answer

With increased taxes, people will have l

Question 16

The marginal propensity to consume is:

Accepted Answer

A)  normally expected to be between zero and one. 
B)  equal to consumption divided by disposable income. 
C)  normally assumed to decrease as disposable income increases. 
D)  normally assumed to increase as disposable income increases. 
A)  normally expected to be between zero and one. 
B)  equal to consumption divided by disposable income. 
C)  normally assumed to decrease as disposable income increases. 
D)  normally assumed to increase as disposable income increases.

Question 17

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

Accepted Answer

A)  increase in government spending. 
B)  increase in desired investment. 
C)  increase in taxes. 
D)  decrease in taxes. 
A)  increase in government spending. 
B)  increase in desired investment. 
C)  increase in taxes. 
D)  decrease in taxes.

Question 18

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 19

National saving refers to:

Accepted Answer

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

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.

Government transfer payments:

In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on ___ , the amount of investment spending depends on _, and the amount of government spending is determined ___.

If saving exceeds investment demand, and consumption is not a function of the interest rate:

The marginal product of capital is:

Economic profit is zero if:

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

What determines the distribution of national income between labor and capital in a competitive, profit-maximizing economy with constant returns to scale?

Accounting profit is:

Investment goods as measured in the GDP are purchased 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, does all saving go back as an investment?

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

The marginal propensity to consume is:

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

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.

National saving refers to:

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 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

Government transfer payments:

In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on _____ , the amount of investment spending depends on _____, and the amount of government spending is determined _____.

If saving exceeds investment demand, and consumption is not a function of the interest rate:

The marginal product of capital is:

Economic profit is zero if:

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

What determines the distribution of national income between labor and capital in a competitive, profit-maximizing economy with constant returns to scale?

Accounting profit is:

Investment goods as measured in the GDP are purchased 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, does all saving go back as an investment?

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

The marginal propensity to consume is:

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

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.

National saving refers to:

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 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

In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on ___ , the amount of investment spending depends on _, and the amount of government spending is determined ___.

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.