Question 1

Profit maximization implies that firms will want to ________.

Accepted Answer

A)  accumulate capital while the MPK is greater than the real wage 
B)  accumulate capital while the MPK is greater than the rental price of capital 
C)  accumulate labor while the MPK is greater than the rental price of capital 
D)  accumulate labor while the MPK is greater than the real wage 
E)  none of the above 
A)  accumulate capital while the MPK is greater than the real wage 
B)  accumulate capital while the MPK is greater than the rental price of capital 
C)  accumulate labor while the MPK is greater than the rental price of capital 
D)  accumulate labor while the MPK is greater than the real wage 
E)  none of the above B

Question 2

Suppose an economy has an increase in labor input of 60 percent, while output has increased by 100 percent. Assuming no change in total factor productivity, calculate the percentage increase in the capital input. (Use the Cobb-Douglas production function Y = AK0.3L0.7.)

Accepted Answer

2Y = A(xK)0.3(1.6L)0.7. Dividing this by the original production function yields 2 = x 0.31.60.7. Solve for x = 3.37. The capital input has increased by 237 percent.

Question 3

What does the Cobb-Douglas production function assume about the input shares in the economy?

Accepted Answer

A)  the capital share is smaller than the labor share of income 
B)  both the capital and labor shares of income are positive 
C)  both the capital and labor shares of income remain relatively constant over time 
D)  all of the above 
E)  none of the above 
A)  the capital share is smaller than the labor share of income 
B)  both the capital and labor shares of income are positive 
C)  both the capital and labor shares of income remain relatively constant over time 
D)  all of the above 
E)  none of the above D

Question 4

When the rental price of capital is above the equilibrium price ________.

Accepted Answer

A)  we have an excess supply of capital and the rental price should fall 
B)  we have an excess demand of capital and the rental price should fall 
C)  we have an excess supply of capital and the rental price should increase 
D)  we have an excess demand of capital and the rental price should increase 
E)  none of the above 
A)  we have an excess supply of capital and the rental price should fall 
B)  we have an excess demand of capital and the rental price should fall 
C)  we have an excess supply of capital and the rental price should increase 
D)  we have an excess demand of capital and the rental price should increase 
E)  none of the above

Question 5

When the real wage is below the equilibrium price in the labor market ________.

Accepted Answer

A)  we have an excess supply of labor and the real wage should fall 
B)  we have an excess demand of labor and the real wage should fall 
C)  we have an excess demand of labor and the real wage should increase 
D)  we have an excess supply of labor and the real wage should increase 
E)  none of the above 
A)  we have an excess supply of labor and the real wage should fall 
B)  we have an excess demand of labor and the real wage should fall 
C)  we have an excess demand of labor and the real wage should increase 
D)  we have an excess supply of labor and the real wage should increase 
E)  none of the above

Question 6

Suppose that a technological advance raises total factor productivity. Explain, step-by-step, how the economy adjusts to arrive at a new long-run equilibrium.

Accepted Answer

The marginal products of both labor and

Question 7

Which of the following is true about per capita income?

Accepted Answer

A)  it is an approximate measure of how rich or poor a country is 
B)  it is the same as income per worker only if everyone in the economy is assumed to work 
C)  it is the product of TFP and capital per worker only if everyone in the economy is assumed to work 
D)  all of the above 
E)  none of the above 
A)  it is an approximate measure of how rich or poor a country is 
B)  it is the same as income per worker only if everyone in the economy is assumed to work 
C)  it is the product of TFP and capital per worker only if everyone in the economy is assumed to work 
D)  all of the above 
E)  none of the above

Question 8

Profit maximization implies that firms will want to ________.

Accepted Answer

A)  accumulate labor while the MPL is greater than the real wage 
B)  accumulate capital while the MPK is greater than the rental price of capital 
C)  not accumulate either input without limit, because of diminishing returns to each factor 
D)  all of the above 
E)  none of the above 
A)  accumulate labor while the MPL is greater than the real wage 
B)  accumulate capital while the MPK is greater than the rental price of capital 
C)  not accumulate either input without limit, because of diminishing returns to each factor 
D)  all of the above 
E)  none of the above

Question 9

The marginal product of capital (MPK) measures ________.

Accepted Answer

A)  by how much output increases for each additional unit of capital 
B)  by how much capital increases for each additional unit of output 
C)  by how much capital increases for each additional unit of labor 
D)  by how much total factor productivity increases for each additional unit of capital 
E)  none of the above 
A)  by how much output increases for each additional unit of capital 
B)  by how much capital increases for each additional unit of output 
C)  by how much capital increases for each additional unit of labor 
D)  by how much total factor productivity increases for each additional unit of capital 
E)  none of the above

Question 10

Real capital income is given by ________.

Accepted Answer

A)  MPK × K 
B)  capital share of income × output per unit of capital × capital 
C)  capital share of income × output 
D)  all of the above 
E)  none of the above 
A)  MPK × K 
B)  capital share of income × output per unit of capital × capital 
C)  capital share of income × output 
D)  all of the above 
E)  none of the above

Question 11

Which of the following constitutes an input to the Cobb-Douglas production function?

Accepted Answer

A)  capital 
B)  labor 
C)  total factor productivity 
D)  all of the above 
E)  none of the above 
A)  capital 
B)  labor 
C)  total factor productivity 
D)  all of the above 
E)  none of the above

Question 12

The output an economy can produce with one unit of capital and one unit of labor is ________.

Accepted Answer

A)  indicated by the A variable in the Cobb-Douglas production function 
B)  commonly referred to as labor productivity 
C)  a variable that depends on how many units of capital and labor are available 
D)  all of the above 
E)  none of the above 
A)  indicated by the A variable in the Cobb-Douglas production function 
B)  commonly referred to as labor productivity 
C)  a variable that depends on how many units of capital and labor are available 
D)  all of the above 
E)  none of the above

Question 13

Which of the following is true about total factor productivity (TFP)?

Accepted Answer

A)  it can be measured just like capital and labor 
B)  it cannot be directly measured so it has to be calculated from given values of capital, labor and output 
C)  while it cannot be measured directly, it has an exponent of 0.3 in the Cobb-Douglas production function 
D)  while it cannot be measured directly, it has an exponent of 0.7 in the Cobb-Douglas production function 
E)  none of the above 
A)  it can be measured just like capital and labor 
B)  it cannot be directly measured so it has to be calculated from given values of capital, labor and output 
C)  while it cannot be measured directly, it has an exponent of 0.3 in the Cobb-Douglas production function 
D)  while it cannot be measured directly, it has an exponent of 0.7 in the Cobb-Douglas production function 
E)  none of the above

Question 14

The classical framework is based on what assumption(s):________.

Accepted Answer

A)  many firms in the economy 
B)  no single firm can control prices 
C)  in the long-run the quantity of factors supplied must be equal to the quantity of factors demanded 
D)  all of the above 
E)  none of the above 
A)  many firms in the economy 
B)  no single firm can control prices 
C)  in the long-run the quantity of factors supplied must be equal to the quantity of factors demanded 
D)  all of the above 
E)  none of the above

Question 15

The marginal product of capital indicates ________. Therefore the MPK curve is also ________.

Accepted Answer

A)  the quantity of capital supplied for a given rental price; the equilibrium price of capital 
B)  the quantity of capital demanded for a given rental price; the demand curve of capital 
C)  the quantity of capital demanded for a given rental price; the equilibrium price of capital 
D)  the quantity of capital supplied for a given rental price; the supply curve of capital 
E)  none of the above 
A)  the quantity of capital supplied for a given rental price; the equilibrium price of capital 
B)  the quantity of capital demanded for a given rental price; the demand curve of capital 
C)  the quantity of capital demanded for a given rental price; the equilibrium price of capital 
D)  the quantity of capital supplied for a given rental price; the supply curve of capital 
E)  none of the above

Question 16

An economy's production function is Y = AK0.3L0.7, and the economy's total output in equilibrium is $90 billion. Total capital income in this economy is ________.

Accepted Answer

A)  $27 billion 
B)  $30 billion 
C)  $21 billion 
D)  $70 billion 
E)  none of the above 
A)  $27 billion 
B)  $30 billion 
C)  $21 billion 
D)  $70 billion 
E)  none of the above

Question 17

When a particular firm is fully utilizing its capital, its output is given by Y = 10 × L0.5. The cost of labor is $1 per unit. To maximize profit, how many units of labor should this firm use?

Accepted Answer

A)  25 
B)  5 
C)  3.16 
D)  100 
E)  50 
A)  25 
B)  5 
C)  3.16 
D)  100 
E)  50

Question 18

Given the production function Y = AK0.3L0.7, if an economy's capital per worker k is $27 thousand, and its total factor productivity A is 0.5, then output per worker is (approximately) ________.

Accepted Answer

A)  $13,500 
B)  $40,500 
C)  $3,000 
D)  $5,000 
E)  $1,500 
A)  $13,500 
B)  $40,500 
C)  $3,000 
D)  $5,000 
E)  $1,500

Question 19

Suppose than an economy has output Y = AK0.3L0.7, that Y equals $42 trillion, capital K is $64 trillion, and labor L is 125 million workers. Given this information, what is the closest approximation of total factor productivity A?

Accepted Answer

A)  less than 0.01 
B)  around 0.25 
C)  roughly 0.33 
D)  close to 0.4 
E)  exactly 144 
A)  less than 0.01 
B)  around 0.25 
C)  roughly 0.33 
D)  close to 0.4 
E)  exactly 144

Question 20

Suppose than an economy has output Y = AK0.3L0.7, that Y equals $19 trillion, capital K is $27 trillion, and labor L is 125 million workers. Given this information, what is the closest approximation of total factor productivity A?

Accepted Answer

A)  less than 0.01 
B)  around 0.25 
C)  roughly 0.33 
D)  close to 0.4 
E)  exactly 144 
A)  less than 0.01 
B)  around 0.25 
C)  roughly 0.33 
D)  close to 0.4 
E)  exactly 144

Exam 3: Aggregate Production and Productivity

Profit maximization implies that firms will want to ________.

Suppose an economy has an increase in labor input of 60 percent, while output has increased by 100 percent. Assuming no change in total factor productivity, calculate the percentage increase in the capital input. (Use the Cobb-Douglas production function Y = AK0.3L0.7.)

What does the Cobb-Douglas production function assume about the input shares in the economy?

When the rental price of capital is above the equilibrium price ________.

When the real wage is below the equilibrium price in the labor market ________.

Suppose that a technological advance raises total factor productivity. Explain, step-by-step, how the economy adjusts to arrive at a new long-run equilibrium.

Which of the following is true about per capita income?

Profit maximization implies that firms will want to ________.

The marginal product of capital (MPK) measures ________.

Real capital income is given by ________.

Which of the following constitutes an input to the Cobb-Douglas production function?

The output an economy can produce with one unit of capital and one unit of labor is ________.

Which of the following is true about total factor productivity (TFP)?

The classical framework is based on what assumption(s):________.

The marginal product of capital indicates ________. Therefore the MPK curve is also ________.

An economy's production function is Y = AK0.3L0.7, and the economy's total output in equilibrium is $90 billion. Total capital income in this economy is ________.

When a particular firm is fully utilizing its capital, its output is given by Y = 10 × L0.5. The cost of labor is $1 per unit. To maximize profit, how many units of labor should this firm use?

Given the production function Y = AK0.3L0.7, if an economy's capital per worker k is $27 thousand, and its total factor productivity A is 0.5, then output per worker is (approximately) ________.

Suppose than an economy has output Y = AK0.3L0.7, that Y equals $42 trillion, capital K is $64 trillion, and labor L is 125 million workers. Given this information, what is the closest approximation of total factor productivity A?

Suppose than an economy has output Y = AK0.3L0.7, that Y equals $19 trillion, capital K is $27 trillion, and labor L is 125 million workers. Given this information, what is the closest approximation of total factor productivity A?

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Saving and Investment in Closed and Open Economies

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, Policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Monetary Policy and Aggregate Demand

Aggregate Supply and the Phillips Curve

The Aggregate Demand and Supply Model

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, Employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

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The marginal product of capital indicates . Therefore the MPK curve is also .