Question 1

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 +
0)6Y. No government exists. In this case, equilibrium investment is:

Accepted Answer

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

Question 2

Use the model developed in Chapter 3, but assume that consumption decreases, other things being equal, when the interest rate rises. If there is a technological advance that leads to an increase in investment demand:

Accepted Answer

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

Question 3

The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, public saving:

Accepted Answer

A) rises by $100 billion. 
B) rises by $60 billion. 
C) falls by $60 billion. 
D) falls by $100 billion.

Question 4

In fourteenth-century Europe, the bubonic plague:

Accepted Answer

A) reduced the population of Europe by about one-half. 
B) substantially increased economic output in Europe. 
C) substantially increased real rentals on land in Europe. 
D) substantially increased real wages in Europe.

Question 5

Public saving is:

Accepted Answer

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

Question 6

A firm's economic profit is:

Accepted Answer

A) the price of output minus the wage minus the rental price of capital. 
B) revenue minus costs. 
C) revenue plus capital costs. 
D) the price of output minus labor costs.

Question 7

If income is 4,800, consumption is 3,500, government spending is 1,000, and tax revenues are 800, public saving is:

Accepted Answer

A) -200. 
B) 200. 
C) 500. 
D) 1,800.

Question 8

In a closed economy with fixed output, when government spending increases:

Accepted Answer

A) private saving decreases. 
B) private saving increases. 
C) public saving decreases. 
D) public saving increases.

Question 9

Public saving is:

Accepted Answer

A) Aalways positive. 
B) always negative. 
C) always zero. 
D) either positive, negative, or zero.

Question 10

Assume that the production function is Cobb-Douglas with parameter α = 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.

Question 11

If the production function describing an economy is Y = 100 K0.25L0.75, then the share of output going to labor:

Accepted Answer

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

Question 12

Assume that an increase in consumer confidence raises consumers' expectations of future income and thus the amount they want to consume today for any given income. This shift, in a neoclassical economy, will:

Accepted Answer

A) lower investment and raise the interest rate. 
B) raise investment and lower the interest rate. 
C) lower both investment and the interest rate. 
D) raise both investment and the interest rate.

Question 13

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

Question 14

If the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y =
50K0.5L0.5, where K = 100 and L = 100, then C equals:

Accepted Answer

A) 1,000. 
B) 2,500. 
C) 3,000. 
D) 5,000.

Question 15

Exhibit: Saving, Investment, and the Interest Rate 1

Reference: Ref 3-1
 
(Exhibit: Saving, Investment, and the Interest Rate 1) The economy begins in equilibrium at Point E, representing the real interest rate, r , at which saving, S , equals desired investment, I . 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

Question 16

In an economy with flexible prices, competitive factor markets, and fixed supplies of the factors of production, graphically illustrate the impact of a change in immigration policy in a country that permits a huge influx of foreign workers into the labor market, 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

The answer of In an economy with flexible prices, competitive...

Question 17

According to the model developed in Chapter 3, when government spending increases without a change in taxes:

Accepted Answer

A) Aconsumption increases. 
B) consumption decreases. 
C) investment increases. 
D) investment decreases.

Question 18

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.

Question 19

Accounting profit is:

Accepted Answer

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

Question 20

Assume that equilibrium GDP (Y) is 5,000. Consumption 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.

Exam 3: Interdependence and the Gains From Trade

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0) 6Y. No government exists. In this case, equilibrium investment is:

Use the model developed in Chapter 3, but assume that consumption decreases, other things being equal, when the interest rate rises. If there is a technological advance that leads to an increase in investment demand:

The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.6, public saving:

In fourteenth-century Europe, the bubonic plague:

Public saving is:

A firm's economic profit is:

If income is 4,800, consumption is 3,500, government spending is 1,000, and tax revenues are 800, public saving is:

In a closed economy with fixed output, when government spending increases:

Public saving is:

Assume that the production function is Cobb-Douglas with parameter α = 0.3. In the neoclassical model, if the labor force increases by 10 percent, then output:

If the production function describing an economy is Y = 100 K0.25L0.75, then the share of output going to labor:

Assume that an increase in consumer confidence raises consumers' expectations of future income and thus the amount they want to consume today for any given income. This shift, in a neoclassical economy, will:

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 the consumption function is given by the equation C = 500 + 0.5Y, the production function is Y = 50K0.5L0.5, where K = 100 and L = 100, then C equals:

According to the model developed in Chapter 3, when government spending increases without a change in taxes:

The marginal product of capital is:

Accounting profit is:

Assume that equilibrium GDP (Y) is 5,000. Consumption 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: