Question 1

Aquaria is a small island country that specializes in the production of yachts.It has a Cobb-Douglas aggregate production function.
a)How will the production of yachts be affected if the technology used in the production of yachts in Aquaria improves?
b)How will Aquaria's output be affected if both the efficiency units of labor and the physical capital stock increase by 12.5 percent,but the level of technology remains unchanged?

Accepted Answer

The answer of Aquaria is a small island country that...

Question 2

Scenario: Red Country and Purple Country have identical aggregate production functions. The amount of physical capital stock available to each country is equal. Labor supply in Red Country is HR, while the labor supply in Purple Country is HP.
 
-Refer to the scenario above.Which of the following statements is a consequence of both countries' aggregate production function being identical?

Accepted Answer

A)  Output will respond the same way to increases in the inputs. 
B)  Output will respond the same way to increases in the inputs given output is at the same level. 
C)  Output will respond the same way to increases in the efficiency units of labor but not to increases in the physical capital stock. 
D)  Output will respond the same way to increases in the physical capital stock but not to increases in the efficiency units of labor.

Question 3

If the income per capita in United Kingdom is £23,800 and the dollar per pound exchange rate is 1.68 in 2014,then income per capita in the United Kingdom in U.S.dollars in the same year is ________.

Accepted Answer

A)  $12,812 
B)  $22,829 
C)  $30,400 
D)  $39,984

Question 4

Scenario: The price of a given basket of goods in Country 1 is 10 karls. The price of the same basket of goods in Country 2 is 25 ritz and is $2 in the United States. Country 1 has an income per capita of 3,200 karls, and Country 2 has an income per capita of 5,500 ritz.
-Refer to the scenario above.A basket of goods worth $1 in the United States has a price of ________ in Country 2.

Accepted Answer

A)  12.5 ritz 
B)  25 ritz 
C)  50 ritz 
D)  320 ritz

Question 5

The aggregate production function of Ritland is Y = A × K⁰.³ × H⁰.⁷,where Y denotes total output,A denotes the level of technology,K denotes the physical capital stock,and H denotes the efficiency units of production.The total output produced in Ritland in a certain year was worth $135,000.The technology used in the country improved over the next 10 years,while the physical capital stock and the efficiency units of labor remained approximately the same.Which of the following is likely to be true in this case?

Accepted Answer

A)  The GDP of the country is likely to increase. 
B)  The GDP of the country is likely to decrease. 
C)  The Human Development Index of the country is likely to improve. 
D)  The inflation rate in the country is likely to decrease.

Question 6

Which of the following is true?

Accepted Answer

A)  Exchange-rate-based measures of income per capita are identical to PPP-based measures of income per capita. 
B)  Exchange-rate-based measures of income per capita differ from PPP-based measures of income per capita. 
C)  The gap between the income per capita in the United States and the income per capita in poorer countries is large when PPP-based measures are used. 
D)  The gap between the income per capita in the United States and the income per capita in poorer countries is small when exchange-rate-based measures are used.

Question 7

Which of the following is likely to lead to an increase in the GDP of a country?

Accepted Answer

A)  An increase in the physical capital stock of the country 
B)  An increase in the unemployment rate in the country 
C)  An increase in the tax rates in the country 
D)  An increase in the interest rates in the country

Question 8

The total efficiency units of labor in a country is 6,000.If the average efficiency of each worker in the economy doubles,the efficiency units of labor in the country will be ________,everything else remaining unchanged.

Accepted Answer

A)  300 
B)  12,000 
C)  36,000 
D)  48,500

Question 9

Argonia is currently producing Q amount of output using H efficiency units of labor,as shown in the following figure.
  
Several workers in Argonia died during a year due to an epidemic.How will this affect output in the next year if all the other variables remained constant over the year? Explain with a suitable diagram.

Accepted Answer

The answer of Argonia is currently producing Q amount of...

Question 10

Scenario: Tree Country has a population of 18,000 people, of whom two-thirds are part of the workforce. The country's only asset is wood, where K = 18,000. The country only produces wooden furniture. In the figure below, Y stands for GDP, and H equals efficiency units of labor.
 
-Refer to the scenario above.Tree Country's GDP likely will increase if ________.

Accepted Answer

A)  it passes a law that requires college graduates to travel around the world for 1 year before they are allowed to start working 
B)  the average worker is no longer needs to obtain a college degree in order to be able to find a job 
C)  Tree Country gives permanent work visas to 5,000 workers from a neighboring country 
D)  younger generations are less proficient in furniture making but more proficient with modern technology, such as smart phones or personal computers

Question 11

The short-run aggregate production function is subject to ________ if capital stock is increased,holding the total efficiency units of labor constant.

Accepted Answer

A)  the Law of Diminishing Marginal Product 
B)  decreasing opportunity cost of production 
C)  increasing opportunity cost of production 
D)  increasing returns to scale

Question 12

Scenario: In Riverland, life expectancy is rising and has just surpassed life expectancy in its neighbor country, Lakeland.
-Refer to the scenario above.As life expectancy is rising further in Riverland,its Human Development Index likely will ________.

Accepted Answer

A)  increase by definition of the index 
B)  increase, because life expectancy and GDP per capita are often highly correlated 
C)  decrease, because GDP per worker will decrease as retired workers live longer 
D)  increase or decrease, depending on changes in productivity and other variables that constitute the index

Question 13

Scenario: Tree Country has a population of 18,000 people, of whom two-thirds are part of the workforce. The country's only asset is wood, where K = 18,000. The country only produces wooden furniture. In the figure below, Y stands for GDP, and H equals efficiency units of labor.
 
-Refer to the scenario above.Assume Tree Country's economy has constant returns to scale.If its population doubles and all other inputs remain the same,how would GDP change?

Accepted Answer

A)  GDP would stay the same. 
B)  GDP would increase. 
C)  GDP would increase by exactly 50 percent. 
D)  GDP would decrease by exactly 50 percent.

Question 14

Scenario: Two neighboring countries, Sweetland and Sourland, are identical in terms of size, population (800,000), education of workforce, and value of natural resources owned.
-Refer to the scenario above.Assume Sweetland has a higher GDP than does Sourland.Which of the following inputs in production might be greater in Sweetland?

Accepted Answer

A)  Technology 
B)  Total efficiency units of labor 
C)  Entrepreneurship 
D)  Land

Question 15

The following figure shows the total output that an economy can produce using varying amounts of capital.
 
-Refer to the figure above.The increase in output due to the same one-unit increase in capital is the greatest at point ________.

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D

Question 16

Can unionization in an industry adversely affect productivity? Explain your answer.

Accepted Answer

The answer of Can unionization in an industry adversely affect...

Question 17

Scenario: Red Country and Purple Country have identical aggregate production functions. The amount of physical capital stock available to each country is equal. Labor supply in Red Country is HR, while the labor supply in Purple Country is HP.
 
-Refer to the scenario above.Suppose Red Country experiences a flux of immigration that significantly increases its workforce.What will happen if the country's physical capital stock remains unchanged?

Accepted Answer

A)  Total efficiency units of labor in Red Country will decrease. 
B)  Red Country's income per worker will increase. 
C)  The marginal contribution of labor to Red Country's output will fall. 
D)  Total output will decrease.

Question 18

Suppose a country's labor supply increases in a year while its physical capital stock remains constant.Which of the following is likely to happen in this case if output is a function of capital and the total efficiency units of labor?

Accepted Answer

A)  Its output per capita will decrease. 
B)  Its total output will decrease. 
C)  Its total output will increase. 
D)  Its total output will remain constant.

Question 19

Which of the following is true?

Accepted Answer

A)  The sum of the coefficients of capital and the total efficiency units of labor in a Cobb-Douglas production function is greater than 1. 
B)  The sum of the coefficients of capital and the total efficiency units of labor in a Cobb-Douglas production function is less than 1. 
C)  The Cobb-Douglas production function exhibits increasing returns to scale. 
D)  The Cobb-Douglas production function exhibits constant returns to scale.

Question 20

Scenario: Two economies, A and B, have identical aggregate production functions with diminishing returns. In both economies, capital and labor are equally important for production. Economy A has twice as many efficiency units of labor as economy B. Economy B has twice as much physical capital stock as economy A.
-Refer to the scenario above.Which of the following statements is true?

Accepted Answer

A)  Productivity must be greater in economy A. 
B)  The relationship between GDP and total efficiency units of labor must be the same in economies A and B. 
C)  The relationship between GDP and physical capital stock cannot be the same in economies A and B. 
D)  All of the above.

Exam 6: Aggregate Incomes

If the income per capita in United Kingdom is £23,800 and the dollar per pound exchange rate is 1.68 in 2014,then income per capita in the United Kingdom in U.S.dollars in the same year is ________.

Which of the following is true?

Which of the following is likely to lead to an increase in the GDP of a country?

The total efficiency units of labor in a country is 6,000.If the average efficiency of each worker in the economy doubles,the efficiency units of labor in the country will be ________,everything else remaining unchanged.

The short-run aggregate production function is subject to ________ if capital stock is increased,holding the total efficiency units of labor constant.

Scenario: In Riverland, life expectancy is rising and has just surpassed life expectancy in its neighbor country, Lakeland. -Refer to the scenario above.As life expectancy is rising further in Riverland,its Human Development Index likely will ________.

The following figure shows the total output that an economy can produce using varying amounts of capital. -Refer to the figure above.The increase in output due to the same one-unit increase in capital is the greatest at point ________.

Can unionization in an industry adversely affect productivity? Explain your answer.

Suppose a country's labor supply increases in a year while its physical capital stock remains constant.Which of the following is likely to happen in this case if output is a function of capital and the total efficiency units of labor?

Which of the following is true?