Question 1

In the aggregate production function,Y represents real GDP,K represents the capital stock,L represents the quantity of labour,and A represents an index of efficiency.Which of the following equations represents the aggregate production function?

Accepted Answer

A)   Y = (K × L)  / A
B)   Y × A = (K × L) 
C)   Y = AF(K, L) 
D)   Y = (K × L)  = A /FY C

Question 2

Explain why the differences in GDP per capita actually understate the true difference in living standards between countries.

Accepted Answer

GDP per capita only measures the quantity of goods and services available to the average person in a country.It does not reflect other indicators of living standards such as life expectancy,level of education,corruption,and disease,which also tend to be more favourable in countries with a high GDP per capita.As a result,the difference in GDP per capita will tend to underestimate the true difference in living standards across countries.

Question 3

Explain how a well-functioning financial system can increase total factor productivity and promote economic growth.

Accepted Answer

The financial system can influence the efficiency of the economy,which means it can influence total factor productivity.Financial systems match borrowers with lenders and therefore help allocate resources in an economy.By allocating funds to the individuals who are willing to pay the most to obtain the funds,which generally means their investment projects have the best likelihood for success,a good financial system ensures that resources flow to their most productive uses,which increases total factor productivity.This results in increased labour productivity and a higher standard of living.

Question 4

All else equal,if the demand for labour increases and the supply of labour does not change,the equilibrium real wage will ________ and the equilibrium quantity of labour will ________.

Accepted Answer

A)   increase; increase
B)   increase; not change
C)   decrease; decrease
D)   not change; increase

Question 5

The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs is called the firm's

Accepted Answer

A)   total factor productivity.
B)   marginal production level.
C)   technological ratio.
D)   production function.

Question 6

Suppose that the production function for an economy is Y = AK¹/³ᴸ²/³.On one graph,show the production function undergoing two equal increases in workers,holding capital and total factor productivity constant,and on a second graph show the production function undergoing two equal increases in total factor productivity,holding capital and labour constant.Explain what happens to real GDP in each situation.

Accepted Answer

The answer of Suppose that the production function for an...

Question 7

Suppose that the production function for the economy is Y = AK⁰.²ᴸ⁰.⁸.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 1,the marginal product of capital is

Accepted Answer

A)   $0.066.
B)   $0.20.
C)   $1.05.
D)   $1.58.

Question 8

Suppose that the production function for the economy is: Y = AK¹/⁴ᴸ³/⁴.Assume that A = 1000,the capital stock is $32 000 billion,and the current labour force is 120 million (or 0.120 billion)workers.All else equal,if the labour force increases by 20 million workers,the value of the marginal product of capital will be

Accepted Answer

A)   $0.0104.
B)   $0.0239.
C)   $0.0639.
D)   $0.0717.

Question 9

Suppose that the production function is Y = AK⁰.⁷ᴸ⁰.³,the number of workers equals 800,the capital stock is $150 000,and total factor productivity is 3.What is the value of real GDP? What will happen to real GDP if total factor productivity doubles?

Accepted Answer

The answer of Suppose that the production function is Y...

Question 10

Explain how firms choose the amount of capital goods to purchase and the amount of labour to hire.

Accepted Answer

The answer of Explain how firms choose the amount of...

Question 11

Suppose y = Ak¹/⁴,the capital-labour ratio is $40 000 per worker,the level of total factor productivity is 800,70% of the population works,and there are 70 million workers.Real GDP per worker is

Accepted Answer

A)   $5000.00.
B)   $7919.60.
C)   $11 313.71.
D)   $14 142.14.

Question 12

The per worker production function shows the relationship between

Accepted Answer

A)   the labour force and the capital stock.
B)   the supply of labour and the population.
C)   the hours worked and the number of workers.
D)   real GDP per worker and capital per worker.

Question 13

Diminishing marginal returns do not exist for increases in

Accepted Answer

A)   capital stock.
B)   labour.
C)   total factor productivity.
D)   Diminishing marginal returns exist for all of the above answers.

Question 14

The aggregate production function is an equation that shows the relationship between ________ and ________.

Accepted Answer

A)   the inputs employed by firms; the maximum output firms can produce with those inputs
B)   the inputs employed by an individual firm in an economy; the average of the inputs employed by all firms in an economy
C)   the output produced by an individual firm in an economy; the average of the output produced by all firms in an economy
D)   the average level of capital used in production in an economy; the average level of labour used in production in an economy

Question 15

Suppose that the production function for the economy is: Y = AK¹/⁴ᴸ³/⁴.Assume that A = 1000,the current capital stock is $32 000 billion,and the labour force is 120 million (or 0.120 billion)workers.All else equal,if the capital stock increases by $8000,the value of the marginal product of labour will be

Accepted Answer

A)   $18 021.09.
B)   $20 223.24.
C)   $21 625.30.
D)   $60 070.29.

Question 16

Suppose that the production function for the economy is Y = AK⁰.²⁵ᴸ⁰.⁷⁵,A = 2,?K = 100 000,and L = 60 000.What are the values of real GDP,the real wage,and the real rental cost of capital? Show this data using graphs of the aggregate production function,the aggregate capital market,and the aggregate labour market.

Accepted Answer

The answer of Suppose that the production function for the...

Question 17

Suppose that the production function for the economy is Y = AK⁰.⁵ᴸ⁰.⁵.If the capital stock ?= 40 000,the quantity of labour = 10 000,and the efficiency index = 3,the equilibrium real wage is

Accepted Answer

A)   $3.
B)   $4.50.
C)   $9.
D)   $16.67.

Question 18

Figure 7.1
 
-Refer to Figure 7.1.All else equal,an increase in total factor productivity will cause a

Accepted Answer

A)   shift from PF₁ to PF₂.
B)   shift from PF₂ to PF₁.
C)   movement up and to the right along PF₁.
D)   movement down and to the left along PF₂.

Question 19

Which of the following equations best represents a Cobb-Douglas production function?

Accepted Answer

A)   Y = AK¹ᴸ¹
B)   Y = AK³/⁴ᴸ¹/⁴
C)   Y = AK¹/³ᴸ³
D)   Y = AK²/³ᴸ³/²

Question 20

Suppose that the production function is Y = AK²/⁵ᴸ³/⁵.Assume that real GDP is $5000 billion,capital stock is $15 000 billion,and the labour supply is 75 million workers.What are the values for the marginal product of labour and the marginal product of capital? Show this data graphically.

Accepted Answer