ECO 402 Quiz 2 Questions

Suppose that the production function for the economy is Y=AK^(1/4)L^(3/4). Assume that real GDP is $8000 billion, capital stock is $32000 billion, and the labor supply is 120 million (or .120 billion) workers. Total factor productivity for this economy is A) 16.50 B) 1,016.52 C) 2,083.33 D) 2,933.65

2,933.65

Which of the following equations best represents the concept of constant returns to scale? A) 2Y= 2AF(2K, 2L) B) 3Y= AF(3K, 3L) C) 1/4Y= (AF/4)(4K, 4L) D) 5Y= [AF(K,L)]/ 5

3Y=AF(3K, 3L)

Diminishing marginal returns to labor refers to the fact that A) holding other inputs constant, additional increase in labor lead to lower output B) additional increase in labor always lead to smaller changes in output C) the marginal returns to labor fall as real wages rise D) holding other inputs constant, each additional increase in labor leads to successively smaller but still positive changes in output

Holding other inputs constant, each additional increase in labor leads to successively smaller but still positive changes in output

All else equal, if the demand for labor increase and the supply of labor does not change, the equilibrium real wage will ____ and the equilibrium quantity of labor will _____ A) Decrease; decrease B) not change; increase C) increase; increase D) increase; not change

Increase, not change ( could be argued increase, increase)

Changes in all of the following will shift the demand curve for labor except A) the quantity of capital B) the real wage rate C) the technology of production D) the skill level of workers

The real wage rate

The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs is called the firm's A) production function B) total factor productivity C) marginal production level D) technological ratio

Production function

A positive upward shift in the aggregate production function that raises the marginal product of labor: A) shifts the labor demand curve inward B) shifts the labor demand curve outward C) has no impact on the position of the labor demand curve since neither W nor P is specified to have changed, though MPL does shift upward D) will raise the marginal cost of production at the initial level of labor usage

Shifts the demand curve outward

The income effect of a real wage increase is observed when A) the higher wage causes workers to take more leisure and work fewer hours B) the higher wage causes workers to take less leisure and work more hours C) leisure's higher opportunity cost causes workers to take less leisure and work more hours D) leisure's higher opportunity cost causes workers to take more leisure and work more hours

The higher wage causes workers to take more leisure and work fewer hours

If Albert increases his work hours when his real wage increases, then A) the substitution effect of the wage increase outweighs the income effect B) the income effect of the wage increase outweighs the substitution effect C) leisure is an inferior good to Alberto D) the substitution effect of the wage increase is completely offset by the income effect

The substitution effect of the wage increase outweighs the income effect

If the dollar appreciates relative to the Swiss franc, A) Swiss imports to the United States become more expensive B) The value of Swiss imports to the United States does not change C) US exports to Switzerland become more expensive D) US exports to Switzerland become less expensive

US exports to Switzerland become more expensive

If MC < P, the typical firm will: A) want to employ more workers B) want to employ fewer workers C) cut the nominal wage of workers to increase profits D) raise the price of output it sells to increase profits E) some combination of C and D

Want to employ more workers

If the nominal rental price of capital divided by the price of output is less than the product of capital, a firm that wishes to maximize profits will A) maintain the current level of capital goods B) Allow capital goods to wear out without purchasing additional capital goods C) acquire more capital goods D) acquire fewer capital goods

acquire more capital goods

The price of domestic goods in terms of foreign goods is referred to as the A) nominal exchange rate B) real exchange rate C) relative inflation rate D) purchasing power parity rate

real exchange rate

If the exchange rate changes from $1.52 = £1.00 to $1.65 = £ 1.00, then relative to each other A) both the dollar and the British pound have appreciated B) both the dollar and the British pout have depreciated C) the dollar has depreciated and the British pound has appreciated D) the dollar has appreciated and the British pound has depreciated

the dollar has depreciated and the British pound has appreciated

In the short run, the labor supply curve for most people slopes upward because A) labor supply experience increasing marginal returns B) the substitution effect is completely offset by the income effect C) there is a direct relationship between the quantity of labor supplied and the quantity of labor demanded D) the substitution effect is stronger than the income effect

the substitution effect is stronger than the income effect