Macroeconomics Ch 3

Assume that the production function is Cobb-Douglas with parameter = 0.3. If factors are paid their marginal products, capital and labor, respectively, receive the shares of income:

0.3 and 0.7.

Assume that a firm wants to build a factory that will cost $5 million. It believes that it can get a return of $600,000 in one year and then can sell the used factory for its original cost. The rate of return on this investment would be:

12 percent

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 600. Government spending is equal to 1,000. Investment is given by the equation I = 2,160 - 100r, where r is the real interest rate in percent. In this case, the equilibrium real interest rate is:

13 percent

If Y = AK0.5L0.5 and A, K, and L are all 100, the marginal product of capital is:

50

Assume that the investment function is given by I = 1,000 - 30r, where r is the real rate of interest (in percent). Assume further that the nominal rate of interest is 10 percent and the inflation rate is 2 percent. According to the investment function, investment will be:

760

The demand for output in a closed economy is the sum of

consumption, investment, and government spending.

If the consumption function is given by C = 150 + 0.85(Y - T) and T increases by 1 unit, then savings:

decreases by .15 units

Assume that the consumption function is given by C = 150 + 0.85(Y - T) and the tax function is given by T = t0 + t1Y. If t0 increases by 1 unit, then consumption:

decreases by .85 units

In the long run, the level of national income in an economy is determined by its

factors of production and Production function

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

is 75 percent

With a Cobb-Douglas production function, the share of output going to labor:

is independent of the amount of labor.

Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate.

positively, negatively

What determines the distribution of national income between labor and capital in a competitive, profit-maximizing economy with constant returns to scale?

the marginal productivity of labor relative to the marginal productivity of capital

According to Euler's theorem, if competitive firms pay each factor its marginal product and the production function has constant returns to scale, the sum of all factor payments will equal

total output

The real wage is the return to labor measured in:

units of output

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:

$1,500

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:

$1,500

The home that would have the highest mortgage payment on a 30-year fixed-rate mortgage would be a home with a mortgage of:

$200,000 at 12 percent.

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

$500

If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then savings:

.15 units

The property of diminishing marginal product means that, after a point, when additional quantities of:

a factor are added when another factor remains fixed, the marginal product of that factor diminishes.

A production function is a technological relationship between:

factors of production and the quantity of output produced.

The equation = C ( - ) + I (r) + may be solved for the equilibrium level of:

the interest rate.

In a Cobb-Douglas production function the marginal product of labor will increase if:

the quantity of capital increases

In a Cobb-Douglas production function the marginal product of capital will increase if:

the quantity of labor increases.

If the consumption function is given by C = 500 + 0.5(Y - T), and Y is 6,000 and T is given by T = 200 + 0.2Y, then C equals:

$2,800

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:

$3,000

If disposable income is 4,000, consumption is 3,500, government spending is 1,000, and tax revenues are 800, national saving is equal to:

$300

Assume that the consumption function is given by C = 200 + 0.7(Y - T), the tax function is given by T = 100 + 0.2Y, and Y = 50K0.5L0.5, where K = 100. If L increases from 100 to 144, then consumption increases by:

$560

Suppose that GDP (Y) is 5,000. Consumption is given by the equation C = 500 + 0.5(Y - T). Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate in percent. Government spending (G) is 1,000 and taxes (T) is also 1,000. When a technological innovation changes the investment function to I = 3,000 - 100r:

I is unchanged and r rises by 10 percentage points.

The marginal product of labor is:

additional output produced when one additional unit of labor is added.

According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed:

between the labor and capital used in production, according to their marginal productivities.

If output is described by the production function Y = AK 0.2L0.8, then the production function has:

Constant returns to scale

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:

lower investment and raise the interest rate.