QUIZ 2

An example of decreasing returns to scale is when capital and labor inputs:

both increase 10 percent and output increases 5 percent.

Government transfer payments:

can be viewed as negative tax payments, T.

The investment function slopes ______ because there are ______ investment projects that are profitable as the interest rate decreases.

downward; more

All of the following actions increase government purchases of goods and services except the:

federal government's sending a Social Security check to Betty Jones

The production function feature called "constant returns to scale" means that if we:

increase capital and labor by 10 percent each, we increase output by 10 percent.

According to the model developed in Chapter 3, when government spending increases but taxes stay the same, interest rates:

increase.

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

investment decrease

The neoclassical theory of distribution:

is a theory of how national income is divided among the factors of production.

In equilibrium, total investment equals:

national saving.

The supply of loanable funds is equivalent to:

national saving.

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

the quantity of capital increases.

According to the model developed in Chapter 3, when government spending increases and taxes increase by an equal amount:

consumption and investment both decrease

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

consumption increases and investment decreases

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

does not depend on the amount of labor in the economy.

Accounting profit is:

economic profit plus the return to capital.

In the circular flow model, households receive income from the _____ market and save through the _____ market.

factor; financial

A production function is a mathematical relationship between:

factors of production and the quantity of output produced.

In a neoclassical economy, assume that the government lowers both government spending and taxes by the same amount. This causes:

investment to rise and the interest rate to fall.

An economy's factors of production and its production function determine the economy's:

output of goods and services

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, national saving:

rises by $60 billion

If bread is produced using a constant returns to scale production function, then if the:

amount of equipment is doubled, twice as much bread will be produced.

If income is 4,800, consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, public saving is:

-200 Public saving = T-G = Tax revenue - government spending = 800 - 1000 = -200

Other things equal, an increase in the interest rate leads to:

a decrease in the quantity of investment goods demanded.

When there is a fixed supply of loanable funds, an increase in investment demand results in:

a higher interest rate.

The marginal product of capital is:

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

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:

rises 100 billion