ECON 2202 HW3

positively, negatively

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

been about 0.7

Since 1960, the U.S. ratio of labor income to total income has:

nominal interest rate minus the rate of inflation.

The real interest rate is the:

a steady pace of technological advance and a slowdown in educational advance.

According to Goldin and Katz, the increasing income inequality of recent decades is the result of:

investment decreases

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

Decrease

According to the model developed in Chapter 3, when taxes are increased but government spending is unchanged, interest rates:

increases, decreases

Crowding out occurs when an increase in government spending ______ the interest rate and investment ______.

The interest rate will fall

If saving exceeds investment demand, and consumption is not a function of the interest rate:

decreases by .15 units

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

3000

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:

disposable income; the interest rate; exogenously

In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on _____ , the amount of investment spending depends on _____, and the amount of government spending is determined _____.

Public savings decrease

In a closed economy with fixed output, when government spending increases:

national savings

In equilibrium, total investment equals:

substantially increased real wages in Europe.

In fourteenth-century Europe, the bubonic plague:

goods, factor

In the circular flow diagram, firms receive revenue from the _____ market, which is used to purchase inputs in the _____ market.

increase in government spending

In the classical model with fixed income, an increase in the real interest rate could be the result of a(n):

low, falls short of

In the classical model with fixed income, if the interest rate is too high, then investment is too ______ and the demand for output ______ the supply.

factors of production and production function.

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

business firms and households.

Investment goods as measured in the GDP are purchased by:

a decrease in the quantity of investment goods demanded.

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

a. 2200, 1300, 4% b. 1800, -500, 1300 c. 2200, 1300, 14% d. 1800, -500, 1300

Assume that GDP (Y) is 5,000. Consumption (C). is given by the equation C = 1,000 + 0.3(Y - T). Investment (I) is given by the equation I = 1,500 - 50r, where r is the real interest rate in percent. Taxes (T) are 1,000 and government spending (G) is 1,500. a. What are the equilibrium values of C, I, and r? b. What are the values of private saving, public saving, and national saving? c. Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2,000 - 50r. What are the new equilibrium values of C, I, and r? d.What are the new values of private saving, public saving, and national saving?

1500

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:

760

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:

both the real wage and the real rental price of capital will rise.

If a neutral technological advance improves the production function, the neoclassical theory of distribution predicts:

amounts of equipment and workers are both doubled, twice as much bread will be produced.

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

investment

The demand for loanable funds is equivalent to:

Point B

The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government cuts spending, holding other factors constant?

falls by $40 billion

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, private saving:

A. federal spending on goods. B. federal spending on services. Correct C. federal spending on transfer payments. D. state and local spending on goods.

The government spending component of GDP includes all of the following except:

normally expected to be between zero and one.

The marginal propensity to consume is: