Macro 3311 First HW

Suppose that a major natural disaster destroys a large part of a country's capital stock but miraculously does not cause anybody bodily harm. What will happen to the real wage rate?

It will fall.

Investment depends on the ________ interest rate because higher inflation will ________ the value of the dollars with which the firm will repay the loan.

real; decrease

A competitive firm hires labor until the marginal product of labor equals the:

real wage.

The government is running a budget deficit if:

government spending is greater than tax revenue

A competitive firm rents capital until the marginal product of capital equals the:

real rental price of capital

Suppose that a consumer has a marginal propensity to consume of 0.8. If this consumer receives an extra $2 of disposable income, her saving would be expected to increase by

$0.40.

Suppose that a consumer has a marginal propensity to consume of 0.7. If this consumer earns an extra $2, her consumption spending would be expected to increase by:

$1.40.

Consider the following production table Labor Capital Output 1 2 3 2 2 6 3 2 8 By how much does the marginal product of labor decrease as labor input increases from 1 to 2 and from 2 to 3?

1

In the Cobb- Douglas production function, Y=KaL1-athe fraction of income spent as payment to labor is:

1 - α

Consider the following production table: Labor: Capital Output 1,000 1,000 10,000 2,002 2,000 20,010 Assuming that the production function displays constant returns to scale, what is the marginal product of labor when labor and capital are both equal to 1,000?

5

Which of the following is NOT a characteristic of the Cobb-Douglas production function?

Capital and labor receive equal fractions of income.

According to the simple macroeconomic model presented in Chapter 3, which of the following will not be caused by an increase in government spending?

a decrease in consumption

The returns to scale in the production function Y = K0.5L0.5 are

constant

In a closed economy, the supply of goods and services must be equal to:

consumption + investment + government purchases

If a production function has two inputs and exhibits constant returns to scale, then doubling both inputs will cause the output to:

double

Euler's theorem implies that if a production function exhibits constant returns to scale, then:

economic profit is zero

If a firm with a constant returns to scale production function pays all factors their marginal products, then:

economic profit is zero and accounting profit is positive

If the supplies of capital and labor are fixed and technology is unchanging, then real output is

fixed

The supply of loanable funds, or "national saving," is equal to:

income − consumption − government spending.

Private saving is equal to:

income − consumption − taxes.

In a closed economy with fixed output, an increase in government spending without any change in taxes will lead to a(n):

increase in the real interest rate and no change in private saving.

A leftward shift of the savings curve CANNOT be caused by a(n):

increase in the real interest rate.

In a closed economy with output fixed, an increase in government spending matched by an equal increase in taxes will:

increase the interest rate.

In a closed economy, with total output and taxes fixed, if government spending rises

investment falls.

If a production function has the property of diminishing marginal product, then doubling

one of the inputs will reduce its marginal product

In a closed economy that is in equilibrium, investment is equal to:

private saving plus public saving.

Suppose that there is a positive shock to investment demand: that is, at every interest rate, the desired amount of investment rises. In a closed economy with the national saving fixed, the real interest rate will:

rise.

In the Supply and Demand of Loanable Funds model in Chapter 3, a decrease in taxes will shift the:

savings curve to the left.

The real interest rate is equal to the nominal interest rate minus:

the inflation rate.

In the Supply and Demand of Loanable Funds model presented in Chapter 3, the variable that adjusts to equilibrate the supply and demand for goods and services is:

the real interest rate.

In a closed economy with a fixed total income, a reduction in taxes will cause consumption:

to rise and investment to fall.

If the real interest rate rises, the quantity of investment demanded:

will fall.