Econ ch 3

An economy's factors of production and its production function determine the economy's: A population growth rate. B labor force participation rate. C output of goods and services. D budget surplus or deficit.

C output of goods and services.

According to the neoclassical theory of distribution, in an economy described by a Cobb-Douglas production function, when average labor productivity is growing rapidly: A economic profits will be positive. B workers will experience high rates of real wage growth. C labor's share of total income will be increasing. D labor's share of income will be decreasing

B workers will experience high rates of real wage growth.

A competitive, profit-maximizing firm hires labor until the: A marginal product of labor equals the wage. B wage equals the rental price of capital. C real wage equals the real rental price of capital. D price of output multiplied by the marginal product of labor equals the wage.

D price of output multiplied by the marginal product of labor equals the wage.

Other things equal, an increase in the interest rate leads to: no change in the quantity of investment goods demanded. sometimes an increase and sometimes a decrease in the quantity of investment goods demanded. a decrease in the quantity of investment goods demanded. an increase in the quantity of investment goods demanded.

a decrease in the quantity of investment goods demanded.

In a Cobb-Douglas production function the marginal product of labor will increase if: A capital's share of output increases. B average labor productivity decreases. Cthe quantity of capital increases. Dthe quantity of labor increases

c

Consumption depends positively on ______ and investment depends negatively on ______. public saving; private saving private saving; public saving disposable income; the real interest rate the real interest rate; disposable income

disposable income; the real interest rate

National saving refers to: disposable income minus consumption. income minus consumption minus government spending. taxes minus government spending. Income minus investment.

income minus consumption minus government spending.

When government spending increases and taxes are increased by an equal amount, interest rates: increase. decrease. remain the same. can vary wildly.

increase.

In the neoclassical model with fixed income, if there is a decrease in government spending with no change in taxes, then public saving ______ and private saving ______. decreases; increases increases; increases. decreases; does not change increases; does not change

increases; does not change

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

investment decreases.

In equilibrium, total investment equals: national saving. household saving. public saving. private saving.

national saving.

If saving exceeds investment demand, and consumption is not a function of the interest rate: saving will fall. the demand for loans exceeds the supply of loans. the interest rate will fall. the interest rate will rise.

the interest rate will fall.

The equation T=C(Y-T)+I(r)+G may be solved for the equilibrium level of: income. consumption. government purchases. the interest rate.

the interest rate.

If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then C increases by: 0.85 units. 1 unit. 0.5 units. 0.15 units.

0.85 units.

At any particular point in time, the output of the economy: A is fixed because the demand for goods and services is fixed. B is fixed because the supplies of capital and labor and the technology are fixed. C varies because the supplies of capital and labor vary. D varies because the technology for turning capital and labor into goods and services varies

B is fixed because the supplies of capital and labor and the technology are fixed.

According to the neoclassical theory of distribution, total output is divided between payments to capital and payments to labor depending on their: A supply. B marginal productivities. C relative political power. D equilibrium growth rates.

B marginal productivities.

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. lower both investment and the interest rate. raise both investment and the interest rate. raise investment and lower the interest rate.

lower investment and raise the interest rate.