Macro Economics Chapter 3 Practice Questions

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 _______________

Disposable income; the interest rate; exogenously.

Government transfer payments...

can be viewed ass negative tax payments, T.

The two most important factors of production are:

capital and labor

In examining the impact of fiscal policy, it is assumed that:

consumption, investment, and the interest rate are endogenous variables.

In a neoclassical economy, if consumption increases as the interest rate decreases, then a $10 billion rise in government spending would...

crowd out between zero and $10 billion of investment

A consumption function shows the relationship between consumption and...

disposable income;

If government purchases exceed taxes minus transfer payments, then the government budget is...

in deficit.

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 __________________

increases; does not change.

In a neoclassical economy, assume that the government lowers both government spending and taxes by the same amount. By doing so:

investment rises and the interest rate falls.

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

is independent on the amount of labor.

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.

low; falls short of

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

public saving decreases.

When factor supply is fixed and quantity of the factor is graphed on the horizontal axis while factor price is graphed on the vertical axis, the factor:

supply curve is vertical.

In a cobb-douglas production function... the marginal product of capital will increase if:

the quantity of labor increases.