Intermediate Macroeconomics – Chapter 3 Practice Questions

question

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

answer

factors of production and production function

question

A production function is a technological relationship between:

answer

factors of production and the quantity of output produced

question

The marginal product of labor is:

answer

additional output produced when one additional unit of labor is added

question

The property of diminishing marginal product means that, after a point, when additional quantities of:

answer

a factor are added when another factor remains fixed, the marginal product of that factor diminishes

question

The real wage is the return to labor measured in:

answer

units of output

question

According to Euler's theorem, if competitive firms pay each factor its marginal product and the production function has constant returns to scale, the sum of all factor payments will equal:

answer

total output

question

According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed:

answer

between the labor and capital used in production, according to their marginal productivities

question

What determines the distribution of national income between labor and capital in a competitive, profit-maximizing economy with constant returns to scale?

answer

the marginal productivity of labor relative to the marginal productivity of capital

question

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

answer

is independent of the amount of labor

question

If output is described by the production function Y = AK^0.2L^0.8, then the production function has:

answer

constant returns to scale

question

If Y=AK^0.5L^0.5 and A,K, and L are all 100, the marginal product of capital is:

answer

question

If the production function describing an economy is Y=100K^0.25L^0.75, then the share of output going to labor:

answer

is 75 percent

question

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

answer

the quantity of capital increases

question

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

answer

the quantity of labor increases

question

The demand for output in a closed economy is the sum of:

answer

consumption, investment, and government spending

question

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

answer

positively; negatively

question

If the consumption function is given by C=500+0.5(Y-T), and Y is 6,000 and T is given by T=200 +0.2Y, then C equals:

answer

2,800

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If the consumption function is given by C=500+0.5Y, the production function is Y=50K^0.5L^0.5, where K = 100 and L = 100, then C equals:

answer

3,000

question

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

answer

0.85 unit

question

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

answer

increases by 0.15 unit

question

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

answer

decreases by 0.15 unit

question

Assume that the consumption function is given by C= 150 + 0.85(Y-T) and the tax function is given by T= t0 +t1Y. If t0 increases by 1 unit, then consumption:

answer

decreases by 0.85 unit

question

Assume that the consumption function is given by C = 200 + 0.7(Y-T), the tac function is given by T = 100 + 0.2Y, and Y = 50K^0.5L^0.5, where K = 100. If L increases from 100 to 144, then consumption increases by:

answer

560

question

Assume that a firm wants to build a factory that will cost $5 million. It believes that it can get a return $600,000 in one year and then can sell the used factory for its original cost. The rate of return on this investment would be:

answer

12 percent

question

The home that would have the highest mortgage payment on a 30-year fixed-rate mortgage would be a home with a mortgage of:

answer

$200,000 at 12 percent

question

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:

answer

760

question

The equation Y= C (Y -T ) + I (r) + G may be solved for the equilibrium level of:

answer

the interest rate

question

If disposable income is 4,000 consumption is 3,500, government spending is 1,000, and tax revenues are 800, national saving is equal to:

answer

300

question

If income is 4,800, consumption is 3,500, government spending is 1,000, and tax revenues are 800, private saving is:

answer

500

question

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:

answer

1,500

question

Assume that equilibrium GDP (Y) is 5,000. Consumption (C). is given by the equation C = 500 + 0.6(Y-T). Taxes (T) are equal to 1,000. Government spending is 600. In this case, equilibrium investment is:

answer

1,500

question

Assume that equilibrium GDP (Y) is 5,000. Consumption (C). is given by the equation C = 500 + 0.6(Y-T). Taxes (T) are equal to 600. Government spending is equal to 1,000. Investment is given by the equation I = 2,160 - 100r, where r is the real interest rate in percent. In this case, the equilibrium real interest rate is:

answer

13 percent

question

Suppose that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0.5(Y - T). Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate in percent. Government spending (G) is 1,000 and taxes (T) is also 1,000. When a technological innovation changes the investment function to I = 3,000 - 100r:

answer

I is unchanged and r rises by 10 percentage points

question

Assume that the production function is Cobb-Douglas with parameter α = 0.3. If factors are paid for their marginal products, capital and labor, respectively, receive the shares of income:

answer

0.3 and 0.7

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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:

answer

lower investment and raise the interest rate

1 of 35

question

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

answer

factors of production and production function

question

A production function is a technological relationship between:

answer

factors of production and the quantity of output produced

question

The marginal product of labor is:

answer

additional output produced when one additional unit of labor is added

question

The property of diminishing marginal product means that, after a point, when additional quantities of:

answer

a factor are added when another factor remains fixed, the marginal product of that factor diminishes

question

The real wage is the return to labor measured in:

answer

units of output

question

According to Euler's theorem, if competitive firms pay each factor its marginal product and the production function has constant returns to scale, the sum of all factor payments will equal:

answer

total output

question

According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed:

answer

between the labor and capital used in production, according to their marginal productivities

question

What determines the distribution of national income between labor and capital in a competitive, profit-maximizing economy with constant returns to scale?

answer

the marginal productivity of labor relative to the marginal productivity of capital

question

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

answer

is independent of the amount of labor

question

If output is described by the production function Y = AK^0.2L^0.8, then the production function has:

answer

constant returns to scale

question

If Y=AK^0.5L^0.5 and A,K, and L are all 100, the marginal product of capital is:

answer

question

If the production function describing an economy is Y=100K^0.25L^0.75, then the share of output going to labor:

answer

is 75 percent

question

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

answer

the quantity of capital increases

question

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

answer

the quantity of labor increases

question

The demand for output in a closed economy is the sum of:

answer

consumption, investment, and government spending

question

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

answer

positively; negatively

question

If the consumption function is given by C=500+0.5(Y-T), and Y is 6,000 and T is given by T=200 +0.2Y, then C equals:

answer

2,800

question

If the consumption function is given by C=500+0.5Y, the production function is Y=50K^0.5L^0.5, where K = 100 and L = 100, then C equals:

answer

3,000

question

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

answer

0.85 unit

question

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

answer

increases by 0.15 unit

question

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

answer

decreases by 0.15 unit

question

Assume that the consumption function is given by C= 150 + 0.85(Y-T) and the tax function is given by T= t0 +t1Y. If t0 increases by 1 unit, then consumption:

answer

decreases by 0.85 unit

question

answer

560

question

answer

12 percent

question

The home that would have the highest mortgage payment on a 30-year fixed-rate mortgage would be a home with a mortgage of:

answer

$200,000 at 12 percent

question

answer

760

question

The equation Y= C (Y -T ) + I (r) + G may be solved for the equilibrium level of:

answer

the interest rate

question

If disposable income is 4,000 consumption is 3,500, government spending is 1,000, and tax revenues are 800, national saving is equal to:

answer

300

question

If income is 4,800, consumption is 3,500, government spending is 1,000, and tax revenues are 800, private saving is:

answer

500

question

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:

answer

1,500

question

answer

1,500

question

answer

13 percent

question

answer

I is unchanged and r rises by 10 percentage points

question

Assume that the production function is Cobb-Douglas with parameter α = 0.3. If factors are paid for their marginal products, capital and labor, respectively, receive the shares of income:

answer

0.3 and 0.7

question

answer

lower investment and raise the interest rate

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Intermediate Macroeconomics – Chapter 3 Practice Questions

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