ECN HW2

Question 1

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 ______.

Answer 1

Increases; does not change

Question 2

According to the neoclassical theory of distribution, total output is divided between payments to capital and payments to labor depending on their:

Answer 2

marginal productivities

Question 3

A competitive, profit-maximizing firm hires labor until the:

Answer 3

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

Question 4

National saving refers to:

Answer 4

income minus consumption minus government spending.

Question 5

An economy’s factors of production and its production function determine the economy’s:

Answer 5

output of goods and services.

Question 6

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

Answer 6

the quantity of capital increases.

Question 7

Think about the first loanable funds model presented in Chapter 3. If the quantity of saving exceeds the quantity of investment desired by firms:

Answer 7

the interest rate will fall????

Question 8

If an earthquake destroys some of the capital stock, the neoclassical theory of distribution predicts:

Answer 8

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

Question 9

What will be the new equilibrium combination of real interest rate, saving, and investment if there is a technological innovation that increases the demand for investment goods?

Answer 9

Point b????

Question 10

According to the neoclassical theory of distribution, in an economy described by a Cobb–Douglas production function, when average labor productivity is growing rapidly:

Answer 10

workers will experience high rates of real wage growth

Question 11

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

Answer 11

.85

Question 12

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

Answer 12

Investment decreases

Question 13

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 13

raise the interest rate and lower investment

Question 14

Consumption depends positively on ______ and investment depends negatively on ______.

Answer 14

Disposable income; the real interst rate

Question 15

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

Answer 15

a decrease in the quantity of investment goods demanded.

Question 16

At any particular point in time, the output of the economy:

Answer 16

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

Question 17

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

Answer 17

investment decreases