Practise Quiz 1

Question 1

Q1 - According to the Classical Model discussed in Topic 1 of your course book, what economic factors does make the GDP of one country higher than others in the long run?

A - A higher level of labour productivity
B - A higher level of GOVT spending
C - A higher level of investment spending
D - A higher level of consumption spending

Answer 1

A - A higher level of labour productivity

Question 2

Q2 - In the circular flow model, households receive income from the ___ market and save through the ___ market

A - Goods; financial
B - Factor; financial
C - Goods; factor
D - Factor; goods

Answer 2

B - Factor; goods

Question 3

Q3 - In the circular flow diagram, firms receive revenue from the ___ market, which is used to purchase inputs in the ___ market

A - Goods; financial
B - Factor; financial
C - Goods; factor
D - Factor; Goods

Answer 3

C - Goods; factor

Question 4

Q4 - If bread is produced by using a constant returns to scale production function, then if the:

A - number of workers is doubled, twice as much bread will be produced
B - amount of equipment is doubled, twice as much bread will be produced
C - amounts of equipment and workers are both doubled, twice as much bread will be produced
D - amounts of equipment and workers are both doubled, four times as much bread will be produced

Answer 4

C - Amounts of equipment and workers are both doubled, twice as much bread will be produced

Question 5

Q5 - The property of diminishing marginal product means that, after a point, when additional quantities of:

A - A factor are added, output diminishes
B - both labor and capital are added, output diminishes
C - both labor and capital are added, the marginal product of labor diminishes
D - a factor are added when another factor remains fixed, the marginal product of the first factor diminishes

Answer 5

D - A factor are added when another factor remains fixed, the marginal product of the first factor diminishes

Question 6

Q6 - A competitive, profit-maximising firm hires labour until the:

A - Marginal product of labour equals the wage
B - Price of output multiplied by the marginal product of labour equals the wage
C - Real wage equals the real rental price of capital
D - Wage equals the rental price of capital

Answer 6

B - Price of output multiplied by the marginal product of labour equals the wage

Question 7

Q7 - In the classical model, what adjusts to eliminate any unemployment of labour in the economy?

A - The average price level
B - The interest Rate
C - The real rental price of capital
D - The real wage

Answer 7

D - The real wage

Question 8

Q8 - 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:

A - Only to the labour used in production
B - partly between labor and capital used in production, with the surplus going to the owners of the firm as profits.
C - equally between the labor and capital used in production
D - between the labor and capital used in production, according to their marginal productivities

Answer 8

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

Question 9

Q9 - According to Goldin and Katz, the increasing income inequality of recent decades is the result of:

A - increases in the rates of technological advance and educational attainment
B - decreases in the rates of technological advance and educational attainment
C - a steady pace of technological advance and a slowdown in educational advance
D - a decrease in the rate of technological advance and an increase in the rate of educational advance

Answer 9

C - S steady pace of technological advance and a slowdown in educational advance

Question 10

Q10 - Skill-biased technological change ______ the demand for high-skilled workers, while the slowdown in the pace of educational advancement reduces the supply of skilled workers, resulting in relatively _____ wages for skilled workers.

A - Increases; higher
B - Increases; lower
C - Decreases; higher
D - Decreases; lower

Answer 10

A - Increases; higher

Question 11

Q11 - The public policy implication of Goldin and Katz’s analysis of growing income inequality is that reversing this trend will require that more of society’s resources be put into:

A - Space exploration
B - Capital Expenditures
C - Education
D - Transfer Payments

Answer 11

C - Education

Question 12

Q12 - Estimates by Goldin and Katz indicate that the financial returns of a year of college _____ between 1980 and 2005.

A - Increased
B - Decreased
C - Did not change
D - Were negative

Answer 12

A - Increased

Question 13

Q13 - According to the neoclassical theory of distribution, in an economy described by a Cobb–Douglas production function, workers should experience high rates of real wage growth when:

A - Real interest rates are high
B - Real interest rates are low
C - Average labour productivity is growing rapidly
D - Capital’s share of income is growing rapidly

Answer 13

C - Average labour productivity is growing rapidly

Question 14

Q14 - A consumption function shows the relationship between consumption and:

A - Income
B - Personal Income
C - Disposable Income
D - Taxes

Answer 14

C - Disposable income

Question 15

Q15 - Consumption depends ______ on disposable income, and investment depends ______ on the real interest rate

A - Positively; positively
B - Positively; negatively
C - Negatively; negatively
D - Negatively; positively

Answer 15

B - Positively; negatively

Question 16

Q16 - The marginal propensity to consume is:

A - Normally expected to be between zero and one
B - equal to consumption divided by disposable income
C - Normally assumed to decrease as disposable income increases
D - Normally assumed to increase as disposable income increases

Answer 16

A - Normally expected to be between zero and one

Question 17

Q17 - When economists speak of “the” interest rate, they mean:

A - The rate on 90 day treasury bills
B - The rate on 30 year GOVT bonds
C - The “prime” rate on loans
D - No particular interest rate, since it is assumed that various interest rates tend to move up and down together

Answer 17

D - no particular interest rate, since it is assumed that various interest rates tend to move up and down together.

Question 18

Q18 - Consumption depends positively on ___ and investment depends negatively on ___

A - Disposable income; the real interest rate
B - The real interest rate; disposable income
C - Private saving; public saving
D - Public saving; private saving

Answer 18

A - Disposable income; the real interest rate

Question 19

Q19 - In the classical model with fixed output, the supply and demand for goods and services are balanced by:

A - Government spending
B - Taxes
C - Fiscal policy
D - The interest rate

Answer 19

D - The interest rate

Question 20

Q20 - In the classical model with fixed income, if the demand for goods and services is less than the supply, the interest rate will:

A - Increase
B - Decrease
C - Remain unchanged
D - either increase or decrease, depending on whether consumption is greater or less than investment

Answer 20

B - Decrease

Question 21

Q21 - 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.

A - High; exceeds
B - High; falls short of
C - Low; exceeds
D - Low; falls short of

Answer 21

D - Low; falls short of

Question 22

Q22 - The factor that makes national saving equal investment, in equilibrium is:

A - The interest rate
B - Private saving
C - Public saving
D - Fiscal policy

Answer 22

A - The interest rate

Question 23

Q23 - If disposable income is 4,000, consumption is 3,500, government spending is 1,000, and taxes minus transfers are 800, national saving is equal to:

A - 300
B - 500
C - 700
D - 1000

Answer 23

A - 300

Question 24

Q24 - According to the model developed in Chapter 3, when government spending increases without a change in taxes:

A - Consumption increases
B - Consumption decreases
C - Investment increases
D - Investment decreases

Answer 24

D - Investment decreases

Question 25

Q25 - According to the model developed in Chapter 3, when taxes are increased but government spending is unchanged, interest rates:

A - Increase
B - Are unchanged
C - Decrease
D - Can vary wildly

Answer 25

C - Decrease