Topic 1

Question 1

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

Answer 1

A higher level of labour productivity

Question 2

In the circular flow model, households receive income from the_____ market and save through the _____ market

Answer 2

factor; financial

Question 3

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

Answer 3

goods; factor

Question 4

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

Answer 4

amounts of equipment and workers are both doubled, twice as much bread will be produced

Question 5

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

Answer 5

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

Question 6

A competitive, profit maximising firm hires labour until the

Answer 6

price of output multiplied by the marginal product of labour equals the wage

Question 7

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

Answer 7

the real wage

Question 8

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

Answer 8

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

Question 9

The increasing income inequality of recent decades is the result of

Answer 9

a steady pace of technology advance and a slowdown in educational advance

Question 10

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

Answer 10

increases; higher

Question 11

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

Answer 11

Education

Question 12

Estimates by Goldin indicate that the financial returns of a year of college between 1980 and 2005

Answer 12

Increased

Question 13

According to the neoclassical theory of distribution, in an economy described by a Cobb-Douglas P.F workers should experience high rates of real wage growth when…

Answer 13

average labour productivity is growing rapidly

Question 14

A consumption function shows the relationship between consumption and

Answer 14

disposable income

Question 15

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

Answer 15

Positively, negatively

Question 16

The marginal propensity to consume is

Answer 16

normally expected to be between zero and one

Question 17

When economists speak of the interest rate, they mean…

Answer 17

no particular interest rate, as they all fluctuate together

Question 18

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

Answer 18

the interest rate

Question 19

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

Answer 19

decrease

Question 20

In the classical model with fixed income, if the interest rate is too high, then investment is too ____ and the demand for output _____ of the supply

Answer 20

low, falls short