Chapter 3: National Income: Where It Comes From and Where It Goes’

An economy's factors of production and its production function determine the economy's: -labor force participation rate. -budget surplus or deficit. -population growth rate. -output of goods and services.

At any particular point in time, the output of the economy: -is fixed because the demand for goods and services is fixed. -varies because the technology for turning capital and labor into goods and services varies. -varies because the supplies of capital and labor vary. -is fixed because the supplies of capital and labor and the technology are fixed.

A competitive, profit-maximizing firm hires labor until the: -price of output multiplied by the marginal product of labor equals the wage. -real wage equals the real rental price of capital. -wage equals the rental price of capital. -marginal product of labor equals the wage.

According to the neoclassical theory of distribution, total output is divided between payments to capital and payments to labor depending on their: -marginal productivities. -relative political power. -supply. -equilibrium growth rates.

In a Cobb-Douglas production function the marginal product of labor will increase if: -the quantity of labor increases. -capital's share of output increases. -the quantity of capital increases. -average labor productivity decreases.

According to the neoclassical theory of distribution, in an economy described by a Cobb-Douglas production function, when average labor productivity is growing rapidly: -economic profits will be positive. -workers will experience high rates of real wage growth. -labor's share of total income will be increasing. -labor's share of income will be decreasing.

If the consumption function is given by C = 150 + 0.85Y and Y increases by 1 unit, then C increases by: -0.85 units. -0.5 units. -0.15 units. -1 unit.

Other things equal, an increase in the interest rate leads to: -sometimes an increase and sometimes a decrease in the quantity of investment goods demanded. -a decrease in the quantity of investment goods demanded. -no change in the quantity of investment goods demanded. -an increase in the quantity of investment goods demanded.

Consumption depends positively on ______ and investment depends negatively on ______. -the real interest rate; disposable income -public saving; private saving -private saving; public saving -disposable income; the real interest rate

The equation F = C(Y-T)+I(r) + G may be solved for the equilibrium level of: -income. -the interest rate. -consumption. -government purchases.

National saving refers to: -income minus consumption minus government spending. -taxes minus government spending. -disposable income minus consumption. -income minus investment.

In equilibrium, total investment equals: -private saving. -national saving. -public saving. -household saving.

If saving exceeds investment demand, and consumption is not a function of the interest rate: -the interest rate will rise. -the interest rate will fall. -saving will fall. -the demand for loans exceeds the supply of loans.

According to the model developed in Chapter 3, when government spending increases without a change in taxes: -investment increases. -investment decreases. -consumption increases. -consumption decreases.

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 ______. -decreases; does not change -decreases; increases -increases; increases. -increases; does not change

When government spending increases and taxes are increased by an equal amount, interest rates: -increase. -can vary wildly. -remain the same. -decrease.

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: -lower investment and raise the interest rate. -raise both investment and the interest rate. -lower both investment and the interest rate. -raise investment and lower the interest rate.