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Suppose that the production function is Y = A K1/4L3/4.What is the marginal product of labor (MPL)?
Draw a graph of the aggregate production function with capital, K, on the horizontal axis. Why does it have the shape that you have drawn?
Suppose that it is known that labor receives 25% of national income. With a Cobb-Douglas production function and an initial level of real GDP of $10,000, what happens to real GDP if both capital and l
Real GDP per hour worked in the United States grew by 2.17% per year from 1949 to 2009, and capital per hour worked grew at the rate of 2.27% per year during the same years.
Suppose that the production function for the economy is: Assume that real GDP is $12,000 billion, the capital stock is $40,000 billion, and the labor supply is 200 billion hours.
Suppose real GDP is $10,000 billion and the basic expenditure multiplier is two. If two tax changes are made at the same time:
Find the equilibrium level of GDP. Next, find the multipliers for government purchases and for fixed taxes. If full employment comes at Y 5 1,800, what are some policies that would move GDP to that le
Explain how your answers to Test Yourself Question 5 would differ if each of the assumptions changed. Specifically, what sorts of changes in the assumptions would weaken the effects of monetary policy
The money supply (M) is the sum of bank deposits (D) plus currency in the hands of the public (call that C). Suppose the required reserve ratio is 20 percent and the Fed provides $50 billion in bank r
In a certain economy, the multiplier for government purchases is 2 and the multiplier for changes in fixed taxes is 1.5. The government then proposes to raise both spending and taxes by $100 billion.&
The federal budget for national defense increased substantially to pay for the Iraq and Afghanistan wars. How would GDP in the United States have been affected if this higher defense spending led to
Use an aggregate supply-and-demand diagram to show that multiplier effects are smaller when the aggregate supply curve is steeper. Which case gives rise to more inflation—the steep aggregate sup
Suppose a worker receives a wage of $20 per hour. Compute the real wage (money wage deflated by the price index) corresponding to each of the following possible price levels: 85, 95, 100, 110, 120.
Explain the basic logic behind the multiplier in words. Why does it require b, the marginal propensity to consume, to be between 0 and 1?
Firms in Fredonia always invest $700 and net exports are zero, initially. The government budget is balanced with spending and taxes both equal to $500.
What will happen to the equilibrium level of GDP if investors become optimistic about the country’s future and raise their investment to $600?
The government budget is balanced, with government purchases and taxes both fixed at $1,000. Net exports are $100. Investment is $600. Find equilibrium GDP. What is the multiplier for this economy?
Mr. Black and Mr. Blue, each out for a Sunday drive, have a collision in which their cars are destroyed. Black and Blue each hire a lawyer to sue the other, paying the lawyers $5,000 each for services
What are the four main components of aggregate demand? Which is the largest? Which is the smallest?
Profit-maximizing behaviour on the part of firms explains why the short-run aggregate supply curve is upward-sloping. Is this statement true, false, or uncertain? Explain your answer.
Suppose that government spending is raised at the same time that the money supply is lowered. What will happen to the position of the aggregate demand curve?
A is autonomous expenditure, b is the interest elasticity of investment expenditure, k is the income elasticity of money demand, he is the interest elasticity of money demand, It is the tax rate, and
M/P=kY – bi where k is the income elasticity and h is the (nominal) interest rate elasticity of real money balances. Assume that k > 0 and that h > 0. Further assume that the quantit
If firms suddenly become more optimistic about the profitability of investment and planned investment spending rises by $100 billion, while consumers become more pessimistic and autonomous
Why do companies cut production when they find that their unplanned inventory investment is greater than zero? If they didn’t t cut production, what effect would this have on their profits? Why?