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Pool Canvas Add, modify, and remove questions. Select a question type from the Add Question drop-down list and click Go to add questions. Use Creation Settings to establish which default options, such as feedback and images, are available for question creation. Add

Creation Settings TestBanks Chapter 3 National Income: Where It Comes From and Where It Goes

Name Description Instructions

Add Question Here Multiple Choice

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Question The circular flow model shows that households use income for: Answer

consumption, saving, and factor payments. consumption, taxes, and factor payments. taxes, saving, and factor payments. consumption, taxes, and saving. Add Question Here

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

goods; financial factor; financial goods; factor factor; goods Add Question Here

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Question In the circular flow model, households receive income from the _____ market and save through the _____ market. Answer

goods; financial factor; financial goods; factor factor; goods Add Question Here

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Question In the long run, the level of national income in an economy is determined by its: Answer

factors of production and production function. real and nominal interest rate. government budget surplus or deficit. rate of economic and accounting profit. Add Question Here

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Question An economy's factors of production and its production function determine the economy's: Answer

labor force participation rate. budget surplus or deficit. population growth rate. output of goods and services. Add Question Here

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Question In the long run, what determines the level of total production of goods and services in an economy? Answer

the interest rate and the amount of national saving the quantity of capital, quantity of labor, and production technology consumption, investment, and government spending the marginal products of capital and labor, constant returns to scale, and competition Add Question Here

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Question The two most important factors of production are: Answer

goods and services. labor and energy. capital and labor. saving and investment. Add Question Here

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Question Unlike the real world, the classical model with fixed output assumes that: Answer

all factors of production are fully utilized. all capital is fully utilized but some labor is unemployed. all labor is fully employed but some capital lies idle. some capital lies idle and some labor is unemployed. Add Question Here

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Question A production function is a technological relationship between: Answer

factor prices and the marginal product of factors. factors of production and factor prices. factors of production and the quantity of output produced. factor prices and the quantity of output produced. Add Question Here

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Question The production function feature called “constant returns to scale” means that if we: Answer

multiply capital by z and labor by z , we multiply output by z . 1

2

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increase capital and labor by 10 percent each, we increase output by 10 percent. increase capital and labor by 5 percent each, we increase output by 10 percent. increase capital by 10 percent and increase labor by 5 percent, we increase output by 7.5 percent. Add Question Here Multiple Choice

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Question If an increase of an equal percentage in all factors of production results in an increase in output of the same percentage, then a production function has the property called: Answer

constant marginal product of labor. increasing marginal product of labor. constant returns to scale. increasing returns to scale. Add Question Here

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

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Answer

number of workers is doubled, twice as much bread will be produced. amount of equipment is doubled, twice as much bread will be produced. amounts of equipment and workers are both doubled, twice as much bread will be produced. amounts of equipment and workers are both doubled, four times as much bread will be produced. Add Question Here

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

is fixed because the supplies of capital and labor and the technology are fixed. is fixed because the demand for goods and services is fixed. varies because the supplies of capital and labor vary. varies because the technology for turning capital and labor into goods and services varies. Add Question Here

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Question The neoclassical theory of distribution: Answer

was developed by Karl Marx. is rejected by most economists today. shows that the national income of an economy is not equal to total output. is a theory of how national income is divided among the factors of production. Add Question Here

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Question The price received by each factor of production for its services is determined by: Answer

demand for output and supply of factors. demand for factors and supply of output. demand and supply of output. demand and supply of factors. Add Question Here

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Question When factor supply is fixed and quantity of the factor is graphed on the horizontal axis while factor price is graphed on the vertical axis, the factor: Answer

supply curve is horizontal. supply curve is vertical. supply curve slopes up to the right. demand curve slopes up to the right. Add Question Here

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Question A competitive firm: Answer

is small relative to the market in which it trades. has to charge a lower price when it wants to sell more goods. has several large competitors with whom it engages in fierce competition. can set the wage at which it hires workers. Add Question Here

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Question A firm's economic profit is: Answer

the price of output minus the wage minus the rental price of capital. revenue minus costs. revenue plus capital costs.

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the price of output minus labor costs. Add Question Here Multiple Choice

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Question A competitive firm chooses the: Answer

price at which to sell the product produced. wage to pay labor. quantity of labor and capital to employ. rental price to pay capital. Add Question Here

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Question The marginal product of labor is: Answer

output divided by labor input. additional output produced when one additional unit of labor is added. additional output produced when one additional unit of labor and one additional unit of capital are added. value of additional output when one dollar's worth of additional labor is added. Add Question Here

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

a factor are added, output diminishes. both labor and capital are added, output diminishes. both labor and capital are added, the marginal product of labor diminishes. a factor are added when another factor remains fixed, the marginal product of the first factor diminishes. Add Question Here

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

marginal product of labor equals the wage. 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. Add Question Here

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Question The real wage is the return to labor measured in: Answer

dollars. units of output. units of labor. units of capital. Add Question Here

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Question The marginal product of capital is: Answer

output divided by capital input. additional output produced when one additional unit of capital is added. additional output produced when one additional unit of capital and one additional unit of labor are added. value of additional output when one dollar's worth of additional capital is added. Add Question Here

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Question The real rental price of capital is the price per unit of capital measured in: Answer

dollars. units of output. units of labor. units of capital. Add Question Here

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Question The real wage will increase if: Answer

the supply of labor increases. the productivity of labor increases. the price of output increases. the supply of capital decreases. Add Question Here

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Question An increase in the supply of capital will: Answer

increase the real rental price of capital. decrease the real rental price of capital. increase the productivity of capital. decrease the real interest rate. Add Question Here

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Question In the classical model, what adjusts to eliminate any unemployment of labor in the economy? Answer

the average price level the interest rate the real rental price of capital the real wage Add Question Here

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Question The neoclassical theory of distribution explains the allocation of: Answer

output between goods and services. output among consumption, investment, and government spending. income among factors of production. income between saving and investment. Add Question Here

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Question Economic profit is zero if: Answer

all factors are paid their marginal products and the law of diminishing returns is valid. all factors are paid their marginal products and there are constant returns to scale. all firms maximize profits and none are competitive. all firms maximize profits and all factors are paid their marginal products. Add Question Here

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Question According to Euler's theorem, if competitive firms pay each factor its marginal product and the production function has constant returns to scale, the sum of all factor payments will equal:

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Answer

total investment. total saving. total profits. total output. Add Question Here

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Question Accounting profit is: Answer

economic profit minus the return to capital. equal to economic profit. economic profit plus the return to capital. equal to the economic return to capital. Add Question Here

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Question 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: Answer

only to the labor used in production. partly between labor and capital used in production, with the surplus going to the owners of the firm as profits. equally between the labor and capital used in production. between the labor and capital used in production, according to their marginal productivities. Add Question Here

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

supply. equilibrium growth rates. relative political power. marginal productivities. Add Question Here

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Question What determines the distribution of national income between labor and capital in a competitive, profit-maximizing economy with constant returns to scale? Answer

the relative quantity of labor to capital the interest rate the ratio of public saving to private saving the marginal productivity of labor relative to the marginal productivity of capital Add Question Here

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Question In fourteenth-century Europe, the bubonic plague: Answer

reduced the population of Europe by about one-half. substantially increased economic output in Europe. substantially increased real rentals on land in Europe. substantially increased real wages in Europe. Add Question Here

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Question With a Cobb–Douglas production function, the share of output going to labor:

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Answer

decreases as the amount of labor increases. increases as the amount of labor increases. increases as the amount of capital increases. is independent of the amount of labor. Add Question Here

Multiple Choice

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Question If output is described by the production functionY = AK Answer

0.2 0.8

L , then the production function has:

constant returns to scale. diminishing returns to scale. increasing returns to scale. a degree of returns to scale that cannot be determined from the information given. Add Question Here

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Question If Y = AK0.5L0.5 and A, K , and L are all 100, the marginal product of capital is: Answer 50. 100. 200. 1000. Add Question Here Multiple Choice

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Question Since 1960, the U.S. ratio of labor income to total income has: Answer

been about 2.5 to 1. been about 0.7. increased steadily. decreased steadily. Add Question Here

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Question If the production function describing an economy is Y = 100 K.25L.75, then the share of output going to labor: Answer

is 25 percent. is 75 percent. depends on the quantities of labor and capital. depends on the state of technology. Add Question Here

Multiple Choice

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

the quantity of labor increases. the quantity of capital increases. capital's share of output increases. average labor productivity decreases. Add Question Here

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Question In a Cobb–Douglas production function the marginal product of capital will increase if: Answer

the quantity of labor increases. the quantity of capital increases. labor's share of output increases. average capital productivity decreases.

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Question According to Goldin and Katz, the increasing income equality of recent decades is the result of: Answer

increases in the rates of technological advance and educational attainment. decreases in the rates of technological advance and educational attainment. a steady pace of technological advance and a slowdown in educational advance. a decrease in the rate of technological advance and an increase in the rate of educational advance. Add Question Here

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Question 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

increases; higher increases; lower decreases; higher decreases; lower Add Question Here

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Question 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: Answer

space exploration. capital expenditures. education. transfer payments. Add Question Here

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

increased. decreased. did not change. were negative. Add Question Here

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Question 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: Answer

real interest rates are high. real interest rates are low. average labor productivity is growing rapidly. capital's share of income is growing rapidly. Add Question Here

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Question 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

labor's share of total income will be increasing. labor's share of income will be decreasing. workers will experience high rates of real wage growth. economic profits will be positive. Add Question Here

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Multiple Choice

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Question In a closed economy, the components of GDP are: Answer

consumption, investment, government purchases, and exports. consumption, investment, government purchases, and net exports. consumption, investment, and government purchases. consumption and investment. Add Question Here

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Question The demand for output in a closed economy is the sum of: Answer

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