Question 1

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.

Accepted Answer

Goldin and Katz's estimates showed that the financial returns of a year of college increased between 1980 and 2005, indicating that the value of a college education has risen during this time period.

Question 2

Accounting profit is:
A)Aeconomic profit minus the return to capital.
B)equal to economic profit.
C)economic profit plus the return to capital.
D)equal to the economic return to capital.

Accepted Answer

Accounting profit is the difference between total revenue and explicit costs, including the return to capital. Economic profit, on the other hand, subtracts implicit costs, such as the opportunity cost of the entrepreneur's time and the cost of foregone alternatives. Therefore, accounting profit will always be higher than economic profit, and will include the return to capital.

Question 3

The real wage will increase if:
A)the supply of labor increases.
B)the productivity of labor increases.
C)the price of output increases.
D)the supply of capital decreases.

Accepted Answer

Increase in productivity of labor means workers can produce more output in the same amount of time, which leads to a higher demand for labor. With labor demand increasing, employers would offer higher wages to attract and retain employees, resulting in an increase in the real wage.

Question 4

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:
A)total investment.
B)total saving.
C)total profits.
D)total output.

Accepted Answer

According to Euler's theorem, the sum of all factor payments will equal total output. This follows from the fact that in a competitive market, all factors are paid their marginal product, which represents their contribution to the firm's output. With constant returns to scale, increasing the use of all factors in equal proportion will result in a proportional increase in output, meaning that the sum of all factor payments will equal total output.

Question 5

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

Accepted Answer

In a Cobb-Douglas production function, the marginal product of labor increases when the quantity of capital increases because capital and labor are complementary inputs. Increasing the amount of capital available for each worker makes each worker more productive.

Question 6

If output is described by the production function Y = AK ^0.2L^0.8, then the production function has: A)constant returns to scale. B)diminishing returns to scale. C)increasing returns to scale. D)a degree of returns to scale that cannot be determined from the information given.

Accepted Answer

The production function Y = AK^0.2L^0.8 exhibits constant returns to scale because the sum of the exponents of K (capital) and L (labor), 0.2 + 0.8 = 1, indicates that if all inputs are increased by a certain percentage, output will increase by the same percentage.

Question 7

The public policy implication of Goldin and Katz's analysis of growing income inequality is that rever require that more of society's resources be put into:
A)space exploration.
B)capitalexpenditures
C)education.
D)transfer payments.

Accepted Answer

Goldin and Katz's analysis shows that education is a key factor in reducing income inequality. Therefore, public policy should focus on increasing investment in education to provide equal opportunities for all individuals to acquire the skills and education necessary to succeed in the labor market. This includes increasing access to high-quality early childhood education, improving K-12 education, expanding access to higher education, and investing in workforce training and development programs.

Question 8

In a closed economy, the components of GDP are:
A)consumption, investment, government purchases, and exports.
B)consumption, investment, government purchases, and net
C)exports. consumption, investment, and government purchases.
D)consumption and investment.

Accepted Answer

The answer of In a closed economy, the components of...

Question 9

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

Accepted Answer

In a Cobb-Douglas production function, the marginal product of capital increases when the quantity of labor increases because the production function exhibits diminishing marginal returns to each input while holding the other input constant. Increasing labor, while keeping capital constant, increases the productivity of capital due to the complementarity between labor and capital in production.

Question 10

If the production function describing an economy is Y = 100 K^.25L^.75, then the share of output going to labor: A)is 25 percent. B)is 75 percent. C)depends on the quantities of labor and D)capital. depends on the state of technology.

Accepted Answer

In a Cobb-Douglas production function like Y = 100 K^0.25 L^0.75, the exponent of labor (L) represents the share of output going to labor, which is 75 percent.

Question 11

Disposable personal income is defined as income after the payment of all:
A)taxes.
B)interest.
C)loans.
D)social insurance contributions.

Accepted Answer

Disposable personal income refers to the income that an individual has available after taxes are paid. Therefore, the correct choice is A. Interest, loans, and social insurance contributions are not included in the calculation of disposable personal income.

Question 12

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)Aincreases; higher
B)increases; lower
C)decreases; higher
D)decreases; lower

Accepted Answer

Skill-biased technological change increases the demand for high-skilled workers, and when the supply of skilled workers does not keep up due to a slowdown in educational advancement, it results in higher wages for skilled workers.

Question 13

If Y = AK^0.5L^0.5 and A, K, and L are all 100, the marginal product of capital is: A)50. B)100. C)200. D)1000.

Accepted Answer

The marginal product of capital (MPK) is the partial derivative of Y with respect to K. For Y = AK^0.5L^0.5, MPK = 0.5A(K^(-0.5))L^0.5. Substituting A = 100, K = 100, and L = 100, MPK = 0.5 * 100 * (100^(-0.5)) * 100^0.5 = 50.

Question 14

The neoclassical theory of distribution explains the allocation of:
A)output between goods and services.
B)output among consumption, investment, and government spending.
C)income among factors of production.
D)income between saving and investment.

Accepted Answer

The neoclassical theory of distribution explains how income is allocated among the factors of production (land, labor, and capital) based on their respective contributions to the production process.

Question 15

Economic profit is zero if:
A)all factors are paid their marginal products and the law of diminishing returns is valid.
B)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.

Accepted Answer

The answer of Economic profit is zero if:
A)all factors are...

Question 16

Since 1960, the U.S. ratio of labor income to total income has:
A)been about 2.5 to 1.
B)been about 0.7.
C)increased steadily.
D)decreased steadily.

Accepted Answer

The answer of Since 1960, the U.S. ratio of labor...

Question 17

In the classical model, what adjusts to eliminate any unemployment of labor in the economy?
A)the average price level
B)the interest rate
C)the real rental price of capital
D)the real wage

Accepted Answer

In the classical model, the real wage adjusts to eliminate any unemployment of labor in the economy. As wage rates fall, the quantity of labor demanded rises, which lowers the unemployment rate. As wage rates rise, the quantity of labor demanded falls, which raises the unemployment rate. Therefore, the real wage is the mechanism by which the labor market clears in the classical model.

Question 18

According to the neoclassical theory of distribution, if firms are competitive and subject to constant total income in the economy is distributed:
A)only to the labor 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.

Accepted Answer

According to the neoclassical theory of distribution, income is distributed between labor and capital used in production, according to their marginal productivities. This means that the share of income received by labor is determined by the marginal productivity of labor, while the share of income received by capital is determined by the marginal productivity of capital. This distribution occurs in competitive markets with constant total income in the economy.

Question 19

The demand for output in a closed economy is the sum of:
A)public saving and private saving.
B)the quantity of capital and labor and production technology.
C)consumption, investment, and government spending.
D)government purchases and transfer payments minus tax receipts.

Accepted Answer

The demand for output in a closed economy is the sum of consumption, investment, and government spending. Public and private saving do not contribute to demand for output in a closed economy. The quantity of capital and labor and production technology determine the economy's potential output, but not the actual demand for it. Government purchases, transfer payments, and tax receipts affect aggregate demand indirectly by influencing consumption, investment, and government spending, but they are not the sum of demand for output in a closed economy.

Question 20

What determines the distribution of national income between labor and capital in a competitive, profit-maximizing economy with constant returns to scale?
A)the relative quantity of labor to capital
B)the interest rate
C)the ratio of public saving to private saving
D)the marginal productivity of labor relative to the marginal productivity of capital

Accepted Answer

In a competitive, profit-maximizing economy with constant returns to scale, the distribution of national income between labor and capital is determined by the marginal productivity of labor relative to the marginal productivity of capital. If the marginal productivity of labor is higher than the marginal productivity of capital, labor receives a larger share of national income, and vice versa. This is because firms will hire more of the factor that is more productive and pay it accordingly. The other options, such as the relative quantity of labor to capital, the interest rate, and the ratio of public saving to private saving, may affect the overall level of national income, but do not directly determine the distribution of it between labor and capital.

Quiz 3: National Income Where It Comes From and Where It Goes

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

Accounting profit is:

The real wage will increase if:

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:

In a Cobb-Douglas production function the marginal product of labor will increase if:

If output is described by the production function Y = AK 0.2L0.8, then the production function has:

The public policy implication of Goldin and Katz's analysis of growing income inequality is that rever require that more of society's resources be put into:

In a closed economy, the components of GDP are:

In a Cobb-Douglas production function the marginal product of capital will increase if:

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

Disposable personal income is defined as income after the payment of all:

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.

If Y = AK0.5L0.5 and A, K, and L are all 100, the marginal product of capital is:

The neoclassical theory of distribution explains the allocation of:

Economic profit is zero if:

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

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

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

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

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

If output is described by the production function Y = AK ^0.2L^0.8, then the production function has:

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

If Y = AK^0.5L^0.5 and A, K, and L are all 100, the marginal product of capital is: