Question 1

The production function describes the relationship between the quantities of which two variables?

Accepted Answer

The production function describes the relationship between the quantities of inputs (such as labor, capital, and materials) and output (goods or services produced). The other choices are not directly related to the production function.

Question 2

When deciding whether to hire another worker, firms look at how the additional worker will affect:

Accepted Answer

Firms consider hiring additional workers based on how they will impact profit, which is the difference between revenues and costs. They assess whether the additional worker will generate enough revenue to cover their cost and contribute positively to profit.

Question 3

A tax on labor causes a smaller drop in equilibrium employment when:

Accepted Answer

C

Question 4

The phenomenon where private spending increases after a decrease in government spending is known as:

Accepted Answer

Crowding in refers to the positive impact that a reduction in government spending can have on private sector investment and consumption. As government spending decreases, it can stimulate confidence in the private sector, leading businesses and individuals to increase their spending, thus offsetting the decrease in government spending.

Question 5

The relationship between the quantity of output produced and the quantity of inputs used to produce it is called:

Accepted Answer

The relationship between the quantity of output produced and the quantity of inputs used to produce it is captured by the production function. The production function shows how various factors of production such as capital, labor, and technology combine to produce a given level of output.

Question 6

Which of the following would be counted as part of the stock of capital?

Accepted Answer

The stock of capital refers to all produced assets that are used in production, such as machines, tools, buildings, and equipment. Choice A (lettuce) is a consumption good, not a produced asset, and choice B (mineral deposit) is a natural resource that has not yet been extracted or processed. Choice C (copy machines) are produced assets used in a photocopying shop and therefore would be part of the stock of capital.

Question 7

The level of full- employment output in an economy increases as:

Accepted Answer

All three factors contribute to increasing the level of full-employment output in an economy. An increase in the supply of labor and the stock of capital allows for greater production possibilities and efficiency, while a decrease in the natural rate of unemployment means more resources are being utilized to their full potential. Therefore, all of the choices are correct.

Question 8

Which of the following would not cause an increase in output?

Accepted Answer

All of the listed factors - an increase in the capital stock, an increase in labor, and an increase in productivity - would cause an increase in output.

Question 9

Which of the following is considered capital?

Accepted Answer

Capital refers to assets that are used in the production of goods and services, rather than being consumed themselves. A computer purchased for a secretary can be considered capital as it is used in the production of administrative work. A factory built by a company to produce other output is a clear example of capital. A tractor produced by John Deere is capital as it is used in the production of agricultural output. Therefore, all of the above options are considered capital.

Question 10

According to the classical economists, the economy:

Accepted Answer

Classical economists believe in the concept of Say's Law which states that "supply creates its own demand." They argue that the economy is self-correcting and that any deviations from full employment will be automatically corrected through market forces. Therefore, government intervention is not required for achieving full employment.

Question 11

In order to estimate the level of full- employment output, economists typically:

Accepted Answer

Economists estimate potential output when the unemployment rate is equal to the natural rate of unemployment, as this represents the level of unemployment that occurs even when the economy is operating at full capacity. This means that all resources are being used efficiently, and there is no cyclical unemployment. Therefore, potential output is the maximum amount that the economy can produce without causing inflationary pressures.

Question 12

Which of the following must be true when it is observed that government spending is causing crowding out?

Accepted Answer

Crowding out occurs when government spending increases and leads to a decrease in private consumption or investment spending. Therefore, option B is the correct answer as it indicates the decrease in consumption or investment spending. The other options are not necessarily true when there is crowding out.

Question 13

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to
answer the following questions:
-According to the application, the effective tax on labor for the U.S. is about:

Accepted Answer

According to the application, the effective tax on labor for the U.S. is about 40 percent.

Question 14

The entire short- run production function shifts upward if:

Accepted Answer

The stock of capital represents the amount and quality of equipment, technology, and infrastructure available for production. An increase in the stock of capital will allow for more efficient use of labor and other inputs, leading to an upward shift of the entire short-run production function. The other choices are incorrect: A) productivity decreases would shift the production function downward; B) an increase in the quantity of labor would increase output but not shift the production function up; and D) diminishing returns close to zero would signify that no more inputs should be added, leading to no shift in the production function.

Question 15

Figure 7.3
-Refer to Figure 7.3. The classical economists argued the wage rate will _______ from _______ if the demand for labor changes from D' to D.

Accepted Answer

The answer of  Figure 7.3
-Refer to Figure 7.3. The...

Question 16

If the production function is Y = 3K, then an increase in capital (K) by 1 unit would

Accepted Answer

According to the production function, an increase in capital (K) by 1 unit would increase the output (Y) by 3 units. Therefore, option A is the correct answer. Option B is incorrect as it relates to an increase in labor (L), which is not mentioned in the production function. Option C is incorrect as an increase in capital (K) would increase the output (Y). Option D is incorrect as there is no negative relationship between capital (K) and output (Y) in this production function.

Question 17

Recall Application 3, "Can Labor Market Policies Account for the Great Depression," to answer the following questions:
-According to the application, what was observed during the Great Depression that contradicts the basic real business cycles?

Accepted Answer

During the Great Depression, real wages increased, which contradicts the basic real business cycle models that would predict a decline in real wages during economic downturns.

Question 18

The reduction in consumption, investment or net exports that occurs when government spending increases is known as:

Accepted Answer

The term "crowding out" refers to the reduction in private sector spending that occurs as a result of increased government spending. This happens because the government's increased demand for goods and services leads to higher prices and interest rates, which in turn discourage private consumption, investment, and net exports.

Question 19

What happens to the labor supply curves in the U.S. and Canada when Canadian workers migrate to the United States?

Accepted Answer

When Canadian workers migrate to the U.S., the labor supply in the U.S. increases, shifting the curve to the right, while the labor supply in Canada decreases, shifting the curve to the left.

Question 20

If the classical models provided an accurate description of the workings of the economy during the Great Depression, then:

Accepted Answer

Classical models suggest that markets self-correct quickly, implying that the Great Depression would have been shorter if these models accurately described the economy.

Quiz 7: The Economy at Full Employment

The production function describes the relationship between the quantities of which two variables?

When deciding whether to hire another worker, firms look at how the additional worker will affect:

A tax on labor causes a smaller drop in equilibrium employment when:

The phenomenon where private spending increases after a decrease in government spending is known as:

The relationship between the quantity of output produced and the quantity of inputs used to produce it is called:

Which of the following would be counted as part of the stock of capital?

The level of full- employment output in an economy increases as:

Which of the following would not cause an increase in output?

Which of the following is considered capital?

According to the classical economists, the economy:

In order to estimate the level of full- employment output, economists typically:

Which of the following must be true when it is observed that government spending is causing crowding out?

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to answer the following questions: -According to the application, the effective tax on labor for the U.S. is about:

The entire short- run production function shifts upward if:

Figure 7.3 -Refer to Figure 7.3. The classical economists argued the wage rate will _ from _ if the demand for labor changes from D' to D.

If the production function is Y = 3K, then an increase in capital (K) by 1 unit would

Recall Application 3, "Can Labor Market Policies Account for the Great Depression," to answer the following questions: -According to the application, what was observed during the Great Depression that contradicts the basic real business cycles?

The reduction in consumption, investment or net exports that occurs when government spending increases is known as:

What happens to the labor supply curves in the U.S. and Canada when Canadian workers migrate to the United States?

If the classical models provided an accurate description of the workings of the economy during the Great Depression, then:

Quiz 7: The Economy at Full Employment

The production function describes the relationship between the quantities of which two variables?

When deciding whether to hire another worker, firms look at how the additional worker will affect:

A tax on labor causes a smaller drop in equilibrium employment when:

The phenomenon where private spending increases after a decrease in government spending is known as:

The relationship between the quantity of output produced and the quantity of inputs used to produce it is called:

Which of the following would be counted as part of the stock of capital?

The level of full- employment output in an economy increases as:

Which of the following would not cause an increase in output?

Which of the following is considered capital?

According to the classical economists, the economy:

In order to estimate the level of full- employment output, economists typically:

Which of the following must be true when it is observed that government spending is causing crowding out?

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to answer the following questions: -According to the application, the effective tax on labor for the U.S. is about:

The entire short- run production function shifts upward if:

Figure 7.3 -Refer to Figure 7.3. The classical economists argued the wage rate will _______ from _______ if the demand for labor changes from D' to D.

If the production function is Y = 3K, then an increase in capital (K) by 1 unit would

Recall Application 3, "Can Labor Market Policies Account for the Great Depression," to answer the following questions: -According to the application, what was observed during the Great Depression that contradicts the basic real business cycles?

The reduction in consumption, investment or net exports that occurs when government spending increases is known as:

What happens to the labor supply curves in the U.S. and Canada when Canadian workers migrate to the United States?

If the classical models provided an accurate description of the workings of the economy during the Great Depression, then:

Figure 7.3 -Refer to Figure 7.3. The classical economists argued the wage rate will _ from _ if the demand for labor changes from D' to D.