Question 1

Use the following to answer questions 
Exhibit: Aggregate Production Function, Labor Market, and LRAS 
-(Exhibit: Aggregate Production Function, Labor Market, and LRAS)
The labor market represented in Panel (b)
Is in long-run equilibrium

Accepted Answer

The labor market is considered to be in long-run equilibrium when it is operating at the natural level of employment, which accounts for the normal levels of frictional and structural unemployment but not cyclical unemployment. This does not imply a zero unemployment rate, nor does it depend on the absence of diminishing marginal returns.

Question 2

Use the following to answer questions 
Exhibit: Aggregate Production Function, Labor Market, and LRAS 
-(Exhibit: Aggregate Production Function, Labor Market, and LRAS)
The real wage is the ratio of

Accepted Answer

The real wage is calculated by dividing the nominal wage (the wage paid in current dollars) by the price level, adjusting the wage for inflation to reflect the true purchasing power of the wage.

Question 3

Economic growth can be represented by

Accepted Answer

Economic growth is represented by a sustained increase in an economy's capacity to produce goods and services. This is reflected in a rightward shift of the long-run aggregate supply curve, as the economy is now able to produce more output at every price level. Option A is incorrect as equilibrium output level may change due to factors other than economic growth. Option B is incorrect as a rightward shift of the short-run aggregate supply curve may reflect a temporary increase in output due to changes in input prices or technology, but not sustained economic growth. Option C is incorrect as aggregate demand can shift due to factors other than economic growth, such as changes in government spending or exports.

Question 4

If output per capita doubles in 30 years and the population doubles in 60 years, what is the growth rate of output?

Accepted Answer

3.6% per yearThe growth rate of output per capita is found using the rule of 70, which states that the doubling time (in years) is approximately equal to 70 divided by the annual growth rate (in percent). For output per capita to double in 30 years, its growth rate is 70/30 = 2.33% per year. Since the population also doubles in 60 years, its growth rate is 70/60 = 1.17% per year. The total growth rate of output (not per capita) is the sum of the growth rates of output per capita and population, which is 2.33% + 1.17% = 3.5%. The closest answer provided is 3.6% per year.

Question 5

Use the following to answer questions 
Exhibit: Aggregate Production Function, Labor Market, and LRAS 
-(Exhibit: Aggregate Production Function, Labor Market, and LRAS)
In the labor market represented in Panel (b)
,
I.the equilibrium real wage equals $40,000.
II.at the equilibrium real wage, 100 million workers are employed.
III.the equilibrium real wage is that which prevails when the economy achieves its natural level of employment.

Accepted Answer

All three statements are correct regarding the labor market in equilibrium. The equilibrium real wage is the wage rate at which the quantity of labor supplied equals the quantity of labor demanded, which typically occurs at the natural level of employment. This is depicted in Panel (b) of the exhibit, where the equilibrium real wage is $40,000, and 100 million workers are employed.

Question 6

If output per capita doubles in 24 years and the population doubles in 18 years, what is the growth rate of output?

Accepted Answer

The answer of If output per capita doubles in 24...

Question 7

Diminishing marginal returns occurs when

Accepted Answer

Diminishing marginal returns occur when each additional unit of a variable factor adds less to total output than the previous unit, given constant quantities of other factors. The law of diminishing marginal returns states that as more and more units of a variable factor (such as labor) are added to a fixed quantity of other factors (such as capital or land), the marginal product of the variable factor eventually declines. This occurs because the fixed factors eventually become a constraint on the ability of the variable factor to generate more output.

Question 8

Suppose the world's population in 2012 is 7.1 billion and is projected to grow at a rate of 1.2% per year.In approximately what year will the world's population be 14.2 billion?

Accepted Answer

We can use the formula for exponential growth, which is: 
P = P0 * (1 + r)^t
where P is the final population, P0 is the initial population, r is the growth rate as a decimal, and t is the number of time periods.

We want to find the time t when the population is 14.2 billion. So we have:
14.2 billion = 7.1 billion * (1 + 0.012)^t

Dividing both sides by 7.1 billion, we get:
2 = (1.012)^t

Taking the natural logarithm of both sides, we get:
ln(2) = t * ln(1.012)

Solving for t, we get:
t = ln(2) / ln(1.012) ≈ 57.4

Therefore, the world's population will be 14.2 billion in approximately 57.4 years from 2012, which is:
2012 + 57.4 ≈ 2069

The closest year is C) in the year 2072.

Question 9

Suppose labor is the only variable that changes.If production displays diminishing marginal returns, each additional unit of labor

Accepted Answer

Diminishing marginal returns means that as more and more units of labor are added, each additional unit will contribute less and less to total output. Therefore, the correct answer is B - adding more labor will add less and less to total output.

Question 10

Use the following to answer question 
Exhibit: Economics Growth and the LRAS Curve 
-(Exhibit: Economics Growth and the LRAS Curve)
Exponential economic growth can be depicted by

Accepted Answer

Exponential economic growth is represented by shifts in the Long-Run Aggregate Supply (LRAS) curve to the right where each shift is larger than the previous one, indicating increasing growth rates over time.

Question 11

Use the following to answer questions 
Exhibit: Aggregate Production Function 
-(Exhibit: Aggregate Production Function)
In drawing the aggregate production function, which of the following variables is not held constant?

Accepted Answer

In the context of an aggregate production function, labor is the variable that is not held constant. The aggregate production function typically shows how the total output of an economy (GDP) changes as the amount of labor changes, while other factors like capital, technology, and land are held constant to isolate the effect of labor variations on output.

Question 12

Consider a firm that produces output using labor and capital.The firm's stock of capital is fixed and in order to increase output, it must employ more workers.Which of the following occurs as the number of workers increases?

Accepted Answer

With a fixed stock of capital, as more workers are employed, the amount of capital available per worker decreases because the same amount of capital is spread over more workers. This is an illustration of the law of diminishing returns, where adding more of one factor of production (labor, in this case), while keeping another factor constant (capital), will eventually yield lower per-unit returns.

Question 13

Which of the following statements is true?
I.Small differences in rates of economic growth can lead to large differences in levels of potential output over time.
II.From the perspective of the rule of 72, small differences in rates of economic growth between two countries will not significantly affect their respective standards of living.
III.Countries that have higher population growth rates are likely to see higher economic growth rates because increases in population lead to increases in the size of the labor force.

Accepted Answer

Statement I is true. Small differences in rates of economic growth can compound over time, leading to large differences in potential output levels. However, Statement II is false - small differences in economic growth rates can significantly impact standards of living over time, especially in the long run. Statement III is also false because while increases in population may lead to increases in the labor force, they can also lead to adverse impacts such as strain on resources and infrastructure, which can hinder economic growth.

Question 14

A curve that relates an economy's total output to the total amount of labor employed, holding all other determinants of output constant, is called

Accepted Answer

An aggregate production function shows the relationship between total output and total input of factors of production, with labor being one of the primary inputs. It holds all other determinants of output constant, such as capital and technology. Option A, input-output matrix, refers to a different type of economic model that describes the interrelationships between various sectors of the economy. Option B, average output function, does not take into account the total amount of labor employed and therefore does not accurately describe the economy's production function. Option C, marginal product function, shows the change in output resulting from a change in the amount of labor employed, but does not describe the overall relationship between output and labor.

Question 15

Holding everything else unchanged, if a nation's output grows at approximately 2.4% per year and its population doubles in 45 years, calculate the approximate rate of change in per capita real GDP.

Accepted Answer

If the population doubles in 45 years, that means the annual growth rate of population is approximately 1.54% (calculated by dividing the natural logarithm of 2 by 45). Given the output growth rate of 2.4%, we can calculate the approximate rate of change in per capita real GDP as follows:

Per capita real GDP growth rate = Output growth rate - Population growth rate
Per capita real GDP growth rate = 2.4% - 1.54%
Per capita real GDP growth rate = 0.86% or approximately 0.8% per year.

Therefore, the best choice is A) 0.8% per year.

Question 16

Suppose a nation's real GDP grows at approximately 3.6% per year and its per capita real GDP grows by 2.2%.Calculate the approximate rate of population growth.

Accepted Answer

The approximate rate of population growth can be calculated by subtracting the per capita real GDP growth rate from the real GDP growth rate: 3.6% - 2.2% = 1.4%. Therefore, the answer is B) 1.4% per year.

Question 17

Use the following to answer questions 
Exhibit: Aggregate Production Function 
-(Exhibit: Aggregate Production Function)
Which of the following could cause the production function to shift upward?

Accepted Answer

Increase in the availability of natural resources would increase productivity and shift the production function upward. The other choices might affect the shape of the production function but would not directly shift it.

Question 18

Use the following to answer questions 
Exhibit: Aggregate Production Function 
-(Exhibit: Aggregate Production Function)
The production function displays

Accepted Answer

The production function typically shows diminishing marginal returns to labor, meaning that as more units of labor are added, the additional output produced by each new unit of labor decreases. This is a fundamental concept in economics, reflecting the reality that, after a certain point, adding more workers to a production process without increasing other inputs (like capital or land) leads to less efficient production increases.

Question 19

The aggregate production function shows the ________ for given levels of labor and other factors of production.

Accepted Answer

The answer of The aggregate production function shows the ________...

Question 20

If a nation's real GDP grows at approximately 3.4% per year and its population doubles in 120 years, calculate the approximate rate of change in per capita real GDP.

Accepted Answer

The answer of If a nation's real GDP grows at...

Quiz 8: Economic Growth

Use the following to answer questions Exhibit: Aggregate Production Function, Labor Market, and LRAS -(Exhibit: Aggregate Production Function, Labor Market, and LRAS) The labor market represented in Panel (b) Is in long-run equilibrium

Use the following to answer questions Exhibit: Aggregate Production Function, Labor Market, and LRAS -(Exhibit: Aggregate Production Function, Labor Market, and LRAS) The real wage is the ratio of