Question 1

All else equal,continued increases in the labour supply in an economy will lead to

Accepted Answer

Continued increases in the labor supply can lead to diminishing marginal returns, which means that each additional worker may contribute less and less to output. Therefore, the increase in real GDP may be smaller compared to previous increases in the labor supply.

Question 2

Which of the following is not a distinguishing characteristic of the Cobb-Douglas production function?

Accepted Answer

The Cobb-Douglas production function does not have a limit on the share of income that labor can receive. However, it is commonly observed that in practice, labor's share of income tends to be less than 0.5.

Question 3

The marginal product of capital is the ________ curve for capital and the marginal product of labour is the ________ curve for labour.

Accepted Answer

The marginal product of capital is the demand curve for capital, and the marginal product of labor is the demand curve for labor, as both represent the additional output generated by an additional unit of capital or labor, influencing the demand for these inputs.

Question 4

All else equal,as the labour supply increases,the marginal product of labour will

Accepted Answer

As the labor supply increases, the marginal product of labor typically decreases due to the law of diminishing returns, and it does so at an increasing rate as more workers are added beyond the optimal level.

Question 5

All else equal,as the capital stock increases,the marginal product of capital will

Accepted Answer

The answer of All else equal,as the capital stock increases,the...

Question 6

Suppose that the production function for the economy is Y = AK¹/⁴ᴸ³/⁴.Assume that real GDP is $8000 billion,capital stock is $32 000 billion,and the labour supply is 120 million (or 0.120 billion)workers.Total factor productivity for this economy is

Accepted Answer

The answer of Suppose that the production function for the...

Question 7

In the Cobb-Douglas production function,the index of the overall level of efficiency of transforming capital and labour into real GDP is called

Accepted Answer

The index of the overall level of efficiency of transforming capital and labour into real GDP is referred to as total factor productivity (TFP). It reflects how effectively inputs are being used in the production process to create output. TFP is a crucial determinant of long-term economic growth and is commonly used in empirical studies to measure changes in economic efficiency over time.

Question 8

The processes a firm uses to turn inputs into outputs of goods and services are the firm's

Accepted Answer

The answer of The processes a firm uses to turn...

Question 9

All else equal,in an economy with an upward-sloping production function,as an economy accumulates more capital goods,

Accepted Answer

The accumulation of capital goods leads to an increase in the economy's capacity to produce goods and services, resulting in an increase in real GDP. However, this does not necessarily mean that the labour supply must increase or decrease or that the marginal product of capital will increase.

Question 10

The relationship between the inputs employed by a firm and the maximum output it can produce with those inputs is called the firm's

Accepted Answer

The definition given in the question closely matches the definition of a production function, which is the relationship between inputs and outputs. Total factor productivity refers to the efficiency of using all inputs together, not just one input in isolation. Marginal production level refers to the additional output generated by adding one more unit of an input. Technological ratio is not a common term in economics.

Question 11

In the Cobb-Douglas production function Y = AK³/⁴ᴸ¹/⁴,

Accepted Answer

In the Cobb-Douglas production function Y = AK³/⁴ᴸ¹/⁴, the exponent of capital (3/4) is larger than the exponent of labor (1/4), which means that capital has a larger share in national income than does labour. This does not necessarily mean that capital is more plentiful or more expensive, or that there are greater diminishing returns to capital than to labor.

Question 12

An increase in foreign investment in Brazil's mining industry will increase the capital stock in Brazil.All else equal,as the capital stock increases,the marginal product of capital (MPK)will

Accepted Answer

The statement mentions that "all else equal", an increase in foreign investment will increase the capital stock in Brazil. Therefore, we can assume that the labor input remains constant. According to the law of diminishing marginal returns, as more units of a variable factor (capital in this case) are added to a fixed factor (labor), the marginal product of that variable factor will eventually decrease. Hence, as the capital stock increases, the marginal product of capital (MPK) will decrease due to diminishing marginal returns.

Question 13

The Cobb-Douglas production function represents real GDP as a function of all of the following variables except

Accepted Answer

The Cobb-Douglas production function includes capital, labour, and total factor productivity as variables that affect real GDP, but it does not include the price level.

Question 14

Which of the following equations best represents a Cobb-Douglas production function?

Accepted Answer

The Cobb-Douglas production function is represented as Y = AK^αL^β, where Y is the output, A is the total factor productivity, K is capital, L is labor, and α and β are the output elasticities of capital and labor, respectively. Option B is the only equation given that represents a Cobb-Douglas production function in this form, where α is 3/4 and β is 1/4.

Question 15

The marginal product of capital is always ________ and it ________ as the capital stock increases.

Accepted Answer

The marginal product of capital is typically positive, meaning additional capital increases output, but it decreases due to diminishing returns as more capital is added.

Question 16

In the aggregate production function,Y represents real GDP,K represents the capital stock,L represents the quantity of labour,and A represents an index of efficiency.Which of the following equations represents the aggregate production function?

Accepted Answer

The equation Y = AF(K, L) is the standard form of the aggregate production function, where Y represents real GDP, K represents the capital stock, L represents the quantity of labour, and A represents an index of efficiency. This equation states that real GDP is a function of the efficiency of combining inputs of capital and labour, represented by A, as well as the quantity of these inputs, represented by K and L. Option A) is incorrect because it ignores the effect of the efficiency index A on real GDP. Option B) is incorrect because it implies that real GDP and A are directly proportional, which is not necessarily the case. Option D) is incorrect because it equates real GDP to both (K x L) and A/FY, which is not a valid expression.

Question 17

In the aggregate production function,the symbol "A " represents an index of how efficiently the economy transforms capital and labour into real GDP."A" measures the influence

Accepted Answer

The symbol "A" in the production function represents any additional factor that can influence real GDP besides the quantities of capital and labor. It basically represents the residual factor of production which cannot be accounted for by the inputs of capital and labor alone. This could include technological progress, improvements in management practices, institutional factors, and efficiency gains.

Question 18

Which of the following equations best represents the concept of constant returns to scale?

Accepted Answer

Constant returns to scale means that if you increase all inputs by a certain proportion (in this case, by a factor of 3), the output also increases by that same factor. This is represented by option A, where increasing both K and L by a factor of 3 results in an increase in output (Y) by a factor of 3. The other options do not represent constant returns to scale as the output does not increase proportionally to an increase in inputs.

Question 19

The marginal product of labour is always ________ and it ________ as the labour stock increases.

Accepted Answer

The marginal product of labour is the additional output produced by an additional unit of labour. As the labour stock increases, the marginal product of labour will decrease, as there are more workers to produce the same amount of output.

Question 20

The aggregate production function is an equation that shows the relationship between ________ and ________.

Accepted Answer

The aggregate production function is a macroeconomic concept that shows the relationship between the inputs (such as labor and capital) employed by firms and the maximum output the firms can produce with those inputs. Therefore, the correct answer is A.

Quiz 7: The Standard of Living Over Time and Across Countries