Question 1

Suppose that the production function for the economy is Y = AK⁰.⁵ᴸ⁰.⁵.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 3,real GDP is

Accepted Answer

Real GDP = AK⁰.⁵L⁰.⁵ = 3 * 40000⁰.⁵ * 10000⁰.⁵ = 3 * 200 * 100 = $60,000

Question 2

Suppose that the production function for the economy is Y = AK⁰.²ᴸ⁰.⁸.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 1,real GDP is

Accepted Answer

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

Question 3

A firm that wishes to maximize profits will continue to purchase capital goods until the

Accepted Answer

The real rental price of capital is equal to the nominal rental price of capital adjusted for inflation, while MPK is the productivity of the last unit of capital. To maximize profits, a firm will continue to purchase capital goods until the real rental price of capital is equal to the marginal product of capital (MPK), as any additional unit of capital purchased would not generate more profits than its cost.

Question 4

Figure 7.1 -Refer to Figure 7.1.All else equal,an increase in the number of workers will cause a

Accepted Answer

An increase in the number of workers will cause a movement up and to the right along PF₁, as the labor input increases and more goods can be produced, leading to a higher level of output. There is no shift in the production possibilities frontier (PPF) itself, as the PPF reflects the maximum production levels given the available resources and technology. Therefore, the correct choice is C.

Question 5

Suppose that the production function is Y = AK⁰.⁷ᴸ⁰.³,the number of workers equals 800,the capital stock is $150 000,and total factor productivity is 3.What is the value of real GDP? What will happen to real GDP if total factor productivity doubles?

Accepted Answer

The answer of Suppose that the production function is Y...

Question 6

Suppose that the production function for the economy is Y = AK⁰.⁵ᴸ⁰.⁵.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 3,the equilibrium real rental price of capital is

Accepted Answer

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

Question 7

Suppose that the production function for the economy is Y = AK⁰.⁵ᴸ⁰.⁵.If the capital stock ?= 40 000,the quantity of labour = 10 000,and the efficiency index = 3,the equilibrium real wage is

Accepted Answer

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

Question 8

A firm that wishes to maximize profits will continue to hire labour until the

Accepted Answer

The firm will continue to hire labour until the point where the additional output (MPL) gained from hiring an extra worker is equal to the cost of their wages (real wage). At this point, any additional hiring would result in diminishing returns, reducing the overall profitability of the firm. Therefore, the firm will stop hiring labour when the real wage equals MPL.

Question 9

Suppose that the production function for the economy is Y = AK⁰.²ᴸ⁰.⁸.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 1,the marginal product of capital is

Accepted Answer

The marginal product of capital (MPK) is found by taking the partial derivative of the production function with respect to capital (K). For the given production function Y = AK^0.2L^0.8, MPK = 0.2 * A * (K^(-0.8)) * (L^0.8). Substituting A = 1, K = 40,000, and L = 10,000, we get MPK = 0.2 * 1 * (40,000^(-0.8)) * (10,000^0.8) = 0.066.

Question 10

Figure 7.1 -Refer to Figure 7.1.All else equal,an increase in the capital stock will cause a

Accepted Answer

An increase in the capital stock typically leads to an outward shift of the production function, indicating that more output can be produced with the same amount of labor, hence shifting from PF₁ to PF₂.

Question 11

Suppose that the production function for an economy is Y = AK¹/³ᴸ²/³.On one graph,show the production function undergoing two equal increases in workers,holding capital and total factor productivity constant,and on a second graph show the production function undergoing two equal increases in total factor productivity,holding capital and labour constant.Explain what happens to real GDP in each situation.

Accepted Answer

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Question 12

Figure 7.1 -Refer to Figure 7.1.All else equal,an increase in total factor productivity will cause a

Accepted Answer

An increase in total factor productivity means that, with the same inputs, more output can be produced. This leads to a shift of the production possibility frontier (PPF) outward, from PF₁ to PF₂.

Question 13

If the marginal product of labour is less than the nominal wage divided by the price of output,a firm that wishes to maximize profits will

Accepted Answer

If the marginal product of labor is less than the real wage (nominal wage divided by the price of output), the firm is paying more for labor than the additional revenue generated by the last worker hired, so it should lay off workers to maximize profits.

Question 14

Diminishing marginal returns do not exist for increases in

Accepted Answer

Diminishing marginal returns occur when each additional unit of a variable input (such as labor or capital) leads to a smaller increase in output. However, total factor productivity (TFP) refers to efficiency and technological progress, which can result in increasing rather than diminishing returns. Therefore, choice C is the best answer as it does not experience diminishing marginal returns.

Question 15

Suppose that the production function is Y = AK?.³???.??,the number of workers equals 800,the capital stock is $150 000,and real GDP is $750 000.What is the value of total factor productivity?

Accepted Answer

The answer of Suppose that the production function is Y...

Question 16

Explain why the differences in GDP per capita actually understate the true difference in living standards between countries.

Accepted Answer

The answer of Explain why the differences in GDP per...

Question 17

If the nominal rental price of capital divided by the price of output is less than the marginal product of capital,a firm that wishes to maximize profits will

Accepted Answer

If the nominal rental price of capital divided by the price of output is less than the marginal product of capital, it means that the firm can earn more revenue by investing in additional capital goods. The marginal product of capital represents the additional output that can be produced by using an additional unit of capital. Therefore, if the marginal product of capital is higher than the cost of renting capital, the firm can increase its profits by purchasing more capital goods.

Question 18

In Canada,economists estimate capital's share and labour's share of total income have been about ________,respectively.

Accepted Answer

Economists typically estimate that in Canada, labor's share of total income is about 2/3, while capital's share is about 1/3.

Question 19

An increase in foreign investment in Brazil's mining industry will increase the capital stock in Brazil.Holding labour and total factor productivity constant,continued increases in the capital stock will lead to

Accepted Answer

According to the law of diminishing returns, as more capital is added while holding other factors constant, each additional unit of capital will contribute less to output, leading to smaller and smaller increases in real GDP.

Question 20

Suppose that the production function for the economy is Y = AK⁰.²ᴸ⁰.⁸.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 1,the marginal product of labour is

Accepted Answer

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

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

Suppose that the production function for the economy is Y = AK⁰.⁵ᴸ⁰.⁵.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 3,real GDP is

Suppose that the production function for the economy is Y = AK⁰.²ᴸ⁰.⁸.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 1,real GDP is

A firm that wishes to maximize profits will continue to purchase capital goods until the

Figure 7.1 -Refer to Figure 7.1.All else equal,an increase in the number of workers will cause a

Suppose that the production function is Y = AK⁰.⁷ᴸ⁰.³,the number of workers equals 800,the capital stock is $150 000,and total factor productivity is 3.What is the value of real GDP? What will happen to real GDP if total factor productivity doubles?

Suppose that the production function for the economy is Y = AK⁰.⁵ᴸ⁰.⁵.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 3,the equilibrium real rental price of capital is

Suppose that the production function for the economy is Y = AK⁰.⁵ᴸ⁰.⁵.If the capital stock ?= 40 000,the quantity of labour = 10 000,and the efficiency index = 3,the equilibrium real wage is

A firm that wishes to maximize profits will continue to hire labour until the

Suppose that the production function for the economy is Y = AK⁰.²ᴸ⁰.⁸.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 1,the marginal product of capital is

Figure 7.1 -Refer to Figure 7.1.All else equal,an increase in the capital stock will cause a

Figure 7.1 -Refer to Figure 7.1.All else equal,an increase in total factor productivity will cause a

If the marginal product of labour is less than the nominal wage divided by the price of output,a firm that wishes to maximize profits will

Diminishing marginal returns do not exist for increases in

Suppose that the production function is Y = AK?.³???.??,the number of workers equals 800,the capital stock is $150 000,and real GDP is $750 000.What is the value of total factor productivity?

Explain why the differences in GDP per capita actually understate the true difference in living standards between countries.

If the nominal rental price of capital divided by the price of output is less than the marginal product of capital,a firm that wishes to maximize profits will

In Canada,economists estimate capital's share and labour's share of total income have been about ________,respectively.

An increase in foreign investment in Brazil's mining industry will increase the capital stock in Brazil.Holding labour and total factor productivity constant,continued increases in the capital stock will lead to

Suppose that the production function for the economy is Y = AK⁰.²ᴸ⁰.⁸.If the capital stock = 40 000,the quantity of labour = 10 000,and the efficiency index = 1,the marginal product of labour is