Question 1

What is the effect of an increase in interest rate on keeping government spending constant on consumption and investment?

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Question 2

What effect does advancement in technology have upon the equilibrium between real rental price and capital (assuming supply of capital is fixed)?

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Question 3

The production of an economy is explained by a function: Y = 20 (L^.5K^.5) where L is labor and K is capital with L = 400 and K = 400. Does this economy support constant returns to scale?

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Question 4

Suppose people in an economy reduce their saving. What will be the effect on real interest rate and investment?

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Question 5

After studying the circular flow of dollars in the economy, explain with an example how saving done by households goes back into the circular flow. In reality, does all saving go back as an investment?

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Question 6

The closed economy of Moneyland has total income of $5000, consumption function is C = 2000 - 30r, investment function I = 1500 - 20r, government spending is $2000, r is nominal interest rate. Inflation is 6 percent. Find the real rate of interest.

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Question 7

The economy of Miniland has an income of $400, consumption is $200, government expenditure is $200, and the tax earnings of government is $150.
a. Calculate private saving.
b. Calculate public saving.
c. Calculate national saving.

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Question 8

Price flexibility plays a key role in the classical model by ensuring that the markets reach equilibrium.

a. Explain which price adjusts to bring equilibrium in the labor market. Describe how the price adjusts when demand exceeds supply in this market.
b. Explain which price adjusts to bring equilibrium in the loanable funds market. Describe how the price adjusts when supply exceeds demand in this market.

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Question 9

The government of an economy has increased its spending and taxes by the same amount. What is the effect on investment?

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Question 10

Consider a production function for an economy: Y = 20(L^.5K^.4N^.1) where L is labor, K is capital, and N is land. In this economy the factors of production are in fixed supply with L = 100, K = 100, and N = 100. a. What is the level of output in this country? b. Does this production function exhibit constant returns to scale. Demonstrate by example. c. If the economy is competitive so that factors of production are paid the value of their marginal products, what is the share of total income will go to land?

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Y...

Question 11

The total output of the closed economy Moneyland is 10,000. Consumption is explained by the function C = 3,800 + 0.7T - 150r, where r is the real interest rate. Investment (I) is given by the equation, I = 1,500 + 50r. Taxes (T) are 1,000 and government spending (G) is 3,500. What are the values of consumption, investment, and real interest rate?

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