ECO 302 Week 3 Quiz – Strayer

ECO/302 Week 3 Quiz – Strayer

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Chapter 2

TRUE/FALSE

1. Nominal GDP measures the dollar value of all goods and services that an economy produces in a particular period of time.

2. GDP is a complete measure of economic welfare.

3. GDP ignores welfare changes due to environmental damage.

4. Value added is the difference between costs of production and the price of a product.

5. The difference between GDP and NNP is the depreciation of capital.

6. Nominal GDP measures the total value of goods and services, adjusted for inflation.

7. GDP in constant dollars uses prices from a base year, so that prices do not vary over time.

8. Business inventories are included in the GDP component of private domenstic investment.

9. A flow variable measures the dollar amount of goods at a specific point in time.

10. Conceptually, GDP measured by income, product, and value added each equal the same amount.

MULTIPLE CHOICE

1. Nominal GDP measures the:
a. dollar value of all goods and services produced in an economy at a point in time. c. dollar value of all goods and services produced in an economy during a specified time period.
b. the constant dollar value of all goods and services produced in an economy at a point in time. d. the constant dollar value of all goods and services produced in an economy during a specified time period.

2. Imputed rental income is:
a. the money people receive from renting property. c. what an owner occupied house would fetch on the market if the owner rented it.
b. the money businesses pay for renting property. d. the money businesses receive from renting property.

3. In an economy with two goods, beer and pizza, if pizza costs $10 per pie and beer costs $5 per six pack and if 100 six packs of beer and 200 pizzas are produced in a year, then nominal GDP that year would be:
a. $2,000. c. $1,500.
b. $2,500. d. none of the above.

4. In an economy with two goods, burgers and pizza, if pizza costs $15 per pie and burgers costs $5 per burger and if 1000 burger and 200 pizzas are produced in a year, then nominal GDP that year would be:
a. $24,000. c. $16,000.
b. $8,000. d. none of the above.

5. Real GDP is GDP:
a. in constant dollars. c. that considers income distribution.
b. in current dollars. d. that includes the value of leisure.

6. Real GDP equals:
a. nominal GDP times the implicit price level. c. the current dollar value of all goods and services produced in an economy during a particular time period.
b. nominal GDP divided by the implicit price level. d. real GDP time the implicit price level.

7. The implicit price level is:
a. the ratio of nominal to real GDP. c. the ratio of real to nominal GDP
b. the product of real and nominal GDP. d. the difference between real and nominal GDP.

8. If real GDP is 120 and nominal GDP is 180, then the implicit price level is:
a. .56. c. 60.
b. 1.5. d. 21600.

9. If real GDP is 200 and nominal GDP is 160, then the implicit price level is:
a. 0.8 c. 40.
b. 1.25 d. 32000.

10. GDP does not:
a. consider changes in the distribution of income. c. assign value to leisure time.
b. include most nonmarket goods. d. all of the above.

11. Personal consumption expenditure includes:
a. services. c. imports.
b. residential structures. d. all of the above.

12. Gross private domestic expenditure includes:
a. fixed investment. c. residential structures.
b. change in business inventory. d. all of the above.

13. Net exports of goods and services equals:
a. imports times exports. c. imports minus exports.
b. exports minus imports. d. all of the above.

14. Personal Consumption expenditure includes:
a. changes in business inventories. c. imports.
b. nondurables. d. all of the above.

15. Gross private domestic investment includes
a. durable goods. c. financial assets.
b. residential structures. d. all of the above.

16. Government purchases include:
a. state and local government purchases. c. federal government debt.
b. tax receipts. d. all of the above.

Table 2.1

Category of Expenditure Trillions of $

Personal Consumption Expenditure 7.5
Gross Private Domestic Investment 2.2
Government Purchases 2.5
Net Exports of Goods and Services -1.0
Depreciation of capital 0.5

17. Based on the data in Table 2.1, Gross Domestic Product is:
a. $11.7 trillion. c. $11.2 trillion.
b. $10.7 trillion. d. none of the above.

18. Based on the data in Table 2.1, net domestic private investment is:
a. $1.7 trillion. c. $11.0 trillion.
b. $2.7 trillion. d. none of the above.

19. Depreciation is:
a. when the price level falls. c. the capital used up producing this period’s output.
b. the economy goes into recession. d. all of the above.

Table 2.2

Category of Expenditure Trillions of $

Durable Goods 1.1
Fixed Investment 1.0
Federal Government Purchases 0.9
Exports 1.3
Nondurable Goods 2.6
Nonresidential Structures 1.3
State and Local Government 1.5
Imports 2.0
Services 5.2
Residential Structures 0.8
Changes in Business Inventories 2.0

20. Based on the data in Table 2.2, personal consumption expenditure is:
a. $3.7 trillion. c. $8.9 trillion.
b. $9.7 trillion. d. none of the above.

21. Based on the data in Table 2.2, gross private investment is:
a. $1.0 trillion. c. $5.1 trillion.
b. $4.3 trillion. d. none of the above.

22. Based on the data in Table 2.2, government purchases are:
a. $0.9 trillion. c. $0.6 trillion.
b. $2.4 trillion. d. none of the above.

23. Based on the data in Table 2.2, net exports of goods and services are:
a. $0.7 trillion. c. -$0.7 trillion.
b. $3.3 trillion. d. none of the above.

24. Based on the data in Table 2.2, gross domestic product is:
a. $17.7 trillion. c. $19.7 trillion.
b. $15.7 trillion. d. none of the above.

25. Based on the data in Table 2.2, net domestic product is:
a. $15.7 trillion. c. $19.7 trillion.
b. $17.7 trillion. d. none of the above.

26. Economists sometimes use a closed economy model despite the fact of trade with the rest of the world because:
a. the world as a whole is a closed economy. c. it simplifies the analysis.
b. at least for large countries like the US exports and imports have been small compared to GDP. d. all of the above.

27. Economists sometimes use a closed economy model because:
a. few countries actually trade with others. c. exports and imports have no effect on the economy.
b. it simplifies the analysis. d. all of the above.

Table 2.3

Type of Income Trillions of $

Compensation of employees 7.1
Proprietor’s income 0.9
Rental income of persons 0.1
Corporate profits 1.4
Net interest 0.5
Taxes on production 0.9
Subsidies 0.1
Business transfers 0.1
Surplus of government enterprises -0.1

28. Based on the data in Table 2.3, national income is:
a. $7.1 trillion. c. $11.0 trillion.
b. $10.8 trillion. d. none of the above.

29. Taxes on production include:
a. excise taxes. c. estate taxes.
b. income taxes. d. all of the above.

30. National income includes:
a. corporate taxes c. corporate profits.
b. corporate assets d. all of the above.

31. National income and GDP diverge in practice because of:
a. receipts and payments involving the rest of the world. c. taxes
b. subsidies. d. all of the above.

32. National income includes:
a. rental income of persons. c. corporate profits.
b. net interest. d. all of the above.

33. National income and GDP diverge in practice because of:
a. subsidies. c. taxes.
b. depreciation of capital. d. all of the above.

Table 2.4

Type of Product or Income Trillions of $

Gross domestic product (GDP) 12.5
Income receipts from the rest of the world 0.5
Depreciation of the capital stock 1.6
Corporate profits, taxes on production, contributions for social
insurance, net interest, business transfers, surplus of government
enterprises 3.6
Personal taxes 1.2
Income payments to the rest of the world 0.4
Personal income receipts on assets and personal transfer payments 3.0

34. Base on the data in Table 2.4, gross national product (GNP) is:
a. $11.4 trillion. c. $12.5 trillion.
b. $12.6. trillion. d. none of the above.

35. Based on the data in Table 2.4, net national product is:
a. $11.0 trillion. c. $12.6 trillion.
b. $11.4 trillion. d. none of the above.

36. Based on the data in Table 2.4, national income is:
a. $7.4 trillion. c. $8.9 trillion.
b. $11.0 trillion. d. none of the above.

37. Based on the data in Table 2.4, personal income is:
a. $10.2 trillion. c. $11.8 trillion.
b. $10.4 trillion. d. none of the above.

38. Based on the data in Table 2.4, disposable personal income is:
a. $10 trillion. c. $9.2 trillion.
b. $7.4 trillion. d. none of the above.

39. Gross national product (GNP) is gross domestic product (GDP):
a. less income receipts from the rest of the world less income payments to the rest of the world. c. plus income receipts from the rest of the world less income payments to the rest of the world.
b. less income receipts from the rest of the world plus income payments to the rest of the world. d. less income receipts from the rest of the world less income payments to the rest of the world.

40. Net national product (NNP) is gross national product (GNP):
a. plus depreciation of capital. c. plus personal taxes.
b. less depreciation of capital. d. less personal taxes.

41. Personal income is national income:
a. less corporate profits, taxes on production, contributions for social insurance, net interest, business transfers and surplus of government enterprises plus personal income receipts on assets and personal transfer payments. c. plus corporate profits, taxes on production, contributions for social insurance, net interest, business transfers and surplus of government enterprises less personal income receipts on assets and personal transfer payments.
b. less corporate profits, taxes on production, contributions for social insurance, net interest, business transfers, surplus of government enterprises, personal income receipts on assets and personal transfer payments. d. plus corporate profits, taxes on production, contributions for social insurance, net interest, business transfers, surplus of government enterprises, personal income receipts on assets and personal transfer payments.

42. Disposable personal income is personal income:
a. plus personal taxes. c. less personal taxes.
b. less corporate profits, taxes on production, contributions for social insurance, net interest, business transfers and surplus of government enterprises plus personal income receipts on assets and personal transfer payments. d. plus corporate profits, taxes on production, contributions for social insurance, net interest, business transfers and surplus of government enterprises less personal income receipts on assets and personal transfer payments.

43. Subtracted from national income to get personal income is:
a. depreciation of capital. c. personal transfer payments.
b. corporate profits. d. all of the above.

44. Added to national income to get personal income is:
a. personal income receipts on assets. c. contributions for social insurance.
b. net interest. d. all of that above.

45. Subtracted from national income to get personal income is:
a. net interest. c. taxes on production.
b. business transfers. d. all of the above.

46. Subtracted from personal income to get disposable personal income is:
a. personal taxes. c. personal income receipts on assets.
b. contributions for social insurance. d. all of the above.

47. The consumer price index (CPI):
a. can not be constructed as a chained index. c. is updated whenever new goods are introduced.
b. does not adjust for quality changes in goods. d. fully accounts for substitution to cheaper goods.

48. The consumer price index is biased because it can not account for:
a. quality changes in goods. c. people substituting to cheaper goods.
b. new goods. d. all of the above.

49. The consumer price index does not account for:
a. the introduction of new goods. c. goods whose prices fall.
b. goods whose prices rise. d. all of the above.

50. The consumer price index is constructed from:
a. tax data. c. data from wholesale producers.
b. survey data. d. all of the above.

51. Nominal GDP can be misleading primarily because it
a. does not include imputed rental income. c. is adjusted for inflation.
b. depends on the overall level of prices. d. does not include personal consumption expenditures.

52. Which of the following would NOT be included in this year’s GDP?
a. the sale of a new 4-door sedan car to a consumer. c. the sale of an antique automobile to a antique-car collector.
b. the sale of a new computer to a student. d. the sale of a new SUV to a consumer.

53. Which of the following would be included in this year’s GDP?
a. the sale of a new car. c. the sale of an existing home.
b. the sale of a used car. d. the sale of an antique table.

54. In the calculation of real GDP, a base year is used for measuring
a. rental income. c. production quantities.
b. wages. d. prices.

55. The chain-weighted measure of GDP
a. uses average prices of goods for two adjacent years. c. uses the current prices of goods.
b. uses the price of goods in a base year, such as the year 2000. d. gives more weight to goods which are more expensive.

56. A chain-weighted measure of GDP addresses the issue of changes in
a. product quality. c. the chain of supply for goods.
b. the average weight of goods. d. the quantity of exports and imports.

57. When the quality of a product changes over time, real GDP
a. cannot be adjusted for this problem. c. can be adjusted by using a chain-weighted measure of GDP.
b. can be adjusted by choosing a new base year each decade. d. can be adjusted by subtracting depreciation from nominal GDP.

58. If nominal GDP is 200 and the implicit price level is 1.25, then real GDP
a. equals 250. c. equals 160.
b. equals 201.25 d. cannot be calculated.

59. If nominal GDP is 300 and the implicit price level is 0.75, then real GDP
a. equals 400. c. equals 225.
b. equals 300. d. cannot be calculated.

60. If real GDP equals 400 and the implicit price level is 0.75, then nominal GDP
a. equals 400. c. equals 225.
b. equals 300. d. cannot be calculated.

61. If real GDP equals 400 and the implicit price level is 1.25, then nominal GDP
a. equals 320. c. equals 500.
b. equals 400. d. cannot be calculated.

62. One shortcoming of real GDP is that it
a. excludes most nonmarket activity. c. does not consider price changes.
b. does not consider income distribution. d. (a) and (b).

63. Which of the following is NOT classified as a consumer durable?
a. automobiles. c. refrigerators.
b. furniture. d. none of the above.

64. Seasonal adjustment to macroeconomic data corrects mostly for
a. price level changes. c. the weather and holidays.
b. product quality changes. d. the housing industry cycle.

65. The sum of value added from all sectors in an economy is equal to
a. national income. c. net national product.
b. GDP. d. (a) and (b).

66. A pottery shop buys clay and other materials for $20. Workers use the materials to make 5 bowls that are sold for $250 total. The value added by the pottery shop equals
a. $0. c. $30.
b. $20. d. $230.

SHORT ANSWER

1. What is nominal gross domestic product (GDP)?

2. What is real GDP and what makes it “real?”

3. What is the relationship between nominal and real GDP?

4. What parts of welfare does real GDP not measure?

5. Why might the consumer price index (CPI) overstate inflation?

6. Why should GDP measured by expenditures and by income each equal the same amount? Why, in practice, are they often not equal?

Chapter 3

TRUE/FALSE

1. The standard of living of people in a country is their per capita income.

2. Diminishing returns to labor implies that eventually the marginal product of labor will become negative.

3. The marginal product of capital is how much output changes when capital increases by one unit.

4. Saving is income that is not consumed.

5. Real saving equals gross investment.

6. Data show that, from 1960 to 2000, the U.S. and other OECD countries grew at moderate rates.

7. Data from recent decades show that most countries in sub-Saharan Africa grew at a fast pace.

8. In a production function for the economy, the marginal product of capital typically is increasing.

9. Constant returns to scale in a production function imply that doubling both capital and labor will also double output.

10. The Solow growth model indicates that the growth rate of real GDP per worker depends partly on the saving rate.

MULTIPLE CHOICE

1. World growth data shows that from 1960 to 2000:
a. the US and other OECD countries grew at moderate rates. c. some countries particularly East Asian countries grew rapidly.
b. sub-Saharan African countries grew at low rates or declined. d. all of the above.

2. World growth data reveals that from 1960 to 2000:
a. the US and other OECD countries grew at moderate rates. c. some countries particularly East Asian countries grew a low rates or declined.
b. sub-Saharan African countries grew rapidly. d. all of the above.

3. World growth data reveals that from 1960 to 2000:
a. the US and other OECD countries stagnated. c. some countries particularly East Asian countries grew at low or negative rates.
b. sub-Saharan African countries grew at low or negative rates. d. all of the above.

4. World growth data reveals that from 1960 to 2000:
a. all countries grew at similar rates. c. some countries particularly East Asian countries grew rapidly.
b. sub-Saharan African countries grew moderately. d. the US and other OECD countries stagnated.

5. The US and other OECD countries had high levels of GDP per person in 2000 despite growing at a moderate rate from 1960 to 2000 because:
a. of exploitation of foreign countries. c. they stole the wealth of less developed countries.
b. their economies had grown at a moderate rate for a century or more. d. all of the above.

6. If A in the production function Y = A • F(K,L) rises, then:
a. output rises for any level of K and L. c. the marginal product of capital rises.
b. the marginal product of labor rises. d. all of the above.

7. If A in the production function Y = A • F(K,L) doubles, while K and L remain the same, then
a. output doubles. c. the marginal product of capital falls.
b. the marginal product of labor falls. d. output increases by less than double.

8. A in the production function Y = A • F(K,L) is:
a. the marginal product of labor. c. the marginal product of capital.
b. the capital to labor ratio (K/L). d. the level of technology.

9. The marginal product of labor is:
a. how much output rises for when labor increases one unit. c. labor divided by capital (L/K)
b. capital divided by labor (K/L). d. the level of technology.

10. The marginal product of capital is:
a. . c. the slope of the production when technology and labor are held constant.
b. the change in output for a unit change in capital. d. all of the above.

11. Diminishing marginal product of capital (MPK) means:
a. output rises as capital rises. c. output rises as the MPK rises.
b. the MPK eventually falls as capital rises. d. the marginal product of capital eventually becomes negative as capital rises.

12. In the production function Y = A • F(K,L), L is:
a. leisure. c. the marginal product of labor.
b. labor. d. the marginal product of leisure.

13. In the production function Y = A • F(K,L), Y is:
a. good Y. c. the marginal product of good Y.
b. production. d. constant returns to scale.

14. Among the assumptions made about the production function Y = A • (K,L) is:
a. diminishing marginal product of labor. c. diminishing marginal product of capital.
b. constant returns to scale. d. all of the above.

15. For the production function Y = A • F(K,L) constant returns to scale means:
a. if capital and labor double output doubles. c. the marginal products of capital and labor are constant.
b. capital and labor increase at a constant rate. d. technology is constant.

16. If the production function Y = A • (K,L) is divided by L, then
a. (Y/L) = A•f(K/L). c. y = A•f(k).
b. output per capita equals technology times a function of the capital labor ratio. d. all of the above.

17. Among the categories the growth rate is broken down into by growth accounting is:
a. the growth rate of technology. c. the capital labor ratio.
b. the marginal product of capital. d. all of the above.

18. Growth accounting shows that GDP growth depends on:
a. growth of the capital stock. c. government purchases.
b. holding environmental pollution in check. d. having a reasonable distribution of income.

19. Growth accounting shows that economic growth depends on:
a. government tax receipts. c. lowering environmental pollution.
b. the growth of the labor force. d. all of the above.

20. Growth accounting shows that economic growth depends on:
a. controlling environmental pollution. c. increases in technology.
b. international cooperation. d. all of the above.

21. Growth accounting shows that economic growth depends on:
a. increases in technology. c. growth in the capital stock.
b. the growth of the labor force. d. all of the above.

22. The growth accounting formula is:
a. c.
b. d. Y= A • F(K,L)

23. The labor force participation rate is:
a. the labor force divided into population. c. the labor force times population.
b. the labor force divide by population. d. the labor population minus the labor force.

24. If a country has a population of 100 million and a labor force of 60 million, then its labor force participation rate is:
a. 0.6. c. 40 million.
b. 1.67 d. 60 million.

25. If a country has a population of 300 million and a labor force of 200 million, then its labor force participation rate is:
a. 0.67 c. 100 million.
b. 1.5 d. 200 million.

26. The change in the capital stock in an economy depends on:
a. the economy’s saving. c. the economy’s investment.
b. the change in bond prices. d. all of the above.

27. In a closed economy with no government sector, the change in the capital stock is:
a. net investment less depreciation. c. gross investment.
b. gross investment less depreciation. d. nominal saving.

28. In a closed economy with no government sector, the change in the capital stock is equal to:
a. net investment less depreciation. c. gross investment.
b. nominal saving. d. real saving.

29. Depreciation of the capital stock occurs due to:
a. machines deteriorating. c. bonds falling in value.
b. real estate rising in value. d. all of the above.

30. Depreciation of the capital stock occurs due to:
a. inflation. c. bonds falling in value.
b. buildings needing repair. d. all of the above.

31. Depreciation of the capital stock occurs due to:
a. deflation. c. bonds falling in value.
b. vehicles requiring new parts. d. all of the above.

32. Depreciation of the capital stock occurs due to:
a. machines deteriorating. c. buildings needing repair.
b. vehicles needing parts. d. all of the above.

33. If there are 120 machines in an economy and the depreciation rate is 5% per year, then:
a. depreciation is 5 machines a year. c. depreciation is 115 machines per year.
b. depreciation is 6 machines a year. d. depreciation is 114 machines per year.

34. If there are 120 machines in an economy and the depreciation rate is 10% per year, then next year there are:
a. 10 of the original machines left. c. 108 of the original machines left.
b. 12 of the original machines left. d. 110 of the original machines left.

35. The average product of capital is:
a. c. .
b. Y/K. d. .

Figure 3.1

36. In Figure 3.1 the average product of capital is:
a. rising. c. falling.
b. constant. d. unknown.

37. In Figure 3.1 the marginal product of capital is:
a. rising. c. constant.
b. declining. d. unknown.

38. Figure 3.1 shows:
a. a production function with labor and technology constant. c. a production function with capital and technology constant.
b. a production function with capital and labor constant. d. a production function with capital, labor and technology constant.

39. In the steady state of the Solow growth model:
a. c.
b. d.

40. In the Solow growth model the economy reaches the optimal k*:
a. immediately. c. randomly.
b. over a period of time. d. cyclically.

41. The Solow growth model assumes unemployment is:
a. zero. c. rising.
b. falling. d. constant.

42. The Solow growth model ignores:
a. the international sector. c. changes in labor force participation.
b. the role of government. d. all of the above.

43. The Solow growth model shows that the growth rate of real GDP per worker depends on:
a. the saving rate, s c. the depreciation rate, .
b. the growth rate of the labor force, n. d. all of the above.

44. The Solow growth model shows that the growth rate of real GDP per worker depends on:
a. the saving rate, s c. the rate of inflation.
b. government spending, G. d. all of the above.

45. The Solow growth model shows that the growth rate of real GDP per worker depends on:
a. the rate of growth of the money supply. c. rate of growth of government debt.
b. the growth rate of the labor force, n. d. all of the above.

46. The Solow growth model shows that the growth rate of real GDP per worker depends on:
a. the rate of growth of the money supply. c. the depreciation rate, .
b. level of output in the economy. d. all of the above.

47. In the Solow growth model the optimal capital to labor ratio, K/L, is where:
a. s + n = s•(k/y). c. n + s = s•(y/k).
b. s + n = s•(y/k). d. s + s = n•(y/k).

48. In the Solow growth model the steady state is when the economy has:
a. full employment. c. zero inflation.
b. the optimal capital labor ratio, k*. d. all of the above.

49. During the transition to the steady state in the Solow growth model:
a. the output per worker rises. c. the rate of growth of capital rises.
b. labor force participation rises. d. all of the above.

50. During the transition to the steady state in the Solow growth model:
a. the output per worker falls. c. the rate of growth of capital falls.
b. labor force participation rises. d. all of the above.

51. During the transition to the steady state in the Solow growth model:
a. the output per worker rises. c. the rate of growth of capital falls.
b. the capital to labor ratio rises. d. all of the above.

52. The Solow residual is:
a. that part of output growth not attributed to labor force growth. c. that part of output growth not attributed to capital stock growth and labor force growth.
b. that part of output growth not attributed to capital stock growth. d. the growth in output.

53. The Solow residual is that part of output growth attributed to:
a. the growth rate of the labor force. c. the growth rate of the capital stock.
b. the growth rate of output. d. the grow rate of technology.

54. The Solow residual:
a. is not directly observable. c. is attributed to capital stock growth.
b. attributed to labor force growth. d. is attributed to labor force growth and capital stock growth.

55. Economists use the term poverty to identify people who
a. earn less than $5,000 per year. c. have no access to the internet at home.
b. earn less than $6,000 per year. d. have difficulty affording food and shelter.

56. In economics, the term inequality describes
a. the same thing as poverty. c. an unequal representation in the U.N.
b. an unequal distribution of income. d. disparity among countries’ voting rights.

57. Data from recent decades show that economic growth led to
a. a worldwide increase in poverty. c. an increase in poverty in OECD countries only.
b. no signficant change in poverty. d. a worldwide decline in poverty.

58. Data from recent decades show that economic growth led to
a. a worldwide increase in inequality. c. an decrease in inequality in China only.
b. no signficant change in inequality. d. a worldwide decrease in inequality.

59. The world distribution of real GDP per person in 2000 shows that
a. OECD countries dominate the bottom of the distribution. c. sub-Saharan African countries dominate the bottom of the distribution.
b. OECD countries dominate the top of the distribution. d. both (b) and (c).

60. The world distribution of real GDP per person in 2000 shows that
a. OECD countries dominate the bottom of the distribution. c. sub-Saharan African countries dominate the top of the distribution.
b. OECD countries dominate the top of the distribution. d. both (b) and (c).

61. The slope of a production function in terms of capital, holding technology and labor fixed, usually
a. increases with increases in capital. c. decreases with increases in capital.
b. remains constant with increases in capital. d. either (a) or (b).

62. The slope of a production function in terms of labor, holding technology and capital fixed, usually
a. decreases with increases in labor. c. increases with increases in labor.
b. remains constant with increases in labor. d. either (a) or (b).

63. A bakery with a production function exhibiting constant returns to scale has 2 mixers and 4 workers, who produce 10 cakes per day. If the bakery owner adds 2 more mixers and 4 more workers, then production would most likely
a. increase by 10 cakes per day. c. decrease by 2 cakes per day.
b. increase by 40 cakes per day. d. increase by 60 cakes per day.

64. In the Solow model, the growth rate of the capital stock is a function of
a. the saving rate and the depreciation rate. c. the labor force participation rate and the technology growth rate.
b. the saving rate and the labor force participation rate. d. the depreciation rate and the labor force participation rate.

65. In the Solow model, the growth rate of the labor is a function of
a. the saving rate and the growth rate of the population. c. the labor force participation rate and the health technology growth rate.
b. the saving rate and the labor force participation rate. d. the growth rate of the population.

66. In the Solow growth model, the average product of capital
a. increases as capital per worker rises. c. declines as capital per worker rises.
b. remains constant as capital per worker rises. d. declines, then rises, as capital per worker rises.

67. In the steady state for the Solow growth model,
a. the labor per technology unit ratio increases. c. the capital per worker ratio increases.
b. the labor per technology unit ratio no longer moves. d. the capital per worker ratio no longer moves.

68. In the steady state for the Solow growth model, the saving per worker
a. is greater than the capital provided for each new worker. c. is equal to the depreciation rate per worker.
b. is equal to the capital provided for each new worker. d. is greater than the depreciation rate per worker.

SHORT ANSWER

1. What is a production function?

2. What do constant returns to scale imply?

3. What is the growth account formula and what does it tell us?

4. Show why real saving equals net investment.