Question

Answer if each statement is true, false, or uncertain. Support your answer with a few lines....

Answer if each statement is true, false, or uncertain. Support your answer with a few lines.

1. When the real wage is below the equilibrium price in the labor market we have an excess demand of labor and the real wage should increase.

2. With perfect capital mobility, the domestic real interest rate must be the same as the world real interest rate.

3. In the quantity theory of money, real output is an endogenous variable.

4. The Keynesian consumption function does not display consumption smoothing, because consumption is not a§ected by future income.

5. A rise in the tax rate on businesses leads to a decline in the desired level of capital and a decrease in investment.

Homework Answers

Answer #1

1. True when real wage is less than the equilibrium wage we see there is excess demand for labour. Firms demand more labour thus push up the real wage in upward direction.

2. True, if it is not true then we will have infinite outflow or inflow of capital.

3. True real.output is an endogenous variable.

4. True consumption is only affected by income and interest rate.

No future income is a part of it.

5. True, investment is a negative function of interest rate.

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