Question

Mutiple Choice:

1-3. A competitive firm hires labor until the marginal product of labor equals the: A. real wage. B. rental price of capital. C. price of output. D. capital/labor ratio

2-3. According to the model developed in Chapter 3, when government spending increases but taxes are not raised, interest rates: A. increase. B. are unchanged. C. decrease. D. can vary.

3-3. . In a closed economy with a fixed total income, a reduction in taxes will cause consumption: A. to rise and investment to fall. B. and investment both to rise. C. to fall and investment to rise. D. and investment both to fall.

3-4. When saving (the supply of loanable funds) increases as the interest rate increases, an increase in investment demand results in a ______ interest rate and ______ in the quantity of investment. A. higher; no change B. higher; an increase C. lower; no change D. lower; an increase 33.

3-5. Which of the following will not be caused by an increase in government spending? A. an increase in interest rate B. a decrease in consumption C. a decrease in investment D. an increase in government debt

Answer 1

1 – 3 )

Answer: (A)

Producer tends to higher labor until the marginal productivity of labor becomes equal to wage rate. It will not be profitable higher beyond this point ,

2-3)

Answer: (A)

Increase in government spending financed through the market will increase demand for fund in market which would drive up interest rate in market.

3-3)

Answer: ( B)

Reduction in taxes increase disposable income of consumer, so consumption rises. Rise in consumption incentive more investment.

3- 4)

Answer: (B )

Rise in demand for investment puts upward pressure on interest rate and investment rises.

3 -5)

Answer: ( B)

Government spending raises aggregate consumption in economy.