Question

1. An increase in the working-age population results in a

		leftward shift of the supply of labor curve and a decrease in potential GDP.
		rightward shift of demand for labor curve and an increase in potential GDP.
		rightward shift of the supply of labor curve and an increase in potential GDP.
		rightward shift of the demand for labor curve and no change in potential GDP.

2. Other things remaining the same, the greater the expected profit,

		the flatter is the investment demand curve.
		the greater the amount of investment.
		the steeper is the investment demand curve.
		the less the amount of investment.

3. Neoclassical growth theory attributes economic growth to

		technological change.
		increasing population growth.
		the law of diminishing returns.
		fiscal policy.

Answer 1

1. Rightward shift of the supply of labor curve and an increase in potential GDP.

Increase in working age population, increases the supply of labor in the labor market. This causes a rightward shift of the supply curve. Supply of labor is the relationship between the quantity of labor supplied and the real wage rate, all other things remaining the same. The level of real GDP at full employment is potential GDP. So, when there is increase in supply, potential GDP also increases.

2. The greater the amount of investment.

There is positive relationship between expected profit and investment. Higher the amount invested, higher the expected profit and vice versa.

3. Technological change.

Neoclassical growth theory states that economic growth is the result of three factors: labor, capital, and technology.