Question

1. Suppose the aggregate production function for US is Y=sqr(KL),
   1. share of return to capital equals 0.5;
   2. share of return to labor depends on the level of capital;
   3. share of return to capital depends on the level of technology;
   4. all of the above.
2. The money multiplier exists because
   1. people do not wish to hold everything in cash
   2. factional reserve banking system
   3. commercial bank’s lending
   4. all of the above
3. Inflation rate captures
   1. the increase in produced-goods’ prices
4. 5. the increase in consumed-goods’ prices
   6. depends on the price indexes it bases on
   7. all of the above

Answer 1

1) option A is correct. The production function is Y = K^0.5 L^0.5 which means the share of labour is is 0.5 and share of capital is 0.5 in the income. This does not depend upon the level of labour and capital

2) option D is correct. There is a cash deposit ratio which means currency is not hold entirely in the form of cash or at bank. Similarly there are excess reserves and lending by the banking due to which there is a multiplier effect of increasing monetary base

3) option C is correct