Economics 102

Answers to Practice Questions 3

Spring 2001

 

 

Answer Key:

 

I. True/False and explain

 

  1. F. It is to the opposite, the classical model takes a long-run view.
  2. F. Should be real values.
  3. F. All markets clear.
  4. F. In the classical model, full employment is automatically satisfied.
  5. F. Aggregate production function graphs the relationship between output and employment holding capital, land and technology level fixed.
  6. T.
  7. T.
  8. F. It’s consistent with Say’s law, which shows that total value of spending will equal the total value of output. As long as the excess supplies or excess demands in these markets are balanced, Say’s law still holds true.
  9. T.
  10. F. Not including exports.
  11. T.
  12. F. It’s equally true when the government is running a budget surplus.
  13. T.
  14. T.
  15. T.
  16. T.
  17. F. They both increase employment, but they have different effect on wage rate: increase in labor demand will increase wage rate, while increase in labor supply will decrease it.
  18. T.
  19. F. In this case, capital per worker decreases, and productivity will decrease.
  20. F. It gives firms incentives to spend more on investment such as accumulation of capital or R & D.
  21. T.
  22. F. Their population growth rate is generally high, requiring most of resources used in producing consumption goods to keep the minimum consumption level. And their capital per worker is low, resulting in a low productivity.

 

 

II. Multiple Choices

1.D                  2.B                   3.B                   4.D                  5.A

6.B                   7.D                  8.C                  9.B                   10.A

11.D                12.B                 13.C                14.D                15.D