ECON 3133 Test 2 UPDATED ACTUAL
QUESTIONS AND CORRECT ANSWERS
What are the distinguishing characteristics of a Cobb-Douglas production function? -
CORRECT ANSWER A. It exhibits diminishing returns.
C. Capital and labor both earn shares of total income equal to the value of their exponents in
the production function.
D. It exhibits constant returns to scale.
With the Cobb-Douglas production function,
Y=AK^1/4L^3/4,
if both capital and labor increase by
50%,
what will happen to real GDP? - CORRECT ANSWER Real GDP will increase by
exactly
50%.
Firms decide the amount of labor and capital to use in production by employing inputs to the
point where - CORRECT ANSWER the real wage equals the marginal product of labor
and the real rental price of capital equals the marginal product of capital.
Capital's
share of total income is: - CORRECT ANSWER MP little k x K / Y
The two factors determining labor productivity are
of the two factors the most important is - CORRECT ANSWER the capital-labor ratio
and total factor productivity
, total factor productivity
The standard of living ultimately depends on labor productivity because - CORRECT
ANSWER limits exist to the input of labor (the number of workers)
&
there is no limit to how much labor productivity can increase
Consider the following statement:
"Without a well-functioning financial system, it is not possible for an economy to reach its
full potential for
real GDP per capita."
Briefly explain whether you agree with this statement. - CORRECT ANSWER Yes,
without a well-functioning financial system, saving cannot easily be pooled to fund
investment. Thus, an economy's real GDP per capita will be lower than its full potential.
The relationship between the inputs employed by a firm and the maximum output it can
produce with those inputs is called the firm's - CORRECT ANSWER production
function.
The aggregate production function is an equation that shows the relationship between
________ and ________. - CORRECT ANSWER the inputs employed by firms; the
maximum output firms can produce with those inputs
In the aggregate production function, Y represents real GDP, K represents the capital stock, L
represents the quantity of labor, and A represents an index of efficiency. Which of the
following equations represents the aggregate production function? - CORRECT
ANSWER Y = AF(K, L)
Which of the following equations best represents the concept of constant returns to scale? -
CORRECT ANSWER 3Y=AF(3K,3L)
Which of the following equations best represents a Cobb-Douglas production function? -
CORRECT ANSWER Y = AK^3/4L^1/4
QUESTIONS AND CORRECT ANSWERS
What are the distinguishing characteristics of a Cobb-Douglas production function? -
CORRECT ANSWER A. It exhibits diminishing returns.
C. Capital and labor both earn shares of total income equal to the value of their exponents in
the production function.
D. It exhibits constant returns to scale.
With the Cobb-Douglas production function,
Y=AK^1/4L^3/4,
if both capital and labor increase by
50%,
what will happen to real GDP? - CORRECT ANSWER Real GDP will increase by
exactly
50%.
Firms decide the amount of labor and capital to use in production by employing inputs to the
point where - CORRECT ANSWER the real wage equals the marginal product of labor
and the real rental price of capital equals the marginal product of capital.
Capital's
share of total income is: - CORRECT ANSWER MP little k x K / Y
The two factors determining labor productivity are
of the two factors the most important is - CORRECT ANSWER the capital-labor ratio
and total factor productivity
, total factor productivity
The standard of living ultimately depends on labor productivity because - CORRECT
ANSWER limits exist to the input of labor (the number of workers)
&
there is no limit to how much labor productivity can increase
Consider the following statement:
"Without a well-functioning financial system, it is not possible for an economy to reach its
full potential for
real GDP per capita."
Briefly explain whether you agree with this statement. - CORRECT ANSWER Yes,
without a well-functioning financial system, saving cannot easily be pooled to fund
investment. Thus, an economy's real GDP per capita will be lower than its full potential.
The relationship between the inputs employed by a firm and the maximum output it can
produce with those inputs is called the firm's - CORRECT ANSWER production
function.
The aggregate production function is an equation that shows the relationship between
________ and ________. - CORRECT ANSWER the inputs employed by firms; the
maximum output firms can produce with those inputs
In the aggregate production function, Y represents real GDP, K represents the capital stock, L
represents the quantity of labor, and A represents an index of efficiency. Which of the
following equations represents the aggregate production function? - CORRECT
ANSWER Y = AF(K, L)
Which of the following equations best represents the concept of constant returns to scale? -
CORRECT ANSWER 3Y=AF(3K,3L)
Which of the following equations best represents a Cobb-Douglas production function? -
CORRECT ANSWER Y = AK^3/4L^1/4
