Exam 7: The Economy at Full Employment

The production function is Y = 2K^0.5L^0.5. If there are 121 units of capital and 225 units of labor, aggregate output is:

In a production function that is graphed with output on the y- axis and labor on the x- axis, a decrease in the labor stock is illustrated as:

What happens to the number of workers a firm wants to hire if the wage falls? Explain.

An increase in the size of the capital stock will shift the production function up.

According to the real business cycle theory, an adverse change in technology:

Figure 7.4 -From Figure 7.4, crowding out occurs between:

If the capital stock remains fixed while the supply of labor increases, it is likely that:

The tendency for increases in government spending to cause reductions in private saving is known as the crowding out effect.

Figure 7.3 -Refer to Figure 7.3. The classical economists argued the wage rate will _______ from _______ if the demand for labor changes from D' to D.

Recall Application 1, "The Black Death and the Living Standards in Old England," to answer the following questions: -From the application, the decline in the real wages of laborers in England from the time after the plague until the 1800s implies that during this period:

According to the real business cycle theory, technological progress is responsible for fluctuations in output.

If the production function is Y = 3K, then an increase in capital (K) by 1 unit would

What things are included when we measure the stock of capital?

If Y is total output, K is the capital stock and L is the total labor input stock, which of the following represents a production function?

Recall Application 1, "The Black Death and the Living Standards in Old England," to answer the following questions: -According to the application, which economist made the observation all the way back in the 19th century that maladies such as plagues would cause a temporary increase in living standard?

Recall Application 2, "A Nobel Laureate Explains Why Europeans Work Less than U.S. workers or the Japanese," to answer the following questions: -Taking into account all taxes, the tax burden in the Europe is higher than in Japan.

Because GDP must be divided among competing demands in the economy, we should expect:

Recall Application 3, "Can Labor Market Policies Account for the Great Depression," to answer the following questions: -According to the application, what was observed during the Great Depression that contradicts the basic real business cycles?

In the market for labor, the buyers of labor are:

If the classical models provided an accurate description of the workings of the economy during the Great Depression, then: