Quiz #1
Answer the following questions based upon the following production function for the aggregate economy:
Y = F(K, L) = A K0.4L0.6
Where Y is aggregate output, A is a measure of available technology, K is capital, and L is labor.
1. In the space below draw a sketch of the above production function with output, Y, on the vertical axis, and L on the horizontal axis.
2. Suppose you triple labor and capital at the same time. Holding technology constant, what happens to output, Y, given this aggregate production function?
3. Given the above aggregate production function, write an equation for the marginal product of labor, MPL, as a function of A, K and L.
4. Holding everything else constant, what happens to the MPL for the above aggregate production function when L increases?
5. Given the above aggregate production function and holding everything else constant, what happens to output per unit of labor, Y/L, when L decreases?
6. Given the above aggregate production function, suppose capital increases while labor and technology are held constant. At this initial level of labor, what happens to the MPL when capital increases?
7. Suppose you are told that aggregate output, Y, is equal to 100 for the economy depicted by the above aggregate production function. What is labor's share of this output?
Answer the last three questions based on the following information about an economy's CPI. Also, please recall that the relationship between a real value, a nominal value and a price index can be given as
Real Value = [Nominal Value/(Inflation Index)]*(Scale Factor)
|
Year
|
CPI with Base Year equal to 2000
|
Nominal Income
|
Real Income
|
|
2000
|
|
100
|
|
|
2004
|
150
|
200
|
|
|
2008
|
200
|
|
400
|
8. True or False? The inflation rate between 2000 and 2004 is equal to the inflation rate between 2004 and 2008. Circle your answer:
a. True
b. False
9. From the above table and calculations decide which of the following statements is true. Circle your answer.
a. Between 2004 and 2008, the growth rate of nominal income was greater than the rate of inflation during this same period of time.
b. Between 2004 and 2008, the growth rate of nominal income was less than the rate of inflation during this same period of time.
10. Between 2000 and 2008, the growth rate of real income was equal to ___________. Show your work in the space below to get credit for your answer.