Suppose a person's utility for leisure (L) and consumption (Y) can be expressed as U = Y + L0.5. Assuming a wage rate of $10 per hour, show what happens to the person's labor supply curve when the person wins a lottery prize of $100 per day
What will be an ideal response?
Rearranging yields U = (Y* + 10H) + (24 - H)0.5. Maximizing utility with respect to H yields H = 23.9975 hours. Note: H is not a function of Y* because the marginal utility of leisure is independent of income. Thus, the person's labor supply curve is not affected by winning the lottery.
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A) increase aggregate demand, increase prices and increase real GDP. B) increase short-run aggregate supply, decrease in prices and decrease in real GDP. C) increase short-run aggregate supply, decrease prices and increase real GDP. D) increase aggregate demand, increase prices and decrease real GDP.
Knowledge capital is
A) rival. B) nonrival. C) nonexcludable. D) both B and C
To Keynesians, a vertical aggregate supply curve
A) is nonsensical. B) holds in the short run but not the long run. C) holds in the long run but not the short run. D) will only be encountered at the full-capacity output of the economy.
Which of the following is not one of the four major sectors of the economy to which GDP is allocated?
a. consumer b. investment c. agriculture d. government