Discuss the production function. How does the production function relate to the labor market and potential GDP?
What will be an ideal response?
The production function shows the maximum amounts of real GDP that can be produced as the quantity of labor changes, holding constant all other influences on production. As the quantity of labor increases, real GDP increases but at a decreasing rate, that is, the production function shows diminishing returns. The production function "stands between" the labor market and potential GDP. In particular, the quantity of employment is determined in the labor market. The production function then shows the amount of real GDP that is produced by this quantity of employment. When the quantity of employment determined in the labor market is the equilibrium quantity, then the amount of real GDP produced is potential GDP.
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As inflation rates increase, money becomes less useful as a
A) store of value. B) double coincidence of wants. C) unit of account. D) medium of exchange.
Which of the following statements about the CPI is (are) correct?
i The only significant bias in the CPI is the commodity substitution bias. ii. The CPI probably overstates inflation by 1.1 percentage points a year. iii. As far as the bias in the CPI is concerned, the new goods bias and the outlet substitution biases are irrelevant. A) i only B) ii only C) iii only D) i and iii E) i and ii
If the dollar appreciates:
a. imports to the United States become more expensive for foreigners b. exports from the United States become more expensive for foreigners c. imports become more expensive for U.S. citizens. d. exports from the United States become cheaper e. the dollar will exchange for fewer units of a foreign currency
Which of the following is true at the equilibrium level of income?
a. Unplanned inventory changes are positive. b. Firms are unable to produce the desired rate of output. c. Autonomous consumption spending is equal to induced consumption spending. d. Aggregate expenditures equal real GDP. e. Unplanned investment spending is positive.