Question 1

In the closed-economy one-period macroeconomic model, which of the following is an endogenous variable?

Accepted Answer

$$C ($$consumption)

Question 2

Which equation represents the consumer's budget constraint in the competitive equilibrium of the model?

Accepted Answer

$$C = wN^s + \pi - T$$

Question 3

Suppose the government increases $$G in $$the model. Which of the following must also increase to maintain a balanced budget?

Accepted Answer

$$T ($$taxes)

Question 4

In the model, what is the equilibrium condition relating the marginal rate of substitution and the marginal product of labor?

Accepted Answer

$$MRS_{l,C} = MRT_{l,C} = MP_N = w$$

Question 5

If the representative firm maximizes profit, which equation describes its profit?

Accepted Answer

$$\pi = Y - wN^d$$

Question 6

Which statement best describes the role of the social planner in the model?

Accepted Answer

The social planner chooses $$C$$ and $$l to $$maximize consumer welfare within the PPF.

Question 7

Which of the following is NOT an assumption of the closed-economy one-period macroeconomic model?

Accepted Answer

There is international trade.

Question 8

In the model, what does the income-expenditure identity imply in equilibrium?

Accepted Answer

$$Y = C + G$$

Question 9

If the marginal product of labor ($$MP_N) $$increases due to higher total factor productivity ($$z$$), what is the likely effect on the real wage ($$w) in $$equilibrium?

Accepted Answer

The real wage ($$w) $$increases.

Question 10

Which of the following best describes Pareto-optimality in the context of this model?

Accepted Answer

No one can be made better off without making someone else worse off.

Question 11

A competitive equilibrium in this model is characterized by which of the following?

Accepted Answer

Market clearing in all markets and optimizing behavior by consumers and firms.

Question 12

If the government increases taxes ($$T) $$but keeps government spending ($$G) $$constant, what happens in the model?

Accepted Answer

The budget is no longer balanced.

Question 13

Which of the following is a key insight from the Fundamental Theorems of Welfare Economics as applied in this model?

Accepted Answer

Competitive equilibrium is Pareto-optimal under certain conditions.

Question 14

In the model, what is the slope of the production possibilities frontier (PPF) interpreted as?

Accepted Answer

The negative of the marginal product of labor ($$MP_N$$), also known as the marginal rate of transformation ($$MRT_{l,C}).$$

Question 15

Suppose the equilibrium occurs where an indifference curve is tangent to the PPF. What does this imply about the allocation?

Accepted Answer

The allocation is both competitive equilibrium and Pareto-optimal.

Question 16

If investment ($$I) $$and net exports ($$NX) $$are both zero in the model, what is the implication for aggregate output ($$Y$$)?

Accepted Answer

$$Y = C + G$$

Question 17

Which of the following scenarios would violate the feasibility condition of the PPF in this model?

Accepted Answer

Output ($$Y) is $$less than government spending ($$G).$$

Question 18

A student claims that in this model, the competitive equilibrium and the Pareto optimum are always different. Which concept from the study materials refutes this claim?

Accepted Answer

The competitive equilibrium and Pareto optimum are identical in this model.

Question 19

If the real wage ($$w) is $$set below the marginal product of labor ($$MP_N$$), what is the likely outcome in the labor market?

Accepted Answer

Labor demand exceeds labor supply, causing disequilibrium.

Question 20

Which of the following is an exogenous variable in the closed-economy one-period macroeconomic model?

Accepted Answer

$$z ($$total factor productivity)

Chapter 5: A Closed-Economy One-Period Macroeconomic Model – Structured Study Notes

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