1.) What percent does the real money demand rise if income rises 10% and the interest rate falls from 0.05 to .04, when the income elasticity of money demand is 3/4 and the interest elasticity of money demand is -1/4?

A) 12.5%

B) 6.25%

C) 2.5%

D) 1.25%

2.) The income effect of a decrease in real interest rates is to cause a consumer in a lending position (saver) to

A) increase current consumption and decrease future consumption.

B) decrease current consumption and increase future consumption.

C) increase current consumption and increase future consumption.

D) decrease current consumption and decrease future consumption.

3.) The marginal product of labor

A) is upward sloping for a Cobb-Douglas (concave) production function

B) is diminishing as the number of workers already employed increases

C) increases at every level of employment when there is an adverse supply shock

D) decreases at every level of employment when there is an increase in capital stock

4.) Suppose the economy's production function is Y = A. If K rises by 20%, N rises by 10%, and A is unchanged, by how much does Y increase?

A) 10%

B) 13%

C) 20%

D) 30%