o Use the neoclassical theory of distribution to predict the impact of each of the following events on the real wage and the real rental price of capital: A wave of immigration increases the labor force. An earthquake destroys some of the capital stock. A technological advance improves the production function. High inflation doubles the prices of all factors and outputs in the economy. o If a 10 percent increase in both capital and labor causes output to increase by less than 10 percent, the production function is said to exhibit decreasing returns to scale. If it causes output to increase by more than 10 percent, the production function is said to exhibit increasing returns to scale. Why might a production function exhibit decreasing or increasing returns to scale? o The government raises taxes by $100 billion. If the marginal propensity to consume is 0.6, what happens to the following? Do they rise or fall? By what amounts? Public saving. Private saving. National saving. Investment. o Suppose that the government increases taxes and government purchases by equal amounts. What happens to the interest rate and investment in response to this budget-neutral change? Explain how your answer depends on the marginal propensity to consume. o Suppose that consumption depends on the interest rate. How, if at all, does this assumption alter the conclusions reached in the chapter about the impact of an increase in government purchases on investment, consumption, national saving, and the interest rate? o What are the three functions of money? Which of the functions do the following items satisfy? Which do they not satisfy? A credit card. A painting by Rembrandt. A Starbucks gift card. o Explain how each of the following events affects the monetary base, the money multiplier, and the money supply. The Federal Reserve buys bonds in an open-market operation. The Fed increases the interest rate it pays banks for holding reserves. The Fed reduces its lending to banks through its Term Auction Facility. Rumors about a computer virus attack on ATMs increase the amount of money people hold as currency rather than demand deposits. The Fed flies a helicopter over 5th Avenue in New York City and drops newly printed $100 bills. PLEASE BIBLIOGRAPHY