Author Question: Using the simple Keynesian model, consider the case where taxes are lump-sum. Compared to the model ... (Read 614 times)

ahriuashd · **on:** Jun 30, 2018

Using the simple Keynesian model, consider the case where taxes are lump-sum. Compared to the model without taxes, the investment multiplier in this model will

a. not change.
b. be larger.
c. be smaller.
d. be equal to 1

Question 2

Is it possible to have a production function that exhibits both a diminishing marginal product of labor and constant returns to scale? Explain.

What will be an ideal response?

ErinKing · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

A

Answer to Question 2

Yes is it possible. Under constant returns to scale, both labor and capital are increased at the same time, increasing output by the same proportion. Under the law of diminishing returns, labor alone is increased while holding other factors of production, particularly capital, constant. As a result, output will not change proportionally and the marginal product of labor declines.