Suppose That a Large Lake in the Middle of Minnesota

question 8

Multiple Choice

Suppose that a large lake in the middle of Minnesota evaporates, leaving more fertile farm land for growing corn available. Assuming that land and labor are complements in a farming production function, what would happen to the wages earned by workers and rents earned by landowners?

• A)Both wages and rents would increase.
• B)Both wages and rents would decrease.
• C)Wages would increase, and rents would decrease.
• D)Wages would decrease, and rents would increase.

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Definitions:

GDP

Gross Domestic Product, the total value of all goods and services produced within a country over a specified period.

MPC

The marginal propensity to consume, which measures the portion of additional income that an individual spends on consumption instead of saving.

Multiplier

In macroeconomics, a factor that quantifies the effect of an initial change in the economy (such as investment or spending) on the total level of economic activity.

Automatic Stabilizers

Economic policies and programs designed to offset fluctuations in a nation's economic activity without additional government action.