1. What determines the amount of output an economy produces?

2. Explain how a competitive, profit-maximizing firm decides how much of each factor of production to demand.

3. What is the role of constant returns to scale in the distribution of income?

4. Write a Cobb–Douglas production function for which capital earns one-fourth of total income.

5. What determines consumption and investment?

6. Explain the difference between government purchases and transfer payments. Give two examples of each.

7. What makes the demand for the economy’s output of goods and services equal the supply?

8. Explain what happens to consumption, investment, and the interest rate when the government increases taxes.