Question 1

If the capital stock is fixed and something happens to raise the marginal product of capital (MPK) for any given quantity of capital,then the real rental price of capital will:

Accepted Answer

A)   remain the same.
B)   rise.
C)   fall.
D)   fall and then rise.E) C) and D)
F) B) and D)

Question 2

The investment spending component of GDP includes all of the following except:

Accepted Answer

A)   business fixed investment.
B)   net foreign investment.
C)   residential investment.
D)   inventory investment.E) A) and B)
F) A) and C)

Question 3

The corporate income tax ______ business fixed investment,and the personal income tax ______ residential investment.

Accepted Answer

A)   encourages; encourages
B)   encourages; discourages
C)   discourages; encourages
D)   discourages; discouragesE) A) and B)
F) None of the above

Question 4

A capital rental firm makes a profit if the ______ is ______ the cost of capital.

Accepted Answer

A)   real rental price of capital; less than
B)   equilibrium marginal product of capital; less than
C)   equilibrium marginal product of capital; equal to
D)   equilibrium marginal product of capital; greater thanE) A) and D)
F) B) and C)

Question 5

Use the neoclassical model of business fixed investment to illustrate graphically how a hurricane that destroys a large amount of capital (holding other factors constant)would change the rental price of capital.If other factors remained unchanged,how would this change the quantity of investment spending in the economy?

Accepted Answer

The quantity of business fix...

Question 6

Holding other factors constant,the decline in aggregate income during a recession will ______ the price of housing and ______ the flow of residential housing investment.

Accepted Answer

A)   increase; increase
B)   increase; decrease
C)   decrease; increase
D)   decrease; decreaseE) A) and B)
F) A) and D)

Question 7

The work in process motive for holding inventories suggests that:

Accepted Answer

A)   firms hold inventories in order to produce more output.
B)   when sales are low,firms produce more than they sell and put the extra goods in inventories.
C)   firms hold inventories to avoid losing sales.
D)   when a product is only partly completed,its components are counted as part of the firm's inventory.E) A) and C)
F) A) and D)

Question 8

If the price index for capital goods is the same as the price index for other goods,an index of the real cost of capital for investment,in the absence of taxes,may be summarized as the:

Accepted Answer

A)   nominal interest rate plus the depreciation rate.
B)   real interest rate plus the depreciation rate.
C)   purchase price of a capital good multiplied by the sum of the nominal interest rate plus the depreciation rate.
D)   purchase price of a capital good multiplied by the sum of the real interest rate plus the depreciation rate.E) A) and C)
F) A) and B)

Question 9

According to the accelerator model of inventory investment,if firms desire to hold 25 percent of output as inventories,and output increases by $1 trillion,then inventory investment will increase by:

Accepted Answer

A)   $0.25 trillion.
B)   $1 trillion.
C)   $1.25 trillion.
D)   $4 trillion.E) B) and C)
F) C) and D)

Question 10

Business fixed investment,residential investment,and inventory investment ______ as the real interest rate increases and ______ as output increases.

Accepted Answer

A)   increase; increase
B)   increase; decrease
C)   decrease; increase
D)   decrease; decreaseE) B) and C)
F) All of the above

Question 11

The profit rate of a firm that rents capital is equal to:

Accepted Answer

A)   the marginal product of capital minus the cost of capital.
B)   the cost of capital minus the marginal product of capital.
C)   zero.
D)   a negative number,if it is adding to its capital stock.E) A) and D)
F) A) and C)

Question 12

Holding other factors constant,an increase in population due to a large increase in immigrants will ______ the price of housing and ______ the flow of residential housing investment.

Accepted Answer

A)   increase; increase
B)   increase; decrease
C)   decrease; increase
D)   decrease; decreaseE) C) and D)
F) A) and B)

Question 13

A firm renting out capital does not bear as cost the:

Accepted Answer

A)   lost interest it could have earned by depositing the purchase price of the capital in a bank.
B)   wear and tear on the capital.
C)   wages of the labour that works with the capital.
D)   capital loss or gain in the asset's value.E) B) and C)
F) C) and D)

Question 14

In the accelerator model of inventory investment,it is assumed that the stock of inventories firms want to hold is:

Accepted Answer

A)   constant.
B)   a constant proportion of output.
C)   a proportion of output that decreases as output increases.
D)   a proportion of output that increases as output increases.E) A) and B)
F) B) and C)

Question 15

The existence of financing constraints makes investment:

Accepted Answer

A)   more sensitive to current conditions.
B)   less sensitive to current conditions.
C)   spending follow a random walk.
D)   spending increase during recessions.E) None of the above
F) All of the above

Question 16

Suppose it is an election year and the economy is in a recession.The opposition candidate proposes an investment tax credit to take effect next year after he takes office.If the public believes the opposition candidate has a good chance of winning,the effect of this promise will likely be to:

Accepted Answer

A)   increase investment both this year and next year.
B)   decrease investment both this year and next year.
C)   increase investment this year and decrease it next year.
D)   decrease investment this year and increase it next year.E) All of the above
F) A) and D)

Question 17

Because corporate profit tax laws do not define profit to be the same as economic profit,many economists believe that the corporate profit tax ______ investment.

Accepted Answer

A)   encourages
B)   discourages
C)   does not affect
D)   promotes excessiveE) B) and D)
F) A) and D)

Question 18

The investment tax credit:

Accepted Answer

A)   enables a firm to deduct a certain proportion of each dollar spent on capital goods from its profits.
B)   enables a firm to deduct a certain proportion of each dollar spent on capital goods from its tax bill.
C)   reduces the corporate tax rate in proportion to each dollar spent on capital goods.
D)   allows a firm to count a certain proportion of each dollar spent on capital goods as depreciation expense.E) All of the above
F) A) and B)

Question 19

Use the following to answer questions :
 3/P and capital stock K2,then holding other factors constant,an improvement in technology that increases the marginal productivity of capital will move: A)  the demand curve from D2 to D1. B)  the demand curve from D2 to D3. C)  the supply of capital from K2 to K1. D)  the supply of capital from K2 to K3." class="answers-bank-image d-inline" rel="preload" >
-(Exhibit: Rental Price of Capital) Based on the graph,if the capital market is initially in equilibrium at A with real rental price R3/P and capital stock K2,then holding other factors constant,an improvement in technology that increases the marginal productivity of capital will move:

Accepted Answer

A)   the demand curve from D2 to D1.
B)   the demand curve from D2 to D3.
C)   the supply of capital from K2 to K1.
D)   the supply of capital from K2 to K3.E) B) and D)
F) A) and B)

Question 20

Give at least two reasons why a decline in stock prices might lead to a slowdown in economic activity.Be sure to connect your reasons to economic models.

Accepted Answer

Possible explanations include: (1)the de...

Exam 18: Investment

A capital rental firm makes a profit if the is the cost of capital.

Correct Answer
verified

The investment tax credit:

Correct Answer
verified

Correct Answer
verified

The quantity of business fix...
View Answer

The profit rate of a firm that rents capital is equal to:

Correct Answer
verified

The corporate income tax business fixed investment,and the personal income tax residential investment.

Correct Answer
verified

A firm renting out capital does not bear as cost the:

Correct Answer
verified

If the capital stock is fixed and something happens to raise the marginal product of capital (MPK) for any given quantity of capital,then the real rental price of capital will:

Correct Answer
verified

Because corporate profit tax laws do not define profit to be the same as economic profit,many economists believe that the corporate profit tax ______ investment.

Correct Answer
verified

Holding other factors constant,the decline in aggregate income during a recession will the price of housing and the flow of residential housing investment.

Correct Answer
verified

In the accelerator model of inventory investment,it is assumed that the stock of inventories firms want to hold is:

Correct Answer
verified

Give at least two reasons why a decline in stock prices might lead to a slowdown in economic activity.Be sure to connect your reasons to economic models.

Correct Answer
verified
Possible explanations include: (1)the de...
View Answer

According to the accelerator model of inventory investment,if firms desire to hold 25 percent of output as inventories,and output increases by $1 trillion,then inventory investment will increase by:

Correct Answer
verified

Holding other factors constant,an increase in population due to a large increase in immigrants will the price of housing and the flow of residential housing investment.

Correct Answer
verified

Correct Answer
verified

Business fixed investment,residential investment,and inventory investment as the real interest rate increases and as output increases.

Correct Answer
verified

Suppose it is an election year and the economy is in a recession.The opposition candidate proposes an investment tax credit to take effect next year after he takes office.If the public believes the opposition candidate has a good chance of winning,the effect of this promise will likely be to:

Correct Answer
verified

If the price index for capital goods is the same as the price index for other goods,an index of the real cost of capital for investment,in the absence of taxes,may be summarized as the:

Correct Answer
verified

The work in process motive for holding inventories suggests that:

Correct Answer
verified

The investment spending component of GDP includes all of the following except:

Correct Answer
verified

The existence of financing constraints makes investment:

Correct Answer
verified

Exam 18: Investment

A capital rental firm makes a profit if the ______ is ______ the cost of capital.

Correct AnswerverifiedShow Answer

The investment tax credit:

Correct AnswerverifiedShow Answer

Correct Answerverified The quantity of business fix...View AnswerShow Answer

The profit rate of a firm that rents capital is equal to:

Correct AnswerverifiedShow Answer

The corporate income tax ______ business fixed investment,and the personal income tax ______ residential investment.

Correct AnswerverifiedShow Answer

A firm renting out capital does not bear as cost the:

Correct AnswerverifiedShow Answer

If the capital stock is fixed and something happens to raise the marginal product of capital (MPK) for any given quantity of capital,then the real rental price of capital will:

Correct AnswerverifiedShow Answer

Because corporate profit tax laws do not define profit to be the same as economic profit,many economists believe that the corporate profit tax ______ investment.

Correct AnswerverifiedShow Answer

Holding other factors constant,the decline in aggregate income during a recession will ______ the price of housing and ______ the flow of residential housing investment.

Correct AnswerverifiedShow Answer

In the accelerator model of inventory investment,it is assumed that the stock of inventories firms want to hold is:

Correct AnswerverifiedShow Answer

Give at least two reasons why a decline in stock prices might lead to a slowdown in economic activity.Be sure to connect your reasons to economic models.

Correct AnswerverifiedPossible explanations include: (1)the de...View AnswerShow Answer

According to the accelerator model of inventory investment,if firms desire to hold 25 percent of output as inventories,and output increases by $1 trillion,then inventory investment will increase by:

Correct AnswerverifiedShow Answer

Holding other factors constant,an increase in population due to a large increase in immigrants will ______ the price of housing and ______ the flow of residential housing investment.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Business fixed investment,residential investment,and inventory investment ______ as the real interest rate increases and ______ as output increases.

Correct AnswerverifiedShow Answer

Suppose it is an election year and the economy is in a recession.The opposition candidate proposes an investment tax credit to take effect next year after he takes office.If the public believes the opposition candidate has a good chance of winning,the effect of this promise will likely be to:

Correct AnswerverifiedShow Answer

If the price index for capital goods is the same as the price index for other goods,an index of the real cost of capital for investment,in the absence of taxes,may be summarized as the:

Correct AnswerverifiedShow Answer

The work in process motive for holding inventories suggests that:

Correct AnswerverifiedShow Answer

The investment spending component of GDP includes all of the following except:

Correct AnswerverifiedShow Answer

The existence of financing constraints makes investment:

Correct AnswerverifiedShow Answer

A capital rental firm makes a profit if the is the cost of capital.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The quantity of business fix...
View Answer

Correct Answer
verified

The corporate income tax business fixed investment,and the personal income tax residential investment.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Holding other factors constant,the decline in aggregate income during a recession will the price of housing and the flow of residential housing investment.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Possible explanations include: (1)the de...
View Answer

Correct Answer
verified

Holding other factors constant,an increase in population due to a large increase in immigrants will the price of housing and the flow of residential housing investment.

Correct Answer
verified

Correct Answer
verified

Business fixed investment,residential investment,and inventory investment as the real interest rate increases and as output increases.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified