Question 1

An increase in the interest rate causes a decrease in investment by shifting the investment demand curve to the left.

Accepted Answer

A) True 
 B)False

Question 2

Figure 14-2  
-Refer to Figure 14-2. Which panel shows the result of a lower interest rate?

Accepted Answer

A)  Panel (a) 
B)  Panel (b) 
C)  Panel (c), a movement from B to A 
D)  Panel (c), a movement from A to B 
A)  Panel (a) 
B)  Panel (b) 
C)  Panel (c), a movement from B to A 
D)  Panel (c), a movement from A to B

Question 3

Table 14-1
  
-Refer to Table 14-1. If the market interest rate is 11%, the last project undertaken is

Accepted Answer

A)  Project Garron. 
B)  Project Hattrick. 
C)  Project Iroda. 
D)  Project Jemma. 
A)  Project Garron. 
B)  Project Hattrick. 
C)  Project Iroda. 
D)  Project Jemma.

Question 4

Changes in the interest rate will lead to shifts in the investment demand curve.

Accepted Answer

A) True 
 B)False

Question 5

In the short run, a decrease in the interest rate

Accepted Answer

A)  will shift the aggregate demand curve to the right. 
B)  will shift the investment demand curve to the right. 
C)  will shift the long-run aggregate supply curve to the right. 
D)  will shift the short-run aggregate supply curve to the right. 
A)  will shift the aggregate demand curve to the right. 
B)  will shift the investment demand curve to the right. 
C)  will shift the long-run aggregate supply curve to the right. 
D)  will shift the short-run aggregate supply curve to the right.

Question 6

A nation's capital stock will decrease if

Accepted Answer

A)  a firm purchases used equipment. 
B)  inventories of intermediate goods (such as lumber for housing construction) decrease. 
C)  obsolete equipment is not replaced. 
D)  the stock of existing homes for sale decreases. 
A)  a firm purchases used equipment. 
B)  inventories of intermediate goods (such as lumber for housing construction) decrease. 
C)  obsolete equipment is not replaced. 
D)  the stock of existing homes for sale decreases.

Question 7

Consider the following two events: (i) an increase in the cost of new capital goods; and (ii) a decrease in corporate income tax rates. How will these events affect the demand for investment?

Accepted Answer

A)  The demand for investment increases. 
B)  The demand for investment decreases. 
C)  The two events have opposite effects on investment. Therefore, the demand for investment remains the same. 
D)  These events have an indeterminate effect on the demand for investment. 
A)  The demand for investment increases. 
B)  The demand for investment decreases. 
C)  The two events have opposite effects on investment. Therefore, the demand for investment remains the same. 
D)  These events have an indeterminate effect on the demand for investment.

Question 8

Changes in the corporate profits tax rate will shift the investment demand curve.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following will not shift the investment demand curve?

Accepted Answer

A)  An expansionary monetary policy that lowers interest rates 
B)  A decrease in corporate income tax rates 
C)  Businesses become more optimistic about the level of economic activity 
D)  New markets open in Chile and Brazil for U.S. products 
A)  An expansionary monetary policy that lowers interest rates 
B)  A decrease in corporate income tax rates 
C)  Businesses become more optimistic about the level of economic activity 
D)  New markets open in Chile and Brazil for U.S. products

Question 10

If gross private domestic investment exceeds depreciation, then

Accepted Answer

A)  net private domestic investment is zero. 
B)  net private domestic investment is negative. 
C)  the capital stock is declining. 
D)  the capital stock is increasing. 
A)  net private domestic investment is zero. 
B)  net private domestic investment is negative. 
C)  the capital stock is declining. 
D)  the capital stock is increasing.

Question 11

Investment contributes to economic growth.

Accepted Answer

A) True 
 B)False

Question 12

Suppose your firm is considering an investment project that will generate an expected return of 5%. The project costs $200,000. Suppose further that your firm has $200,000 of retained earnings. If the market interest rate is 10%, your firm should

Accepted Answer

A)  loan the retained earnings out at 5%. 
B)  loan the retained earnings out at 10%. 
C)  loan the retained earnings out at 15%. 
D)  invest the $200,000 of retained earnings in the project. 
A)  loan the retained earnings out at 5%. 
B)  loan the retained earnings out at 10%. 
C)  loan the retained earnings out at 15%. 
D)  invest the $200,000 of retained earnings in the project.

Question 13

If gross private domestic investment exceeds depreciation, then

Accepted Answer

A)  net private domestic investment is positive. 
B)  net private domestic investment is negative. 
C)  the capital stock is declining. 
D)  the capital stock is unchanged. 
A)  net private domestic investment is positive. 
B)  net private domestic investment is negative. 
C)  the capital stock is declining. 
D)  the capital stock is unchanged.

Question 14

Which of the following is included in gross private domestic investment? 
I. Macy's purchase of new computerized cash registers
II. repairs to and replacements to the carpeting at Macy's
III. your purchase of a new queen-sized mattress from Macy's
IV. changes in Macy's business inventories

Accepted Answer

A)  I only 
B)  I and II only 
C)  I, II, and IV only 
D)  I, II, III, and IV 
A)  I only 
B)  I and II only 
C)  I, II, and IV only 
D)  I, II, III, and IV

Question 15

Figure 14-4  
-Refer to Figure 14-4. The economy is in short-run equilibrium. To move the economy to a long-run equilibrium, policy makers should

Accepted Answer

A)  increase interest rates and discourage investment to close the inflationary gap. 
B)  reduce interest rates and encourage investment to close the recessionary gap. 
C)  increase interest rates and encourage investment to close the inflationary gap. 
D)  reduce interest rates and discourage investment to close the recessionary gap. 
A)  increase interest rates and discourage investment to close the inflationary gap. 
B)  reduce interest rates and encourage investment to close the recessionary gap. 
C)  increase interest rates and encourage investment to close the inflationary gap. 
D)  reduce interest rates and discourage investment to close the recessionary gap.

Question 16

If the Fed wishes to stimulate aggregate demand, it will conduct an open market

Accepted Answer

A)  sale which will lower bond prices, lower interest rates, and stimulate investment. 
B)  purchase which will lower bond prices, lower interest rates, and discourage investment. 
C)  sale which will lower bond prices, raise interest rates, and discourage investment. 
D)  purchase which will raise bond prices, lower interest rates, and stimulate investment. 
A)  sale which will lower bond prices, lower interest rates, and stimulate investment. 
B)  purchase which will lower bond prices, lower interest rates, and discourage investment. 
C)  sale which will lower bond prices, raise interest rates, and discourage investment. 
D)  purchase which will raise bond prices, lower interest rates, and stimulate investment.

Question 17

A decrease in the interest rate will cause a(n)

Accepted Answer

A)  increase in the investment demand curve. 
B)  decrease in the investment demand curve. 
C)  movement up along the investment demand curve. 
D)  movement down along the investment demand curve. 
A)  increase in the investment demand curve. 
B)  decrease in the investment demand curve. 
C)  movement up along the investment demand curve. 
D)  movement down along the investment demand curve.

Question 18

There is a _____ relationship between the quantity of investment demanded and the rate of interest.

Accepted Answer

A)  Positive 
B)  Direct 
C)  Negative 
D)  Volatile 
A)  Positive 
B)  Direct 
C)  Negative 
D)  Volatile

Question 19

In the short run, the most important consequence of an increase in investment is a(n)

Accepted Answer

A)  increase in the capital stock. 
B)  decrease in the capital stock. 
C)  increase in aggregate demand. 
D)  decrease in aggregate demand. 
A)  increase in the capital stock. 
B)  decrease in the capital stock. 
C)  increase in aggregate demand. 
D)  decrease in aggregate demand.

Question 20

Table 14-1
  
-Refer to Table 14-1. If the market interest rate declines from 15% to 13%, what happens to the quantity of investment demanded?

Accepted Answer

A)  It decreases by $2,200 because investment is now less profitable. 
B)  It decreases by $1,000 because investment is now less profitable. 
C)  It increases by $200 because investment is now more profitable. 
D)  It increases by $2,200 because investment is now more profitable. 
A)  It decreases by $2,200 because investment is now less profitable. 
B)  It decreases by $1,000 because investment is now less profitable. 
C)  It increases by $200 because investment is now more profitable. 
D)  It increases by $2,200 because investment is now more profitable.

An increase in the interest rate causes a decrease in investment by shifting the investment demand curve to the left.

Figure 14-2 -Refer to Figure 14-2. Which panel shows the result of a lower interest rate?

Table 14-1 -Refer to Table 14-1. If the market interest rate is 11%, the last project undertaken is

Changes in the interest rate will lead to shifts in the investment demand curve.

In the short run, a decrease in the interest rate

A nation's capital stock will decrease if

Consider the following two events: (i) an increase in the cost of new capital goods; and (ii) a decrease in corporate income tax rates. How will these events affect the demand for investment?

Changes in the corporate profits tax rate will shift the investment demand curve.

Which of the following will not shift the investment demand curve?

If gross private domestic investment exceeds depreciation, then

Investment contributes to economic growth.

Suppose your firm is considering an investment project that will generate an expected return of 5%. The project costs $200,000. Suppose further that your firm has $200,000 of retained earnings. If the market interest rate is 10%, your firm should

If gross private domestic investment exceeds depreciation, then

Which of the following is included in gross private domestic investment? I. Macy's purchase of new computerized cash registers II. repairs to and replacements to the carpeting at Macy's III. your purchase of a new queen-sized mattress from Macy's IV. changes in Macy's business inventories

Figure 14-4 -Refer to Figure 14-4. The economy is in short-run equilibrium. To move the economy to a long-run equilibrium, policy makers should

If the Fed wishes to stimulate aggregate demand, it will conduct an open market

A decrease in the interest rate will cause a(n)

There is a _____ relationship between the quantity of investment demanded and the rate of interest.

In the short run, the most important consequence of an increase in investment is a(n)

Table 14-1 -Refer to Table 14-1. If the market interest rate declines from 15% to 13%, what happens to the quantity of investment demanded?

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters

Exam 14: Investment and Economic Activity

An increase in the interest rate causes a decrease in investment by shifting the investment demand curve to the left.

Figure 14-2 -Refer to Figure 14-2. Which panel shows the result of a lower interest rate?

Table 14-1 -Refer to Table 14-1. If the market interest rate is 11%, the last project undertaken is

Changes in the interest rate will lead to shifts in the investment demand curve.

In the short run, a decrease in the interest rate

A nation's capital stock will decrease if

Consider the following two events: (i) an increase in the cost of new capital goods; and (ii) a decrease in corporate income tax rates. How will these events affect the demand for investment?

Changes in the corporate profits tax rate will shift the investment demand curve.

Which of the following will not shift the investment demand curve?

If gross private domestic investment exceeds depreciation, then

Investment contributes to economic growth.

Suppose your firm is considering an investment project that will generate an expected return of 5%. The project costs $200,000. Suppose further that your firm has $200,000 of retained earnings. If the market interest rate is 10%, your firm should

If gross private domestic investment exceeds depreciation, then

Which of the following is included in gross private domestic investment? I. Macy's purchase of new computerized cash registers II. repairs to and replacements to the carpeting at Macy's III. your purchase of a new queen-sized mattress from Macy's IV. changes in Macy's business inventories

Figure 14-4 -Refer to Figure 14-4. The economy is in short-run equilibrium. To move the economy to a long-run equilibrium, policy makers should

If the Fed wishes to stimulate aggregate demand, it will conduct an open market

A decrease in the interest rate will cause a(n)

There is a _____ relationship between the quantity of investment demanded and the rate of interest.

In the short run, the most important consequence of an increase in investment is a(n)

Table 14-1 -Refer to Table 14-1. If the market interest rate declines from 15% to 13%, what happens to the quantity of investment demanded?

Economics: the Study of Choice

Demand and Supply

Applications of Demand and Supply

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Economic Development

Socialist Economies in Transition

Filters