Question 1

In the short run, the most important consequence of a decrease 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 2

An increase in investment demand would most likely be caused by a(n)

Accepted Answer

A)  increase in the market interest rate. 
B)  increase in the level of economic activity. 
C)  increase in the cost of new capital goods. 
D)  decrease in the expected demand for output. 
A)  increase in the market interest rate. 
B)  increase in the level of economic activity. 
C)  increase in the cost of new capital goods. 
D)  decrease in the expected demand for output.

Question 3

Explain how each of the following events affects (i) the investment demand curve; and (ii) aggregate demand and/or aggregate supply curve.
Ja. an increase in interest rates
Jb. a decrease in interest rates
Jc. an increase in the cost of capital goods
Jd. a decrease in the level of economic activity
Je. a decrease in the minimum wage
Jf. a natural disaster that destroys much of the capital stock

Accepted Answer

a. An increase in interest rates:
(i) Th

Question 4

Suppose economic agents expect an increase in the level of economic activity. How will this affect investment demand?

Accepted Answer

A)  The investment demand curve shifts left. 
B)  There will be a movement up along the investment demand curve. 
C)  The investment demand curve shifts right. 
D)  The investment demand curve will not be affected. 
A)  The investment demand curve shifts left. 
B)  There will be a movement up along the investment demand curve. 
C)  The investment demand curve shifts right. 
D)  The investment demand curve will not be affected.

Question 5

Table 14-1
  
-Refer to Table 14-1. If the market interest rate is 13%, what is the amount of planned investment expenditure?

Accepted Answer

A)  $3,500 
B)  $2,000 
C)  $2,200 
D)  $200 
A)  $3,500 
B)  $2,000 
C)  $2,200 
D)  $200

Question 6

Figure 14-4  
-Refer to Figure 14-4. Economic performance would be improved by stimulating investment demand which would shift the

Accepted Answer

A)  aggregate demand to the right to restore long-run equilibrium at "b". 
B)  short-run aggregate supply to the right to restore long-run equilibrium at "c". 
C)  aggregate demand curve and the short-run aggregate supply curve to the right to restore long-run equilibrium between "b" and "c". The long-run aggregate supply curve does not shift. 
D)  long-run aggregate supply to the left to restore long-run equilibrium at "a". 
A)  aggregate demand to the right to restore long-run equilibrium at "b". 
B)  short-run aggregate supply to the right to restore long-run equilibrium at "c". 
C)  aggregate demand curve and the short-run aggregate supply curve to the right to restore long-run equilibrium between "b" and "c". The long-run aggregate supply curve does not shift. 
D)  long-run aggregate supply to the left to restore long-run equilibrium at "a".

Question 7

Investment adds to the nation's stock of capital so long as no resources are allocated to consumption.

Accepted Answer

A) True 
 B)False

Question 8

An increase in the interest rate will

Accepted Answer

A)  shift the investment demand curve to the right. 
B)  shift the investment demand curve to the left. 
C)  not shift the investment demand curve. 
D)  increase the amount of investment undertaken by businesses. 
A)  shift the investment demand curve to the right. 
B)  shift the investment demand curve to the left. 
C)  not shift the investment demand curve. 
D)  increase the amount of investment undertaken by businesses.

Question 9

Table 14-1
  
-Refer to Table 14-1. If the market interest rate falls from 15% to 11%, 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.

Question 10

Figure 14-1  
-Refer to Figure 14-1. A movement from point s to point t on curve B is likely to cause the economy to shift from

Accepted Answer

A)  curve B to curve A. 
B)  curve A to curve B. 
C)  curve B to curve C. 
D)  curve C to curve A. 
A)  curve B to curve A. 
B)  curve A to curve B. 
C)  curve B to curve C. 
D)  curve C to curve A.

Question 11

Figure 14-2  
-Refer to Figure 14-2. Which panel shows the result of a reduction in the capital gains tax?

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 12

Figure 14-2  
-Refer to Figure 14-2. Which panel shows the result of the realization that the capital stock is very large and greater than the desired level?

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 13

Which of the following is true regarding investment?

Accepted Answer

A)  In the short run it increases aggregate supply but in the long run it increases aggregate demand. 
B)  In the short run it influences aggregate demand and in the long run it influences the rate at which the economy grows. 
C)  In the short run it influences aggregate demand but in the long run it retards economic growth since it requires saving. 
D)  In the short run it reduces aggregate demand because it requires savings but in the long it promotes economic growth. 
A)  In the short run it increases aggregate supply but in the long run it increases aggregate demand. 
B)  In the short run it influences aggregate demand and in the long run it influences the rate at which the economy grows. 
C)  In the short run it influences aggregate demand but in the long run it retards economic growth since it requires saving. 
D)  In the short run it reduces aggregate demand because it requires savings but in the long it promotes economic growth.

Question 14

An increase in investment demanded will shift the aggregate demand curve to the right by an amount equal to the _________.

Accepted Answer

A)  (∆I) where ∆I = change in investment 
B)  (MPC * ∆I) where MPC = marginal propensity to consume 
C)  (Im * ∆I) where Im = investment spending multiplier 
D)  (Mm * ∆I) where m = money multiplier 
A)  (∆I) where ∆I = change in investment 
B)  (MPC * ∆I) where MPC = marginal propensity to consume 
C)  (Im * ∆I) where Im = investment spending multiplier 
D)  (Mm * ∆I) where m = money multiplier

Question 15

Investment will generally lead to an increase in a nation's capacity to produce.

Accepted Answer

A) True 
 B)False

Question 16

All of the following shifts the investment demand curve except

Accepted Answer

A)  an increase in the capital gains tax rate. 
B)  monetary policy that lowers the interest rate. 
C)  fiscal policy that affect the cost of holding capital, for example allowing accelerated depreciation. 
D)  an increase in the capacity utilization rate of capital. 
A)  an increase in the capital gains tax rate. 
B)  monetary policy that lowers the interest rate. 
C)  fiscal policy that affect the cost of holding capital, for example allowing accelerated depreciation. 
D)  an increase in the capacity utilization rate of capital.

Question 17

Which of the following is a reason why a greater capital stock can increase investment? 
I. A greater capital stock is likely to lead to more investment because further increases in the demand for investment tend to lower the cost of capital.
II. A greater capital stock is likely to lead to more investment since there will be more capital to replace.
III. A higher level of capital stock encourages investment in new capital because capital becomes obsolete at a faster rate.

Accepted Answer

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

Question 18

The reduction of a firm's tax liability by a fraction of its investment during a period is a(n)

Accepted Answer

A)  investment tax credit. 
B)  balanced budget amendment. 
C)  capital gains tax. 
D)  real estate tax. 
A)  investment tax credit. 
B)  balanced budget amendment. 
C)  capital gains tax. 
D)  real estate tax.

Question 19

Explain how an increased money supply affects the quantity of investment demanded and the aggregate demand. Illustrate your answer with a graph of the money market, investment demand and an AD-AS graph.

Accepted Answer

An increased money supply affects the qu

Question 20

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

Accepted Answer

A) True 
 B)False

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

An increase in investment demand would most likely be caused by a(n)

Suppose economic agents expect an increase in the level of economic activity. How will this affect investment demand?

Table 14-1 -Refer to Table 14-1. If the market interest rate is 13%, what is the amount of planned investment expenditure?

Figure 14-4 -Refer to Figure 14-4. Economic performance would be improved by stimulating investment demand which would shift the

Investment adds to the nation's stock of capital so long as no resources are allocated to consumption.

An increase in the interest rate will

Table 14-1 -Refer to Table 14-1. If the market interest rate falls from 15% to 11%, what happens to the quantity of investment demanded?

Figure 14-1 -Refer to Figure 14-1. A movement from point s to point t on curve B is likely to cause the economy to shift from

Figure 14-2 -Refer to Figure 14-2. Which panel shows the result of a reduction in the capital gains tax?

Figure 14-2 -Refer to Figure 14-2. Which panel shows the result of the realization that the capital stock is very large and greater than the desired level?

Which of the following is true regarding investment?

An increase in investment demanded will shift the aggregate demand curve to the right by an amount equal to the _________.

Investment will generally lead to an increase in a nation's capacity to produce.

All of the following shifts the investment demand curve except

The reduction of a firm's tax liability by a fraction of its investment during a period is a(n)

Explain how an increased money supply affects the quantity of investment demanded and the aggregate demand. Illustrate your answer with a graph of the money market, investment demand and an AD-AS graph.

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

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

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

An increase in investment demand would most likely be caused by a(n)

Suppose economic agents expect an increase in the level of economic activity. How will this affect investment demand?

Table 14-1 -Refer to Table 14-1. If the market interest rate is 13%, what is the amount of planned investment expenditure?

Figure 14-4 -Refer to Figure 14-4. Economic performance would be improved by stimulating investment demand which would shift the

Investment adds to the nation's stock of capital so long as no resources are allocated to consumption.

An increase in the interest rate will

Table 14-1 -Refer to Table 14-1. If the market interest rate falls from 15% to 11%, what happens to the quantity of investment demanded?

Figure 14-1 -Refer to Figure 14-1. A movement from point s to point t on curve B is likely to cause the economy to shift from

Figure 14-2 -Refer to Figure 14-2. Which panel shows the result of a reduction in the capital gains tax?

Figure 14-2 -Refer to Figure 14-2. Which panel shows the result of the realization that the capital stock is very large and greater than the desired level?

Which of the following is true regarding investment?

An increase in investment demanded will shift the aggregate demand curve to the right by an amount equal to the _________.

Investment will generally lead to an increase in a nation's capacity to produce.

All of the following shifts the investment demand curve except

The reduction of a firm's tax liability by a fraction of its investment during a period is a(n)

Explain how an increased money supply affects the quantity of investment demanded and the aggregate demand. Illustrate your answer with a graph of the money market, investment demand and an AD-AS graph.

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

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