Exam 14: Investment and Economic Activity

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

How does the quantity of capital already in use affect the level of investment? I. A greater capital stock is likely to lead to more investment since there will be more capital to replace. II. A greater capital stock is likely to lead to less investment because further increases in the demand for investment raise the cost of capital. III. For a given desired level of capital stock, the amount of investment needed to reach that level will be lower when the current capital stock is higher. IV. Investment means adding new capital; the existing stock of capital does not influence additions to capital.

Over time, changes in investment I. shift a nation's production possibilities curve outward. II. shift the long-run aggregate supply curve to the right. III. shift the short-run aggregate supply curve to the right. IV. contribute to economic growth.

A reduction in the interest rate, while stimulating investment in the short run, has little or no effect on economic growth in the long run.

Net investment will be negative if

Assume that your firm has a potential investment project which generates a return of 15% and has a cost of $200,000. Assume further that your firm has $200,000 of retained earnings and that the market interest rate is 10%. In this case, your firm should

Gross private domestic investment, the official government measure of investment, includes all of the following except

Higher interest rates will lead to increased investment.

All other things unchanged, an increase in taxes on profits earned by firms tends to

Figure 14-1 -Refer to Figure 14-1. Suppose the economy is operating at point m on curve A. The decision to move to point p I. requires a sacrifice of current consumption. II. requires a sacrifice of future consumption. III. adds to the economy's capital stock assuming depreciation remains at a level corresponding to point m. IV. enables the economy to increase both its consumption and investment in the future.

Which of the following will shift the investment demand curve to the right?

Figure 14-1 -Refer to Figure 14-1. Suppose the economy is operating on curve B and there is positive depreciation to its existing capital stock. The decision to produce at point r is likely to I. shift the production possibilities curve slowly toward curve C. II. shift the production possibilities curve slowly toward curve A. III. reduce the economy's capital stock. IV. result in a negative net private investment.

Which of the following is classified as spending on investment? I. new residential construction II. business spending on new equipment III. business spending on structures such as office buildings IV. purchase of government bonds

Figure 14-6 -Refer to Figure 14-6. If the money supply is increased in Panel (a) from MS₁ to MS₂, then in Panel (b), the quantity of investment demanded

An investment tax credit is a type of capital gains tax.

Table 14-2 -Refer to Table 14-2. If the interest rate falls from 20% to 15%, what is the change in the amount of investment?

In the last 80 years, the United States recorded a negative net private domestic investment during three periods. Which of the following are examples of two such periods?

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