Question 1

The imposition of a temporary tax credit for just one year will

Accepted Answer

A) increase investment spending that year as firms take advantage of the tax credit 
B) decrease investment spending the next year since firms will have accelerated investments originally planned for the next year 
C) not significantly affect the level of capital stock in the long run 
D) induce firms to undertake marginal investment projects that otherwise would not have been deemed profitable 
E) all of the above 
A) increase investment spending that year as firms take advantage of the tax credit 
B) decrease investment spending the next year since firms will have accelerated investments originally planned for the next year 
C) not significantly affect the level of capital stock in the long run 
D) induce firms to undertake marginal investment projects that otherwise would not have been deemed profitable 
E) all of the above

Question 2

Which policy measure can help to increase the desired capital stock?

Accepted Answer

A) higher investment tax credits 
B) a higher corporate income tax 
C) restrictive monetary policy 
D) an expansionary fiscal/restrictive monetary policy mix 
E) none of the above 
A) higher investment tax credits 
B) a higher corporate income tax 
C) restrictive monetary policy 
D) an expansionary fiscal/restrictive monetary policy mix 
E) none of the above

Question 3

The increase in real output produced by using one additional unit of capital in production is called

Accepted Answer

A) the rental cost of capital 
B) the marginal product of capital 
C) the value of capital 
D) capital improvement 
E) capital consumption allowances 
A) the rental cost of capital 
B) the marginal product of capital 
C) the value of capital 
D) capital improvement 
E) capital consumption allowances

Question 4

Assume the rental cost of capital is rc = 10%, the nominal interest rate is i = 13%, and the rate of depreciation is d = 4%.What is the real interest rate?

Accepted Answer

A) +9% 
B) +6% 
C) +3% 
D) +1% 
E) -1% 
A) +9% 
B) +6% 
C) +3% 
D) +1% 
E) -1%

Question 5

If we compare the effects on aggregate demand of a temporary investment tax credit for firms and a temporary income tax cut for households, we realize that

Accepted Answer

A) a temporary income tax cut is more effective since consumption is a larger portion of aggregate demand than investment 
B) neither one will change aggregate demand significantly since in both cases permanent rather than current income is important 
C) both will change aggregate demand significantly since individuals as well as firms want to take advantage of lower taxes while they can 
D) the personal income tax cut will increase aggregate demand while the higher tax credit will lower aggregate demand 
E) temporary investment tax credits will help to simulate aggregate demand but temporary income tax cuts most likely will not 
A) a temporary income tax cut is more effective since consumption is a larger portion of aggregate demand than investment 
B) neither one will change aggregate demand significantly since in both cases permanent rather than current income is important 
C) both will change aggregate demand significantly since individuals as well as firms want to take advantage of lower taxes while they can 
D) the personal income tax cut will increase aggregate demand while the higher tax credit will lower aggregate demand 
E) temporary investment tax credits will help to simulate aggregate demand but temporary income tax cuts most likely will not

Question 6

If the market interest rate rises from 8% to 10%, the net present discounted value of a ten-year investment project will

Accepted Answer

A) fall more than a two-year project 
B) rise more than a two-year project 
C) fall less than a two-year project 
D) rise less than a two-year project 
E) not be significantly affected 
A) fall more than a two-year project 
B) rise more than a two-year project 
C) fall less than a two-year project 
D) rise less than a two-year project 
E) not be significantly affected

Question 7

Assume a Cobb-Douglas production function in which the share of capital is a = 1/4 and the share of labor is b = 3/4.In this case, the marginal product of capital is

Accepted Answer

A) Y/3K 
B) 3Y/4K 
C) Y/4K 
D) 3Y/K 
E) 1/4 
A) Y/3K 
B) 3Y/4K 
C) Y/4K 
D) 3Y/K 
E) 1/4

Question 8

According to the neoclassical theory of business fixed investment, which of the following is true?

Accepted Answer

A) investment spending is governed by the discrepancy between desired and actual interest rates 
B) the desired capital stock decreases with a decrease in the rental cost of capital 
C) monetary and fiscal policy changes affect investment spending but often with long lags 
D) the desired capital stock decreases with an increase in the expected level of output 
E) none of the above 
A) investment spending is governed by the discrepancy between desired and actual interest rates 
B) the desired capital stock decreases with a decrease in the rental cost of capital 
C) monetary and fiscal policy changes affect investment spending but often with long lags 
D) the desired capital stock decreases with an increase in the expected level of output 
E) none of the above

Question 9

In which of the following cases would you expect to observe the highest level of desired capital stock?

Accepted Answer

A) the rental cost of capital is high and wage rates are low 
B) the rental cost of capital is low and the level of output is high 
C) the rental cost of capital is low and the level of output is low 
D) the level of output is low and wage rates are high 
E) the level of output is low and wage rates are low 
A) the rental cost of capital is high and wage rates are low 
B) the rental cost of capital is low and the level of output is high 
C) the rental cost of capital is low and the level of output is low 
D) the level of output is low and wage rates are high 
E) the level of output is low and wage rates are low

Question 10

According to the accelerator model,

Accepted Answer

A) the level of investment spending is proportional to the level of GDP 
B) the change in investment spending is proportional to the change in GDP 
C) the change in investment spending is proportional to the level of GDP 
D) the level of investment spending is proportional to the change in GDP 
E) none of the above 
A) the level of investment spending is proportional to the level of GDP 
B) the change in investment spending is proportional to the change in GDP 
C) the change in investment spending is proportional to the level of GDP 
D) the level of investment spending is proportional to the change in GDP 
E) none of the above

The imposition of a temporary tax credit for just one year will

Which policy measure can help to increase the desired capital stock?

The increase in real output produced by using one additional unit of capital in production is called

Assume the rental cost of capital is rc = 10%, the nominal interest rate is i = 13%, and the rate of depreciation is d = 4%.What is the real interest rate?

If we compare the effects on aggregate demand of a temporary investment tax credit for firms and a temporary income tax cut for households, we realize that

If the market interest rate rises from 8% to 10%, the net present discounted value of a ten-year investment project will

Assume a Cobb-Douglas production function in which the share of capital is a = 1/4 and the share of labor is b = 3/4.In this case, the marginal product of capital is

According to the neoclassical theory of business fixed investment, which of the following is true?

In which of the following cases would you expect to observe the highest level of desired capital stock?

According to the accelerator model,

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

International linkages

Consumption and saving

The demand for money

The fed, money, and credit

Policy

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Advanced topics

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Exam 15: Investment spending

The imposition of a temporary tax credit for just one year will

Which policy measure can help to increase the desired capital stock?

The increase in real output produced by using one additional unit of capital in production is called

Assume the rental cost of capital is rc = 10%, the nominal interest rate is i = 13%, and the rate of depreciation is d = 4%.What is the real interest rate?

If we compare the effects on aggregate demand of a temporary investment tax credit for firms and a temporary income tax cut for households, we realize that

If the market interest rate rises from 8% to 10%, the net present discounted value of a ten-year investment project will

Assume a Cobb-Douglas production function in which the share of capital is a = 1/4 and the share of labor is b = 3/4.In this case, the marginal product of capital is

According to the neoclassical theory of business fixed investment, which of the following is true?

In which of the following cases would you expect to observe the highest level of desired capital stock?

According to the accelerator model,

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

Policy preview

Income and spending

Money, interest, and income

Monetary and fiscal policy

International linkages

Consumption and saving

The demand for money

The fed, money, and credit

Policy

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Advanced topics

Filters