Exam 14: Investment and Economic Activity

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.

Use the following to answer questions . Exhibit: Investment and Production Possibilities -(Exhibit: Investment and Production Possibilities) 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 statements is true regarding interest rates and quantity of investment demanded?

Higher interest rates will lead to increased investment.

Use the following to answer questions . Exhibit: Investment and Production Possibilities -(Exhibit: Investment and Production Possibilities) 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.

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

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

A decision to produce more investment goods and fewer consumption goods I. requires the sacrifice of current and future consumption. II. allows the production of more of both types of goods in the future. III. requires an increase in current savings.

Over the past few decades, the bulk of gross private domestic investment has gone toward

A decrease in the level of economic activity will generally

Which of the following statements is true?

Use the following to answer questions . Exhibit: Investment Demand -(Exhibit: Investment Demand) Which panel represents the result of repealing a significant investment tax credit?

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

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

In the recession that began in late 2007 in the United States, which of the following was the first main element of GDP that faltered?

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.

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

Use the following to answer questions . Exhibit: Investment Projects -(Exhibit: Investment Projects) If the market interest rate is 11%, the last project undertaken is

Which of the following is classified as investment? I. existing homes II. business spending on new equipment III. purchase of corporate stock IV. taking out a loan to build an office building

Use the following to answer questions . Exhibit: Investment Demand -(Exhibit: Investment Demand) Which panel shows the result of a decrease in the cost of capital goods?