Question 1

A reallocation of resources to consumption goods from capital goods is investment that shifts the production possibilities curve outward.

Accepted Answer

A) True 
 B)False

Question 2

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 3

Construction of a new home is an example of gross private domestic investment.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  An increase in the capital gains tax rate 
B)  A decrease in the market interest rate 
C)  An increase in the capacity utilization rate of capital 
D)  The government repeals investment tax credits 
A)  An increase in the capital gains tax rate 
B)  A decrease in the market interest rate 
C)  An increase in the capacity utilization rate of capital 
D)  The government repeals investment tax credits

Question 5

Suppose real estate analysts expect that 100,000 homes will be needed in a particular community by 2014. If the current number of homes in the community is only 50,000, we can expect to see a significant increase in the demand for investment.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Which of the following is a reason why a greater capital stock can reduce investment?

Accepted Answer

A)  A greater capital stock is likely to lead to less investment because further increases in the demand for investment tend to raise the cost of capital. 
B)  Since businesses undertake investment to adjust their stock of capital to its desired level, the amount of investment needed to reach the desired level will be lower when the current capital stock is higher. 
C)  A greater capital stock is likely to lead to less investment since there will be less old capital to replace. 
D)  The rate of new technological innovations tends to deter investment in new capital because capital becomes obsolete at a faster rate. 
A)  A greater capital stock is likely to lead to less investment because further increases in the demand for investment tend to raise the cost of capital. 
B)  Since businesses undertake investment to adjust their stock of capital to its desired level, the amount of investment needed to reach the desired level will be lower when the current capital stock is higher. 
C)  A greater capital stock is likely to lead to less investment since there will be less old capital to replace. 
D)  The rate of new technological innovations tends to deter investment in new capital because capital becomes obsolete at a faster rate.

Question 8

Use the following to answer questions .
Exhibit: Investment Demand and Aggregate Demand
Figure 14-3
Panel (a) Panel (b)    
-(Exhibit: Investment Demand and Aggregate Demand) Suppose the interest rate rises from 4.8% to 6% as shown in Panel (a) and the quantity of investment demanded falls from Ia to Ib. As a result of this, in Panel (b),

Accepted Answer

A)  the aggregate demand curve shifts from AD1 to AD2. 
B)  the aggregate demand curve shifts from AD2 to AD1. 
C)  the aggregate demand curve does not shift; there is a movement up along the prevailing aggregate demand curve. 
D)  the aggregate demand curve does not shift; there is a movement down along the prevailing aggregate demand curve. 
A)  the aggregate demand curve shifts from AD1 to AD2. 
B)  the aggregate demand curve shifts from AD2 to AD1. 
C)  the aggregate demand curve does not shift; there is a movement up along the prevailing aggregate demand curve. 
D)  the aggregate demand curve does not shift; there is a movement down along the prevailing aggregate demand curve.

Question 9

Which of the following statements is true about real gross private domestic investment?

Accepted Answer

A)  Real gross domestic investment (GPDI) is less volatile than consumption and government spending. 
B)  Real gross domestic investment (GPDI) is more volatile than consumption but less volatile than government spending. 
C)  Real gross domestic investment (GPDI) is more volatile than government spending but less volatile than consumption. 
D)  Real gross domestic investment (GPDI) is more volatile than consumption and government spending. 
A)  Real gross domestic investment (GPDI) is less volatile than consumption and government spending. 
B)  Real gross domestic investment (GPDI) is more volatile than consumption but less volatile than government spending. 
C)  Real gross domestic investment (GPDI) is more volatile than government spending but less volatile than consumption. 
D)  Real gross domestic investment (GPDI) is more volatile than consumption and government spending.

Question 10

Use the following to answer questions .
Exhibit: Aggregate Demand and Investment 2  
-(Exhibit: Aggregate Demand and Investment 2) To eliminate the output gap, policy makers could conduct

Accepted Answer

A)  an open market sale to raise interest rates and reduce investment spending which will shift the aggregate demand curve to the left. 
B)  an open market sale to lower interest rates and stimulate investment spending which will shift the short-run aggregate supply curve to the right. 
C)  an open market purchase to raise interest rates and reduce investment spending which will shift the aggregate demand curve to the left. 
D)  an open market purchase to lower interest rates and stimulate investment spending which will shift the short-run aggregate supply curve to the left. 
A)  an open market sale to raise interest rates and reduce investment spending which will shift the aggregate demand curve to the left. 
B)  an open market sale to lower interest rates and stimulate investment spending which will shift the short-run aggregate supply curve to the right. 
C)  an open market purchase to raise interest rates and reduce investment spending which will shift the aggregate demand curve to the left. 
D)  an open market purchase to lower interest rates and stimulate investment spending which will shift the short-run aggregate supply curve to the left.

Question 11

Use the following to answer questions .
Exhibit: Aggregate Demand and Investment 2  
-(Exhibit: Aggregate Demand and Investment 2) 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 encourage investment to close the inflationary gap. 
B)  reduce interest rates and discourage investment to close the recessionary gap. 
C)  increase interest rates and discourage investment to close the inflationary gap. 
D)  reduce interest rates and encourage investment to close the recessionary gap. 
A)  increase interest rates and encourage investment to close the inflationary gap. 
B)  reduce interest rates and discourage investment to close the recessionary gap. 
C)  increase interest rates and discourage investment to close the inflationary gap. 
D)  reduce interest rates and encourage investment to close the recessionary gap.

Question 12

Use the following to answer questions .
Exhibit: Money and Investment  
-(Exhibit: Money and Investment) If the money supply is increased in Panel (a) from MS1 to MS2, then in Panel (b), the quantity of investment demanded

Accepted Answer

A)  decreases, and this will lead to a rightward shift of the aggregate supply curve. 
B)  increases, and this will lead to a rightward shift of the aggregate demand curve. 
C)  increases, and this will lead to a rightward shift of the investment demand curve. 
D)  decreases, and this will lead to a rightward shift of the investment demand supply curve. 
A)  decreases, and this will lead to a rightward shift of the aggregate supply curve. 
B)  increases, and this will lead to a rightward shift of the aggregate demand curve. 
C)  increases, and this will lead to a rightward shift of the investment demand curve. 
D)  decreases, and this will lead to a rightward shift of the investment demand supply curve.

Question 13

Expectations of an improving economy will generally cause an increase in investment by shifting the investment demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Investment contributes to economic growth.

Accepted Answer

A) True 
 B)False

Question 16

Use the following to answer questions .
Exhibit: Investment and Production Possibilities  
-(Exhibit: Investment and Production Possibilities) An increase in investment is illustrated by moving from

Accepted Answer

A)  point m to point n on curve A. 
B)  point q to point p on curve A. 
C)  point v on curve C to point s on curve B. 
D)  point w on curve C to point r on curve B. 
A)  point m to point n on curve A. 
B)  point q to point p on curve A. 
C)  point v on curve C to point s on curve B. 
D)  point w on curve C to point r on curve B.

Question 17

Use the following to answer questions .
Exhibit: The Economy's Investment Demand Schedule
  
-(Exhibit: The Economy's Investment Demand Schedule) If the interest rate rises from 10% to 15%, what is the change in the amount of investment?

Accepted Answer

A)  More than $40 billion 
B)  $40 billion 
C)  $35 billion 
D)  $5 billion 
A)  More than $40 billion 
B)  $40 billion 
C)  $35 billion 
D)  $5 billion

Question 18

Net investment will be negative if

Accepted Answer

A)  depreciation is less than gross private domestic investment. 
B)  depreciation is greater than gross private domestic investment. 
C)  depreciation is positive. 
D)  depreciation is negative. 
A)  depreciation is less than gross private domestic investment. 
B)  depreciation is greater than gross private domestic investment. 
C)  depreciation is positive. 
D)  depreciation is negative.

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A)  The imposition of government regulations that reduce the incentive to produce, for example, more stringent environmental regulation 
B)  A decrease in the capacity utilization rate of capital 
C)  A decrease in the cost of labor 
D)  An increase in GDP 
A)  The imposition of government regulations that reduce the incentive to produce, for example, more stringent environmental regulation 
B)  A decrease in the capacity utilization rate of capital 
C)  A decrease in the cost of labor 
D)  An increase in GDP

A reallocation of resources to consumption goods from capital goods is investment that shifts the production possibilities curve outward.

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

Construction of a new home is an example of gross private domestic investment.

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

Suppose real estate analysts expect that 100,000 homes will be needed in a particular community by 2014. If the current number of homes in the community is only 50,000, we can expect to see a significant increase in the demand for investment.

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

Which of the following is a reason why a greater capital stock can reduce investment?

Which of the following statements is true about real gross private domestic investment?

Use the following to answer questions . Exhibit: Aggregate Demand and Investment 2 -(Exhibit: Aggregate Demand and Investment 2) To eliminate the output gap, policy makers could conduct

Use the following to answer questions . Exhibit: Aggregate Demand and Investment 2 -(Exhibit: Aggregate Demand and Investment 2) The economy is in short-run equilibrium. To move the economy to a long-run equilibrium, policy makers should

Use the following to answer questions . Exhibit: Money and Investment -(Exhibit: Money and Investment) If the money supply is increased in Panel (a) from MS₁ to MS₂, then in Panel (b), the quantity of investment demanded

Expectations of an improving economy will generally cause an increase in investment by shifting the investment demand curve to the right.

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

Investment contributes to economic growth.

Use the following to answer questions . Exhibit: Investment and Production Possibilities -(Exhibit: Investment and Production Possibilities) An increase in investment is illustrated by moving from

Use the following to answer questions . Exhibit: The Economy's Investment Demand Schedule -(Exhibit: The Economy's Investment Demand Schedule) If the interest rate rises from 10% to 15%, what is the change in the amount of investment?

Net investment will be negative if

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.

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

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

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

Filters

Exam 14: Investment and Economic Activity

A reallocation of resources to consumption goods from capital goods is investment that shifts the production possibilities curve outward.

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

Construction of a new home is an example of gross private domestic investment.

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

Suppose real estate analysts expect that 100,000 homes will be needed in a particular community by 2014. If the current number of homes in the community is only 50,000, we can expect to see a significant increase in the demand for investment.

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

Which of the following is a reason why a greater capital stock can reduce investment?

Which of the following statements is true about real gross private domestic investment?

Use the following to answer questions . Exhibit: Aggregate Demand and Investment 2 -(Exhibit: Aggregate Demand and Investment 2) To eliminate the output gap, policy makers could conduct

Use the following to answer questions . Exhibit: Aggregate Demand and Investment 2 -(Exhibit: Aggregate Demand and Investment 2) The economy is in short-run equilibrium. To move the economy to a long-run equilibrium, policy makers should

Use the following to answer questions . Exhibit: Money and Investment -(Exhibit: Money and Investment) If the money supply is increased in Panel (a) from MS1 to MS2, then in Panel (b), the quantity of investment demanded

Expectations of an improving economy will generally cause an increase in investment by shifting the investment demand curve to the right.

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

Investment contributes to economic growth.

Use the following to answer questions . Exhibit: Investment and Production Possibilities -(Exhibit: Investment and Production Possibilities) An increase in investment is illustrated by moving from

Use the following to answer questions . Exhibit: The Economy's Investment Demand Schedule -(Exhibit: The Economy's Investment Demand Schedule) If the interest rate rises from 10% to 15%, what is the change in the amount of investment?

Net investment will be negative if

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.

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

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

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

Filters

Use the following to answer questions . Exhibit: Money and Investment -(Exhibit: Money and Investment) If the money supply is increased in Panel (a) from MS₁ to MS₂, then in Panel (b), the quantity of investment demanded