Question 1

If gross private domestic investment exceeds depreciation, then

Accepted Answer

A)  net private domestic investment is zero. 
B)  net private domestic investment is negative. 
C)  the capital stock is declining. 
D)  the capital stock is increasing. 
A)  net private domestic investment is zero. 
B)  net private domestic investment is negative. 
C)  the capital stock is declining. 
D)  the capital stock is increasing.

Question 2

Use the following to answer questions .
Exhibit: Investment Projects
  
-(Exhibit: Investment Projects) If the market interest rate is 9%, what is the amount of planned investment expenditure?

Accepted Answer

A)  zero 
B)  $1,500 
C)  $4,000 
D)  $5,500 
A)  zero 
B)  $1,500 
C)  $4,000 
D)  $5,500

Question 3

Which of the following causes a movement along the investment demand?

Accepted Answer

A)  A change in producers' expectations about profitability 
B)  A change in the interest rate 
C)  A change in the general price level 
D)  A stock market crash that reduces household wealth 
A)  A change in producers' expectations about profitability 
B)  A change in the interest rate 
C)  A change in the general price level 
D)  A stock market crash that reduces household wealth

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

A nation's capital stock will decrease if

Accepted Answer

A)  a firm purchases used equipment. 
B)  inventories of intermediate goods (such as lumber for housing construction) decrease. 
C)  obsolete equipment is not replaced. 
D)  the stock of existing homes for sale decreases. 
A)  a firm purchases used equipment. 
B)  inventories of intermediate goods (such as lumber for housing construction) decrease. 
C)  obsolete equipment is not replaced. 
D)  the stock of existing homes for sale decreases.

Question 6

Explain how each of the following events affects (i) the investment demand curve; and (ii) aggregate demand and/or aggregate supply curve. 
a. an increase in interest rates b. a decrease in interest rates c. an increase in the cost of capital goods d. a decrease in the level of economic activity e. a decrease in the minimum wage f. a natural disaster that destroys much of the capital stock

Accepted Answer

a. An increase in interest rates will le

Question 7

In the United States, during World War II, massive defense spending

Accepted Answer

A)  resulted in huge increases in gross private domestic investment. 
B)  resulted in huge cutbacks in gross private domestic investment. 
C)  added significantly to the nation's capital stock. 
D)  diverted resources from consumption to gross private domestic investment. 
A)  resulted in huge increases in gross private domestic investment. 
B)  resulted in huge cutbacks in gross private domestic investment. 
C)  added significantly to the nation's capital stock. 
D)  diverted resources from consumption to gross private domestic investment.

Question 8

Policies that deter investment such as an increase in the corporate profit tax rate,

Accepted Answer

A)  will increase aggregate demand due to increased tax revenue, and eventually shift the long-run aggregate supply (LRAS) curve to the right of where it would have been. 
B)  will reduce aggregate demand, and eventually shift the LRAS curve to the left of where it would have been. 
C)  will initially increase aggregate demand due to increased tax revenue, but eventually shift the long-run aggregate supply (LRAS) curve to the left of where it would have been. 
D)  will initially reduce aggregate demand, but eventually shift the LRAS curve to the right of where it would have been as firms raise prices to compensate for the tax increase. 
A)  will increase aggregate demand due to increased tax revenue, and eventually shift the long-run aggregate supply (LRAS) curve to the right of where it would have been. 
B)  will reduce aggregate demand, and eventually shift the LRAS curve to the left of where it would have been. 
C)  will initially increase aggregate demand due to increased tax revenue, but eventually shift the long-run aggregate supply (LRAS) curve to the left of where it would have been. 
D)  will initially reduce aggregate demand, but eventually shift the LRAS curve to the right of where it would have been as firms raise prices to compensate for the tax increase.

Question 9

Investment represents a choice to consume less now.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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 12

Suppose your firm is considering an investment project that will generate an expected return of 5%. The project costs $200,000. Suppose further that your firm has $200,000 of retained earnings. If the market interest rate is 10%, your firm should

Accepted Answer

A)  loan the retained earnings out at 5%. 
B)  loan the retained earnings out at 10%. 
C)  loan the retained earnings out at 15%. 
D)  invest the $200,000 of retained earnings in the project. 
A)  loan the retained earnings out at 5%. 
B)  loan the retained earnings out at 10%. 
C)  loan the retained earnings out at 15%. 
D)  invest the $200,000 of retained earnings in the project.

Question 13

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

Accepted Answer

A)  Positive 
B)  Direct 
C)  Negative 
D)  Volatile 
A)  Positive 
B)  Direct 
C)  Negative 
D)  Volatile

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Use the following to answer questions .
Exhibit: Investment Demand  
-(Exhibit: Investment Demand) Which panel represents the result of the selling of bonds in the open market by the Fed?

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 16

In the short run, the most important consequence of an increase 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 17

Use the following to answer questions .
Exhibit: Investment Demand  
-(Exhibit: Investment Demand) Which panel represents the result of an increase in the money supply?

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 18

Use the following to answer questions .
Exhibit: Investment and Production Possibilities  
-(Exhibit: Investment and Production Possibilities) Given that the economy is on curve A, it is most likely to achieve curve C or beyond if it allocates resources to produce at

Accepted Answer

A)  point m. 
B)  point n. 
C)  point p. 
D)  point q. 
A)  point m. 
B)  point n. 
C)  point p. 
D)  point q.

Question 19

Which of the following will shift a firm's investment demand curve to the left?

Accepted Answer

A)  There is an excess demand in the market for skilled labor. 
B)  The tax code is revised to allow firms to accelerate depreciation on their capital assets. 
C)  The firm experiences a decrease in the capacity utilization rate of capital. 
D)  Its current capital stock is way below its desired level. 
A)  There is an excess demand in the market for skilled labor. 
B)  The tax code is revised to allow firms to accelerate depreciation on their capital assets. 
C)  The firm experiences a decrease in the capacity utilization rate of capital. 
D)  Its current capital stock is way below its desired level.

Question 20

The purchase of a bond is an addition to the capital stock.

Accepted Answer

A) True 
 B)False

If gross private domestic investment exceeds depreciation, then

Use the following to answer questions . Exhibit: Investment Projects -(Exhibit: Investment Projects) If the market interest rate is 9%, what is the amount of planned investment expenditure?

Which of the following causes a movement along the investment demand?

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

A nation's capital stock will decrease if

In the United States, during World War II, massive defense spending

Policies that deter investment such as an increase in the corporate profit tax rate,

Investment represents a choice to consume less now.

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

Suppose your firm is considering an investment project that will generate an expected return of 5%. The project costs $200,000. Suppose further that your firm has $200,000 of retained earnings. If the market interest rate is 10%, your firm should

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

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

Use the following to answer questions . Exhibit: Investment Demand -(Exhibit: Investment Demand) Which panel represents the result of the selling of bonds in the open market by the Fed?

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

Use the following to answer questions . Exhibit: Investment Demand -(Exhibit: Investment Demand) Which panel represents the result of an increase in the money supply?

Use the following to answer questions . Exhibit: Investment and Production Possibilities -(Exhibit: Investment and Production Possibilities) Given that the economy is on curve A, it is most likely to achieve curve C or beyond if it allocates resources to produce at

Which of the following will shift a firm's investment demand curve to the left?

The purchase of a bond is an addition to the capital stock.

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

If gross private domestic investment exceeds depreciation, then

Use the following to answer questions . Exhibit: Investment Projects -(Exhibit: Investment Projects) If the market interest rate is 9%, what is the amount of planned investment expenditure?

Which of the following causes a movement along the investment demand?

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

A nation's capital stock will decrease if

In the United States, during World War II, massive defense spending

Policies that deter investment such as an increase in the corporate profit tax rate,

Investment represents a choice to consume less now.

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

Suppose your firm is considering an investment project that will generate an expected return of 5%. The project costs $200,000. Suppose further that your firm has $200,000 of retained earnings. If the market interest rate is 10%, your firm should

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

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

Use the following to answer questions . Exhibit: Investment Demand -(Exhibit: Investment Demand) Which panel represents the result of the selling of bonds in the open market by the Fed?

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

Use the following to answer questions . Exhibit: Investment Demand -(Exhibit: Investment Demand) Which panel represents the result of an increase in the money supply?

Use the following to answer questions . Exhibit: Investment and Production Possibilities -(Exhibit: Investment and Production Possibilities) Given that the economy is on curve A, it is most likely to achieve curve C or beyond if it allocates resources to produce at

Which of the following will shift a firm's investment demand curve to the left?

The purchase of a bond is an addition to the capital stock.

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