Question 1

Which of the following is not a determinant of investment demand?

Accepted Answer

A)  Producers' expectations about the level of economic activity 
B)  A decline in consumers' confidence in the economic outlook 
C)  The quantity of capital stock 
D)  Household wealth 
A)  Producers' expectations about the level of economic activity 
B)  A decline in consumers' confidence in the economic outlook 
C)  The quantity of capital stock 
D)  Household wealth

Question 2

We would expect that nations that devote a larger share of GDP to gross private domestic investment

Accepted Answer

A)  to be highly industrialized nations. 
B)  to have a higher savings rate. 
C)  to have higher growth rate in potential real GDP. 
D)  to have less volatile fluctuations in economic activity. 
A)  to be highly industrialized nations. 
B)  to have a higher savings rate. 
C)  to have higher growth rate in potential real GDP. 
D)  to have less volatile fluctuations in economic activity.

Question 3

An increase in the interest rate will

Accepted Answer

A)  shift the investment demand curve to the right. 
B)  shift the investment demand curve to the left. 
C)  not shift the investment demand curve. 
D)  increase the amount of investment undertaken by businesses. 
A)  shift the investment demand curve to the right. 
B)  shift the investment demand curve to the left. 
C)  not shift the investment demand curve. 
D)  increase the amount of investment undertaken by businesses.

Question 4

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

Accepted Answer

A)  Expectations about future profitability 
B)  The capacity utilization rate of capital 
C)  The current stock of capital 
D)  Changes in monetary policy that affect interest rates 
A)  Expectations about future profitability 
B)  The capacity utilization rate of capital 
C)  The current stock of capital 
D)  Changes in monetary policy that affect interest rates

Question 5

Which of the following is not a determinant of investment demand?

Accepted Answer

A)  Expectations about future profitability 
B)  Changing consumers' tastes and preferences 
C)  The cost of labor, an alternative factor of production 
D)  Changes in the rate of corporate profit tax 
A)  Expectations about future profitability 
B)  Changing consumers' tastes and preferences 
C)  The cost of labor, an alternative factor of production 
D)  Changes in the rate of corporate profit tax

Question 6

Higher interest rates encourage investment.

Accepted Answer

A) True 
 B)False

Question 7

A decrease in the interest rate will

Accepted Answer

A)  affect the amount of investment undertaken by businesses. 
B)  decrease the amount of investment undertaken by businesses. 
C)  shift the investment demand curve to the right. 
D)  shift the investment demand curve to the left. 
A)  affect the amount of investment undertaken by businesses. 
B)  decrease the amount of investment undertaken by businesses. 
C)  shift the investment demand curve to the right. 
D)  shift the investment demand curve to the left.

Question 8

The purchase of a bond is

Accepted Answer

A)  not considered capital. 
B)  equivalent to adding capital to a firm's capital stock. 
C)  equivalent to undertaking investment. 
D)  a more attractive form of investment (compared to capital) when interest rates are high. 
A)  not considered capital. 
B)  equivalent to adding capital to a firm's capital stock. 
C)  equivalent to undertaking investment. 
D)  a more attractive form of investment (compared to capital) when interest rates are high.

Question 9

All other things unchanged, rapid advances in technology and the introduction of new products tends to

Accepted Answer

A)  have no effect on the level of investment. 
B)  shift the investment demand curve to the left. 
C)  have no effect on the investment demand curve. 
D)  shift the investment demand curve to the right. 
A)  have no effect on the level of investment. 
B)  shift the investment demand curve to the left. 
C)  have no effect on the investment demand curve. 
D)  shift the investment demand curve to the right.

Question 10

Use the following to answer questions .
Exhibit: Investment Projects
  
-(Exhibit: Investment Projects) If the market interest rate falls from 15% to 11%, what happens to the quantity of investment demanded?

Accepted Answer

A)  It decreases by $2,200 because investment is now less profitable. 
B)  It decreases by $1,000 because investment is now less profitable. 
C)  It increases by $200 because investment is now more profitable. 
D)  It increases by $2,200 because investment is now more profitable. 
A)  It decreases by $2,200 because investment is now less profitable. 
B)  It decreases by $1,000 because investment is now less profitable. 
C)  It increases by $200 because investment is now more profitable. 
D)  It increases by $2,200 because investment is now more profitable.

Question 11

Use the following to answer questions .
Exhibit: Investment Projects
  
-(Exhibit: Investment Projects) If the market interest rate is 13%, what is the amount of planned investment expenditure?

Accepted Answer

A)  $3,500 
B)  $2,000 
C)  $2,200 
D)  $200 
A)  $3,500 
B)  $2,000 
C)  $2,200 
D)  $200

Question 12

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

Accepted Answer

A)  sale which will lower bond prices, lower interest rates, and stimulate investment. 
B)  purchase which will lower bond prices, lower interest rates, and discourage investment. 
C)  sale which will lower bond prices, raise interest rates, and discourage investment. 
D)  purchase which will raise bond prices, lower interest rates, and stimulate investment. 
A)  sale which will lower bond prices, lower interest rates, and stimulate investment. 
B)  purchase which will lower bond prices, lower interest rates, and discourage investment. 
C)  sale which will lower bond prices, raise interest rates, and discourage investment. 
D)  purchase which will raise bond prices, lower interest rates, and stimulate investment.

Question 13

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

Accepted Answer

A)  cause a movement down along the investment demand curve. 
B)  cause a movement up along the investment demand curve. 
C)  shift the investment demand curve to the right. 
D)  shift the investment demand curve to the left. 
A)  cause a movement down along the investment demand curve. 
B)  cause a movement up along the investment demand curve. 
C)  shift the investment demand curve to the right. 
D)  shift the investment demand curve to the left.

Question 14

In 2004, Congress, supported by the Bush administration, passed a law called the American Jobs Creation Act that gave businesses a one-year special tax break on any profits accumulating overseas that were transferred to the United States. What was the intent of this law?

Accepted Answer

A)  To raise revenue for the government to fund its massive defense spending and to create jobs in the defense industry 
B)  To discourage U.S. firms from investing in foreign countries 
C)  To create jobs and spur investment in the U.S. 
D)  To free up much needed funding for domestic firms in the face of an impending financial crisis 
A)  To raise revenue for the government to fund its massive defense spending and to create jobs in the defense industry 
B)  To discourage U.S. firms from investing in foreign countries 
C)  To create jobs and spur investment in the U.S. 
D)  To free up much needed funding for domestic firms in the face of an impending financial crisis

Question 15

A decrease in the interest rate will cause a(n)

Accepted Answer

A)  increase in the investment demand curve. 
B)  decrease in the investment demand curve. 
C)  movement up along the investment demand curve. 
D)  movement down along the investment demand curve. 
A)  increase in the investment demand curve. 
B)  decrease in the investment demand curve. 
C)  movement up along the investment demand curve. 
D)  movement down along the investment demand curve.

Question 16

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 falls from 6% to 4.8%. The quantity of investment demanded rises by (Ia - Ib) as shown in Panel (a). At a given price level, P1, this causes the aggregate demand curve to shift from C to D as shown in Panel (b). What is the size of this shift?

Accepted Answer

A)  The distance CD is equal to (Ia - Ib). 
B)  The distance CD is equal to [MPC *(Ia - Ib)] where MPC = marginal propensity to consume. 
C)  The distance CD is equal to [MPI*(Ia - Ib)] where MPI = marginal propensity to invest. 
D)  The distance CD is equal to [Im *(Ia - Ib)] where Im = investment spending multiplier. 
A)  The distance CD is equal to (Ia - Ib). 
B)  The distance CD is equal to [MPC *(Ia - Ib)] where MPC = marginal propensity to consume. 
C)  The distance CD is equal to [MPI*(Ia - Ib)] where MPI = marginal propensity to invest. 
D)  The distance CD is equal to [Im *(Ia - Ib)] where Im = investment spending multiplier.

Question 17

Use the following to answer questions.
Exhibit: Aggregate Demand and Investment 1  
-(Exhibit: Aggregate Demand and Investment 1) Economic performance would be improved by stimulating investment demand which would shift the

Accepted Answer

A)  aggregate demand to the right to restore long-run equilibrium at "b". 
B)  short-run aggregate supply to the right to restore long-run equilibrium at "c". 
C)  aggregate demand curve and the short-run aggregate supply curve to the right to restore long-run equilibrium between "b" and "c". The long-run aggregate supply curve does not shift. 
D)  long-run aggregate supply to the left to restore long-run equilibrium at "a". 
A)  aggregate demand to the right to restore long-run equilibrium at "b". 
B)  short-run aggregate supply to the right to restore long-run equilibrium at "c". 
C)  aggregate demand curve and the short-run aggregate supply curve to the right to restore long-run equilibrium between "b" and "c". The long-run aggregate supply curve does not shift. 
D)  long-run aggregate supply to the left to restore long-run equilibrium at "a".

Question 18

In the United States, during part of the Great Depression, between 1931 and 1936

Accepted Answer

A)  gross private domestic investment was negative. 
B)  gross private domestic investment was positive. 
C)  net private domestic investment was positive. 
D)  net private domestic investment was negative. 
A)  gross private domestic investment was negative. 
B)  gross private domestic investment was positive. 
C)  net private domestic investment was positive. 
D)  net private domestic investment was negative.

Which of the following is not a determinant of investment demand?

We would expect that nations that devote a larger share of GDP to gross private domestic investment

An increase in the interest rate will

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

Which of the following is not a determinant of investment demand?

Higher interest rates encourage investment.

A decrease in the interest rate will

The purchase of a bond is

All other things unchanged, rapid advances in technology and the introduction of new products tends to

Use the following to answer questions . Exhibit: Investment Projects -(Exhibit: Investment Projects) If the market interest rate falls from 15% to 11%, what happens to the quantity of investment demanded?

Use the following to answer questions . Exhibit: Investment Projects -(Exhibit: Investment Projects) If the market interest rate is 13%, what is the amount of planned investment expenditure?

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

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

In 2004, Congress, supported by the Bush administration, passed a law called the American Jobs Creation Act that gave businesses a one-year special tax break on any profits accumulating overseas that were transferred to the United States. What was the intent of this law?

A decrease in the interest rate will cause a(n)

Use the following to answer questions. Exhibit: Aggregate Demand and Investment 1 -(Exhibit: Aggregate Demand and Investment 1) Economic performance would be improved by stimulating investment demand which would shift the

In the United States, during part of the Great Depression, between 1931 and 1936

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

Which of the following is not a determinant of investment demand?

We would expect that nations that devote a larger share of GDP to gross private domestic investment

An increase in the interest rate will

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

Which of the following is not a determinant of investment demand?

Higher interest rates encourage investment.

A decrease in the interest rate will

The purchase of a bond is

All other things unchanged, rapid advances in technology and the introduction of new products tends to

Use the following to answer questions . Exhibit: Investment Projects -(Exhibit: Investment Projects) If the market interest rate falls from 15% to 11%, what happens to the quantity of investment demanded?

Use the following to answer questions . Exhibit: Investment Projects -(Exhibit: Investment Projects) If the market interest rate is 13%, what is the amount of planned investment expenditure?

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

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

In 2004, Congress, supported by the Bush administration, passed a law called the American Jobs Creation Act that gave businesses a one-year special tax break on any profits accumulating overseas that were transferred to the United States. What was the intent of this law?

A decrease in the interest rate will cause a(n)

Use the following to answer questions. Exhibit: Aggregate Demand and Investment 1 -(Exhibit: Aggregate Demand and Investment 1) Economic performance would be improved by stimulating investment demand which would shift the

In the United States, during part of the Great Depression, between 1931 and 1936

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