Question 1

For a borrower,an increase in the real interest rate will lead to

Accepted Answer

A) higher current consumption and less borrowing. 
B) higher current consumption and less saving. 
C) lower current consumption and less borrowing. 
D) lower current consumption and less saving. 
A) higher current consumption and less borrowing. 
B) higher current consumption and less saving. 
C) lower current consumption and less borrowing. 
D) lower current consumption and less saving.

Question 2

Calculate the user cost of capital of a machine that costs $5000 and depreciates at a rate of 25%,when the nominal interest rate is 10% and the expected inflation rate is 5%.

Accepted Answer

A) $150 
B) $500 
C) $1500 
D) $5000 
A) $150 
B) $500 
C) $1500 
D) $5000

Question 3

An economy has government purchases of 2000.Desired national saving and desired investment are given by Sd = 200 + 5000r + 0.10Y - 0.20G
Id = 1000 - 4000r
When the full-employment level of output equals 5000,then the real interest rate when the goods market is in equilibrium will be

Accepted Answer

A) 7)78%. 
B) 10.00%. 
C) 14.44%. 
D) 23.33%. 
A) 7)78%. 
B) 10.00%. 
C) 14.44%. 
D) 23.33%.

Question 4

How would the desired capital stock be affected by a decline in the user cost of capital?

Accepted Answer

A firm sets its capital stock such that

Question 5

An increase in expected future output while holding today's output constant would

Accepted Answer

A) increase today's desired consumption and increase desired national saving. 
B) increase today's desired consumption and decrease desired national saving. 
C) decrease today's desired consumption and increase desired national saving. 
D) decrease today's desired consumption and decrease desired national saving. 
A) increase today's desired consumption and increase desired national saving. 
B) increase today's desired consumption and decrease desired national saving. 
C) decrease today's desired consumption and increase desired national saving. 
D) decrease today's desired consumption and decrease desired national saving.

Question 6

A temporary supply shock,such as a one month decrease in oil prices,would

Accepted Answer

A) increase the marginal product of capital and increase desired investment, increasing the real interest rate in equilibrium. 
B) decrease the marginal product of capital and decrease desired investment, decreasing the real interest rate in equilibrium. 
C) have little or no effect on desired investment, thus not changing the real interest rate by much in equilibrium. 
D) increase both the marginal product of capital and the marginal product of labor in the long-term future, thus raising the real interest rate in equilibrium. 
A) increase the marginal product of capital and increase desired investment, increasing the real interest rate in equilibrium. 
B) decrease the marginal product of capital and decrease desired investment, decreasing the real interest rate in equilibrium. 
C) have little or no effect on desired investment, thus not changing the real interest rate by much in equilibrium. 
D) increase both the marginal product of capital and the marginal product of labor in the long-term future, thus raising the real interest rate in equilibrium.

Question 7

The stock market just crashed; the Dow Jones Industrial Average fell by 750 points.You would expect the effect on aggregate consumption to be the largest if which of the following facts was true?

Accepted Answer

A) The crash had been preceded by a large run-up in the price of stocks. 
B) Most stocks were owned by insurance companies. 
C) Most stocks were owned by pension funds that invested in the market. 
D) Many individuals had invested in the stock market immediately prior to the crash. 
A) The crash had been preceded by a large run-up in the price of stocks. 
B) Most stocks were owned by insurance companies. 
C) Most stocks were owned by pension funds that invested in the market. 
D) Many individuals had invested in the stock market immediately prior to the crash.

Question 8

Suppose the nominal interest rate is 6%,the tax rate on interest income is 30%,and expected inflation is 3%.
(a)Calculate the expected real after-tax interest rate.
(b)Calculate the expected real after-tax interest rate if the nominal interest rate falls to 4%.
(c)Calculate the expected real after-tax interest rate if the tax rate increases to 50% (with the nominal interest rate at its original value of 6%).
(d)Calculate the expected real after-tax interest rate if expected inflation increases to 5% (with the nominal interest rate at its original value of 6% and the tax rate at its original value of 30%).

Accepted Answer

The expected real after-tax interest rat

Question 9

In 1991 the federal government changed the withholding amounts for personal taxes.The change meant that people wouldn't have as much withheld from their paychecks.But there was no change in the tax code itself,so the amount of tax due in April 1992 was not changed.How would consumption and saving respond to this withholding change? (Note: you may assume a real interest rate of 0%.)

Accepted Answer

This is just a Ricardian equivalence exa

Question 10

David consumes 140 in the current period and 220 in the future period.David's present value of lifetime consumption is 340.The real interest rate is

Accepted Answer

A) 0%. 
B) 5%. 
C) 10%. 
D) 20%. 
A) 0%. 
B) 5%. 
C) 10%. 
D) 20%.

Question 11

Draw a diagram showing the determination of a firm's optimal capital stock,showing the relationship between the user cost of capital and the future marginal product of capital.Suppose the real interest rate declines.Show what happens to the firm's optimal capital stock.What happens to the firm's desired investment?

Accepted Answer

This is the standard diagram with the us

Question 12

If the rate of depreciation increases,then user cost ________ and the desired capital stock ________.

Accepted Answer

A) falls; falls 
B) falls; rises 
C) rises; rises 
D) rises; falls 
A) falls; falls 
B) falls; rises 
C) rises; rises 
D) rises; falls

Question 13

Suppose your company is in equilibrium,with its capital stock at its desired level.A permanent increase in the depreciation rate now has what effect on your desired capital stock?

Accepted Answer

A) Raises it, because the future marginal productivity of capital is higher 
B) Lowers it, because the future marginal productivity of capital is lower 
C) Raises it, because the user cost of capital is now lower 
D) Lowers it, because the user cost of capital is now higher 
A) Raises it, because the future marginal productivity of capital is higher 
B) Lowers it, because the future marginal productivity of capital is lower 
C) Raises it, because the user cost of capital is now lower 
D) Lowers it, because the user cost of capital is now higher

Question 14

Any change in the economy that reduces desired national saving for a given value of the real interest rate will shift the desired national saving curve to

Accepted Answer

A) the right and increase the real interest rate. 
B) the right and decrease the real interest rate. 
C) the left and increase the real interest rate. 
D) the left and decrease the real interest rate. 
A) the right and increase the real interest rate. 
B) the right and decrease the real interest rate. 
C) the left and increase the real interest rate. 
D) the left and decrease the real interest rate.

Question 15

An economy has government purchases of 2000.Desired national saving and desired investment are given by Sd = 200 + 5000r + 0.10Y - 0.20G
Id = 1000 - 4000r
When the full-employment level of output equals 5000,then the level of investment when the goods market is in equilibrium will be

Accepted Answer

A) 66.8. 
B) 422.4. 
C) 600.0. 
D) 688.9. 
A) 66.8. 
B) 422.4. 
C) 600.0. 
D) 688.9.

Question 16

You have just purchased a new DVD player to show videos to your customers.The DVD player cost $500,and you depreciate the machine at a rate of 25% each year.You can borrow money from the bank at 10%,or receive 6% for depositing money at the bank.The expected inflation rate in the coming year is 5%.You used the company's own funds to purchase the DVD player.The firm's user cost of capital for the first year is

Accepted Answer

A) $130 
B) $150 
C) $155 
D) $175 
A) $130 
B) $150 
C) $155 
D) $175

Question 17

The nominal interest rate on taxable bonds is 8%,while on municipal bonds (which aren't taxable)it is 5%.The expected inflation rate is 3% and the tax rate on interest income is 40%.Calculate the expected real after-tax interest rate on both bonds.Which would be the better investment? Now suppose the actual inflation rate turned out to be 6%.Which bond was the better investment? Would your answer change if inflation had turned out to be 0%?

Accepted Answer

r_a_-_t (taxable bond)= (1 - 0.40)8% - 3% = 1.

Question 18

A curve that connects all the consumption combinations that yield the same level of utility is known as

Accepted Answer

A) an isoquant. 
B) a yield curve. 
C) a budget line. 
D) an indifference curve. 
A) an isoquant. 
B) a yield curve. 
C) a budget line. 
D) an indifference curve.

Question 19

Identify two variables that shift the desired investment curve.Is desired investment negatively related or positively related to each of these variables?

Accepted Answer

Variables that shift the desired investm

Question 20

When desired national saving equals desired national investment (in a closed economy),what market is in equilibrium?

Accepted Answer

A) The goods market 
B) The money market 
C) The foreign exchange market 
D) The stock market 
A) The goods market 
B) The money market 
C) The foreign exchange market 
D) The stock market

For a borrower,an increase in the real interest rate will lead to

Calculate the user cost of capital of a machine that costs $5000 and depreciates at a rate of 25%,when the nominal interest rate is 10% and the expected inflation rate is 5%.

An economy has government purchases of 2000.Desired national saving and desired investment are given by S^d= 200 + 5000r + 0.10Y - 0.20G I^d= 1000 - 4000r When the full-employment level of output equals 5000,then the real interest rate when the goods market is in equilibrium will be

How would the desired capital stock be affected by a decline in the user cost of capital?

An increase in expected future output while holding today's output constant would

A temporary supply shock,such as a one month decrease in oil prices,would

The stock market just crashed; the Dow Jones Industrial Average fell by 750 points.You would expect the effect on aggregate consumption to be the largest if which of the following facts was true?

David consumes 140 in the current period and 220 in the future period.David's present value of lifetime consumption is 340.The real interest rate is

If the rate of depreciation increases,then user cost and the desired capital stock .

Suppose your company is in equilibrium,with its capital stock at its desired level.A permanent increase in the depreciation rate now has what effect on your desired capital stock?

Any change in the economy that reduces desired national saving for a given value of the real interest rate will shift the desired national saving curve to

An economy has government purchases of 2000.Desired national saving and desired investment are given by S^d= 200 + 5000r + 0.10Y - 0.20G I^d= 1000 - 4000r When the full-employment level of output equals 5000,then the level of investment when the goods market is in equilibrium will be

A curve that connects all the consumption combinations that yield the same level of utility is known as

Identify two variables that shift the desired investment curve.Is desired investment negatively related or positively related to each of these variables?

When desired national saving equals desired national investment (in a closed economy),what market is in equilibrium?

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Exam 4: Consumption, saving, and Investment

For a borrower,an increase in the real interest rate will lead to

Calculate the user cost of capital of a machine that costs $5000 and depreciates at a rate of 25%,when the nominal interest rate is 10% and the expected inflation rate is 5%.

An economy has government purchases of 2000.Desired national saving and desired investment are given by Sd = 200 + 5000r + 0.10Y - 0.20G Id = 1000 - 4000r When the full-employment level of output equals 5000,then the real interest rate when the goods market is in equilibrium will be

How would the desired capital stock be affected by a decline in the user cost of capital?

An increase in expected future output while holding today's output constant would

A temporary supply shock,such as a one month decrease in oil prices,would

The stock market just crashed; the Dow Jones Industrial Average fell by 750 points.You would expect the effect on aggregate consumption to be the largest if which of the following facts was true?

David consumes 140 in the current period and 220 in the future period.David's present value of lifetime consumption is 340.The real interest rate is

If the rate of depreciation increases,then user cost ________ and the desired capital stock ________.

Suppose your company is in equilibrium,with its capital stock at its desired level.A permanent increase in the depreciation rate now has what effect on your desired capital stock?

Any change in the economy that reduces desired national saving for a given value of the real interest rate will shift the desired national saving curve to

An economy has government purchases of 2000.Desired national saving and desired investment are given by Sd = 200 + 5000r + 0.10Y - 0.20G Id = 1000 - 4000r When the full-employment level of output equals 5000,then the level of investment when the goods market is in equilibrium will be

A curve that connects all the consumption combinations that yield the same level of utility is known as

Identify two variables that shift the desired investment curve.Is desired investment negatively related or positively related to each of these variables?

When desired national saving equals desired national investment (in a closed economy),what market is in equilibrium?

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, output, and Employment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lmad-As Model

Classical Business Cycle Analysis

Keynesianism: the Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates, business Cycles, and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

An economy has government purchases of 2000.Desired national saving and desired investment are given by S^d= 200 + 5000r + 0.10Y - 0.20G I^d= 1000 - 4000r When the full-employment level of output equals 5000,then the real interest rate when the goods market is in equilibrium will be

If the rate of depreciation increases,then user cost and the desired capital stock .

An economy has government purchases of 2000.Desired national saving and desired investment are given by S^d= 200 + 5000r + 0.10Y - 0.20G I^d= 1000 - 4000r When the full-employment level of output equals 5000,then the level of investment when the goods market is in equilibrium will be