Question 1

One way of writing the goods-market equilibrium condition for a closed economy is

Accepted Answer

A) Y = C + G + S 
B) Y = Cd + Gd + S 
C) Sd = Id 
D) Y - Cd - G - Sd = Id 
A) Y = C + G + S 
B) Y = Cd + Gd + S 
C) Sd = Id 
D) Y - Cd - G - Sd = Id

Question 2

Cummins,Hubbard,and Hassett found that investment responded to a tax change that affected the user cost of capital,with an elasticity of

Accepted Answer

A) 0) 
B) -0.25. 
C) -0.66. 
D) -1. 
A) 0) 
B) -0.25. 
C) -0.66. 
D) -1.

Question 3

Suppose the one-year T-bill rate was 5% on 1/1/2007,4% on 1/1/2008,and 6% on 1/1/2009.The GDP deflator (2004 = 100)was 110 on 1/1/2007,112 on 1/1/2008,114 on 1/1/2009,and 120 on 1/1/2010.The tax rate on interest income is 30%.
(a)Calculate the nominal after-tax rate of return for 2007,2008,and 2009.
(b)If you began with $1000 on 1/1/2007 and invested in T-bills each year (paying taxes at the end of each year),how much would you have in nominal terms on 1/1/2010? How much would you have in real terms (2004 dollars)?
(c)How much was your nominal after-tax interest earned in part (b)over the three years? How much did you earn in real (2004)after-tax dollars?

Accepted Answer

(a)2007: 3.5% = 0.05 × .7; 2008: 2.8% =

Question 4

An increase in the price of capital goods will

Accepted Answer

A) increase the expected future marginal product of capital. 
B) reduce the expected future marginal product of capital. 
C) increase the interest cost and the depreciation cost of capital. 
D) increase the interest cost but not affect the depreciation cost of capital. 
A) increase the expected future marginal product of capital. 
B) reduce the expected future marginal product of capital. 
C) increase the interest cost and the depreciation cost of capital. 
D) increase the interest cost but not affect the depreciation cost of capital.

Question 5

If consumers believe that next year a recession will occur (in a closed economy),then the real interest rate ________ and investment ________.

Accepted Answer

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

Question 6

What is the q theory of investment? Who developed it? What is q,and what do different values of q imply? How is q related to the stock market value of a firm and its capital stock?

Accepted Answer

The q theory of investment captures the

Question 7

Which of the following machines has the lowest user cost? Machine A costs $15,000 and depreciates at a 25% rate,machine B costs $10,000 and depreciates at a rate of 20%,machine C costs $20,000 and depreciates at a rate of 10%,and machine D costs $17,000 and depreciates at a rate of 11%.The expected real interest rate is 5%.

Accepted Answer

A) Machine A 
B) Machine B 
C) Machine C 
D) Machine D 
A) Machine A 
B) Machine B 
C) Machine C 
D) Machine D

Question 8

What is the marginal propensity to consume,and why is it always less than one?

Accepted Answer

The marginal propensity to consume (MPC)

Question 9

Desired national saving would decrease unambiguously if there were

Accepted Answer

A) a decrease in current output and a decrease in taxes. 
B) an increase in expected future output and a decrease in government purchases. 
C) an increase in both expected future output and the expected real interest rate. 
D) a fall in both government purchases and expected future output. 
A) a decrease in current output and a decrease in taxes. 
B) an increase in expected future output and a decrease in government purchases. 
C) an increase in both expected future output and the expected real interest rate. 
D) a fall in both government purchases and expected future output.

Question 10

An economy has full-employment output of 5000.Government purchases are 1000.Desired consumption and desired investment are given by
Cd = 3000 - 2000r + 0.10Y
Id = 1000 - 4000r
where Y is output and r is the expected real interest rate.
(a)Find the real interest rate that clears the goods market.Assume that output equals full-employment output.
(b)Calculate the amount of saving,investment,and consumption in equilibrium.
(c)If a shock to wealth causes desired consumption to decline by 200 (so that the new equation for desired consumption is Cd = 2800 - 2000r + 0.10Y),find the equilibrium real interest rate,saving,investment,and consumption.

Accepted Answer

(a)S^d = Y - C^d - G = 5000 - [3000 - 2000r

Question 11

A technological improvement will

Accepted Answer

A) increase the desired capital stock. 
B) decrease the desired capital stock. 
C) have no effect on the desired capital stock. 
D) have the same effect on the desired capital stock as an increase in corporate taxes. 
A) increase the desired capital stock. 
B) decrease the desired capital stock. 
C) have no effect on the desired capital stock. 
D) have the same effect on the desired capital stock as an increase in corporate taxes.

Question 12

A firm's output (Y)depends on how much capital (K)it has,according to the equation: Y = 20K - K2.The real interest rate is 6% per year,the depreciation rate of capital is 14% per year and the price of a unit of capital is $80,and each unit of output sells for $1.
(a)For capital levels of 0 to 6,how much is output?
(b)For capital levels from 1 to 6,calculate the marginal product of capital.
(c)How many units of capital does the firm desire?
(d)If the real interest rate was 1% per year,how many units of capital would the firm desire?

Accepted Answer

(a)& (b) @#IMG-DLM& (c)uc = (r + d)p_K = (0.06 + 0.1

Question 13

The saving-investment diagram shows that a higher real interest rate due to a leftward shift of the saving curve

Accepted Answer

A) raises the profitability of investment for firms. 
B) causes the amount of firms' investment to increase. 
C) increases the total amount of saving because of the increase in the real interest rate. 
D) causes the total amounts of saving and investment to fall. 
A) raises the profitability of investment for firms. 
B) causes the amount of firms' investment to increase. 
C) increases the total amount of saving because of the increase in the real interest rate. 
D) causes the total amounts of saving and investment to fall.

Question 14

What are the economic consequences of reductions in defense spending by the government? What happens to national saving,the interest rate,and investment?

Accepted Answer

The reduction in defense spend

Question 15

Desired national saving equals

Accepted Answer

A) Y - Cd - G. 
B) Cd + Id + G. 
C) Id + G. 
D) Y - Id - G. 
A) Y - Cd - G. 
B) Cd + Id + G. 
C) Id + G. 
D) Y - Id - G.

Question 16

Aunt Agatha has just left her nephew $5000.The most likely response is for her nephew to

Accepted Answer

A) increase current consumption, but not future consumption. 
B) decrease current consumption, but increase future consumption. 
C) increase future consumption, but not current consumption. 
D) increase both current consumption and future consumption. 
A) increase current consumption, but not future consumption. 
B) decrease current consumption, but increase future consumption. 
C) increase future consumption, but not current consumption. 
D) increase both current consumption and future consumption.

Question 17

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

Accepted Answer

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

Question 18

A temporary supply shock,such as a drought,would

Accepted Answer

A) increase the marginal product of capital and increase desired investment. 
B) decrease the marginal product of capital and decrease desired investment. 
C) have little or no effect on desired investment. 
D) decrease both the marginal product of capital and the marginal product of labor in the long-term future. 
A) increase the marginal product of capital and increase desired investment. 
B) decrease the marginal product of capital and decrease desired investment. 
C) have little or no effect on desired investment. 
D) decrease both the marginal product of capital and the marginal product of labor in the long-term future.

Question 19

An increase in the expected real interest rate will

Accepted Answer

A) increase the desired capital stock. 
B) decrease the desired capital stock. 
C) have no effect on the desired capital stock. 
D) have the same effect on the desired capital stock as a decrease in corporate taxes. 
A) increase the desired capital stock. 
B) decrease the desired capital stock. 
C) have no effect on the desired capital stock. 
D) have the same effect on the desired capital stock as a decrease in corporate taxes.

Question 20

The substitution effect of a decrease in real interest rates is to cause a consumer to

Accepted Answer

A) increase future consumption and decrease current consumption. 
B) decrease future consumption and increase current consumption. 
C) increase current consumption and increase saving. 
D) decrease current consumption and increase saving. 
A) increase future consumption and decrease current consumption. 
B) decrease future consumption and increase current consumption. 
C) increase current consumption and increase saving. 
D) decrease current consumption and increase saving.

One way of writing the goods-market equilibrium condition for a closed economy is

Cummins,Hubbard,and Hassett found that investment responded to a tax change that affected the user cost of capital,with an elasticity of

An increase in the price of capital goods will

If consumers believe that next year a recession will occur (in a closed economy),then the real interest rate and investment .

What is the q theory of investment? Who developed it? What is q,and what do different values of q imply? How is q related to the stock market value of a firm and its capital stock?

What is the marginal propensity to consume,and why is it always less than one?

Desired national saving would decrease unambiguously if there were

A technological improvement will

The saving-investment diagram shows that a higher real interest rate due to a leftward shift of the saving curve

What are the economic consequences of reductions in defense spending by the government? What happens to national saving,the interest rate,and investment?

Desired national saving equals

Aunt Agatha has just left her nephew $5000.The most likely response is for her nephew to

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

A temporary supply shock,such as a drought,would

An increase in the expected real interest rate will

The substitution effect of a decrease in real interest rates is to cause a consumer to

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

One way of writing the goods-market equilibrium condition for a closed economy is

Cummins,Hubbard,and Hassett found that investment responded to a tax change that affected the user cost of capital,with an elasticity of

An increase in the price of capital goods will

If consumers believe that next year a recession will occur (in a closed economy),then the real interest rate ________ and investment ________.

What is the q theory of investment? Who developed it? What is q,and what do different values of q imply? How is q related to the stock market value of a firm and its capital stock?

What is the marginal propensity to consume,and why is it always less than one?

Desired national saving would decrease unambiguously if there were

A technological improvement will

The saving-investment diagram shows that a higher real interest rate due to a leftward shift of the saving curve

What are the economic consequences of reductions in defense spending by the government? What happens to national saving,the interest rate,and investment?

Desired national saving equals

Aunt Agatha has just left her nephew $5000.The most likely response is for her nephew to

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

A temporary supply shock,such as a drought,would

An increase in the expected real interest rate will

The substitution effect of a decrease in real interest rates is to cause a consumer to

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

If consumers believe that next year a recession will occur (in a closed economy),then the real interest rate and investment .