Exam 14: Capital and Time

Suppose a person's preferences are to "consumption smooth",which means they wish to get $C _ { 1 } = C _ { 2 }$ for all incomes and interest rates.For any interest rate and $Y _ { 1 } < Y _ { 2 }$ ,the person will ____ in the first period.

The rental rate approach to investment choices by firms and the present value approach

Suppose an individual has a fixed amount of wealth to allocate between consumption in two periods (C₁ and C₂).Any funds not spent in period 1 will earn interest (at the rate r),which will increase purchasing power in period 2.Consider four possible reactions to an increase in r: Which of these is consistent with the hypothesis that both C₁ and C₂ are normal goods? I.C₁ increases. II.C₁ decreases. III.C₂ increases. IV.C₂ decreases.

The annual rental rate for a machine is

The present value of $1 payable in the future decreases

A monopolist who owned the entire supply of a scarce resource would set a price

A firm that wished to calculate the present value of its future nominal profits should use the ____ to do so.

A fall in the real interest rate leads to

Suppose you know a piece of land will be worth $1 million (real)in 2025,and the real interest rate is 5%.About how much should you be willing to pay for the land today (20150)? (Assume no taxes).

Suppose Johnny Stroller sells 12,25,and 75 year-old scotch in under black,red,and blue labels.Suppose the storage costs are zero and the initial production costs are the same.What is the implied (approximate)interest rate if black sells for $18,red for $34 and blue for $388.

The difference in present value between a perpetuity that promised $1 per year starting today and one that promised $1 per year starting next year is

For a given interest rate,r,which of the following expressions is smallest?

The present value of $1 payable in two years is

The yield on a bond is that interest rate for which the present value of the interest and principal payments promised by the bond are

In a perfectly competitive market a firm's rental rate for a machine (v)will be given by: v = P(r + d)where r is the prevailing rate of interest and d is the depreciation rate.In this formula P represents

The two-period budget line for incomes Y1 and Y2 and consumption C1 and C2 can be written as $C _ { 2 } = Y _ { 1 } ( 1 + r ) + Y _ { 2 } - ( 1 + r ) C _ { 1 }$ ,if the interest rate were to fall the budget line would

Suppose a person's preferences are to "consumption smooth",which means they wish to get $C _ { 1 } = C _ { 2 }$ for all incomes and interest rates.For any interest rate and $Y _ { 1 } > Y _ { 2 }$ ,the person will ____ in the first period.

Suppose you know a piece of land will be worth $1 million (real)in 2045,and the real interest rate is 5%.About how much should you be willing to pay for the land today (2015)? (Assume no taxes).

In the two-period utility maximization model the opportunity cost of one unit of C1 is

A rise in the real interest rate r