Question 1

Calculate the user cost of capital of a machine that costs $5,000 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 2

An economy has government purchases of 2000.Desired national saving and desired investment are given by  
= 200 + 5000r + 0.10Y - 0.20G
  = 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 3

Desired national saving equals

Accepted Answer

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

Question 4

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 5

An increase in the expected real interest rate tends to

Accepted Answer

A) raise desired saving only. 
B) raise desired investment only. 
C) raise both desired saving and desired investment. 
D) raise desired saving,but lower desired investment. 
A) raise desired saving only. 
B) raise desired investment only. 
C) raise both desired saving and desired investment. 
D) raise desired saving,but lower desired investment.

Question 6

A firm has current and future marginal productivity of capital given by MPK = 10,000 - 2K + N,and marginal productivity of labor given by MPN = 50 - 2N + K.The price of capital is $5,000,the real interest rate is 10%,and capital depreciates at a 15% rate.The real wage rate is $15.
(a)Calculate the user cost of capital.
(b)Find the firm's optimal amount of employment and the size of the capital stock.

Accepted Answer

(a)uc = (r + d @#IMG-DLM& )= 0.25 × $5000 = $1250.

Question 7

Sally will earn $30,000 this year and $40,000 next year.The real interest rate is 20% between this year and next year; she can borrow or lend at this rate.She has no wealth at the start of this year and plans to finish next year having consumed everything she possibly can.She would like to consume the same amount this year as next year.The inflation rate is 0%.
(a)How much should Sally save this year? How much will Sally consume in each of the two years?
(c)How would your answers change if the real interest rate was 40%?

Accepted Answer

In general,S = Y(1)- C(1).So in year 2,s

Question 8

The fraction of additional current income that a person consumes in the current period is known as the

Accepted Answer

A) consumption-smoothing motive. 
B) consumption deficit. 
C) saving rate. 
D) marginal propensity to consume. 
A) consumption-smoothing motive. 
B) consumption deficit. 
C) saving rate. 
D) marginal propensity to consume.

Question 9

David consumes 200 in the current period and 330 in the future period.The real interest rate is 10% per period.David's present value of lifetime consumption is

Accepted Answer

A) 500. 
B) 530. 
C) 550. 
D) 563. 
A) 500. 
B) 530. 
C) 550. 
D) 563.

Question 10

Your firm has capital stock of $10 million and a depreciation rate of 15%.Gross investment is $3 million.How much is net investment?

Accepted Answer

A) $1.5 million 
B) $2.0 million 
C) $2.5 million 
D) $3.5 million 
A) $1.5 million 
B) $2.0 million 
C) $2.5 million 
D) $3.5 million

Question 11

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 after-tax nominal 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 12

Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a 25% rate,when the nominal interest rate is 5% and the expected inflation rate is 10%.

Accepted Answer

A) $5,000 
B) $1500 
C) $1000 
D) $100 
A) $5,000 
B) $1500 
C) $1000 
D) $100

Question 13

The relationship between stock prices and firms' investments in physical capital is captured by what theory?

Accepted Answer

A) User-cost-of-capital theory 
B) q theory 
C) Yield-curve theory 
D) Keynesian theory 
A) User-cost-of-capital theory 
B) q theory 
C) Yield-curve theory 
D) Keynesian theory

Question 14

Calculate the user cost of capital of a machine that costs $100,000 and depreciates at a rate of 25%,when the nominal interest rate is 4% and the expected inflation rate is 1%.

Accepted Answer

A) $3,000 
B) $25,000 
C) $28,000 
D) $29,000 
A) $3,000 
B) $25,000 
C) $28,000 
D) $29,000

Question 15

When a person receives an increase in wealth,what is likely to happen to consumption and saving?

Accepted Answer

A) Consumption increases and saving increases. 
B) Consumption increases and saving decreases. 
C) Consumption decreases and saving increases. 
D) Consumption decreases and saving decreases. 
A) Consumption increases and saving increases. 
B) Consumption increases and saving decreases. 
C) Consumption decreases and saving increases. 
D) Consumption decreases and saving decreases.

Question 16

Onerous regulations on businesses that take effect next year (in a closed economy)reduce businesses' expected future marginal product of capital.As a result,the real interest rate ________ and saving ________.

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 17

Calculate the user cost of capital of a machine that costs $5,000 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 18

Cummins,Hubbard,and Hassett studied the effects of taxes on investment by

Accepted Answer

A) seeing if investment spending is correlated with taxes on investment. 
B) examining what happened to investment when major tax reforms took place. 
C) raising tax rates on certain businesses and testing their reaction. 
D) raising tax rates on equipment and reducing tax rates on structures. 
A) seeing if investment spending is correlated with taxes on investment. 
B) examining what happened to investment when major tax reforms took place. 
C) raising tax rates on certain businesses and testing their reaction. 
D) raising tax rates on equipment and reducing tax rates on structures.

Question 19

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 20

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

Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a rate of 25%,when the expected real interest rate is 5%.

An economy has government purchases of 2000.Desired national saving and desired investment are given by = 200 + 5000r + 0.10Y - 0.20G = 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

Desired national saving equals

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?

An increase in the expected real interest rate tends to

The fraction of additional current income that a person consumes in the current period is known as the

David consumes 200 in the current period and 330 in the future period.The real interest rate is 10% per period.David's present value of lifetime consumption is

Your firm has capital stock of $10 million and a depreciation rate of 15%.Gross investment is $3 million.How much is net investment?

Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a 25% rate,when the nominal interest rate is 5% and the expected inflation rate is 10%.

The relationship between stock prices and firms' investments in physical capital is captured by what theory?

Calculate the user cost of capital of a machine that costs $100,000 and depreciates at a rate of 25%,when the nominal interest rate is 4% and the expected inflation rate is 1%.

When a person receives an increase in wealth,what is likely to happen to consumption and saving?

Onerous regulations on businesses that take effect next year (in a closed economy)reduce businesses' expected future marginal product of capital.As a result,the real interest rate and saving .

Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a rate of 25%,when the nominal interest rate is 10% and the expected inflation rate is 5%.

Cummins,Hubbard,and Hassett studied the effects of taxes on investment by

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

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

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-LM/AD-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

Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a rate of 25%,when the expected real interest rate is 5%.

An economy has government purchases of 2000.Desired national saving and desired investment are given by = 200 + 5000r + 0.10Y - 0.20G = 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

Desired national saving equals

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?

An increase in the expected real interest rate tends to

The fraction of additional current income that a person consumes in the current period is known as the

David consumes 200 in the current period and 330 in the future period.The real interest rate is 10% per period.David's present value of lifetime consumption is

Your firm has capital stock of $10 million and a depreciation rate of 15%.Gross investment is $3 million.How much is net investment?

Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a 25% rate,when the nominal interest rate is 5% and the expected inflation rate is 10%.

The relationship between stock prices and firms' investments in physical capital is captured by what theory?

Calculate the user cost of capital of a machine that costs $100,000 and depreciates at a rate of 25%,when the nominal interest rate is 4% and the expected inflation rate is 1%.

When a person receives an increase in wealth,what is likely to happen to consumption and saving?

Onerous regulations on businesses that take effect next year (in a closed economy)reduce businesses' expected future marginal product of capital.As a result,the real interest rate ________ and saving ________.

Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a rate of 25%,when the nominal interest rate is 10% and the expected inflation rate is 5%.

Cummins,Hubbard,and Hassett studied the effects of taxes on investment by

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

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

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-LM/AD-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

Onerous regulations on businesses that take effect next year (in a closed economy)reduce businesses' expected future marginal product of capital.As a result,the real interest rate and saving .

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