Question 1

Any change in the economy that raises 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.

Question 2

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

Accepted Answer

A) $5000 
B) $1500 
C) $1000 
D) $100

Question 3

If an investor has a tax rate on interest income of 25% and the inflation rate is 4%,which bond has the lowest expected real after-tax interest rate?

Accepted Answer

A) A Treasury bond paying 9% 
B) A corporate bond paying 8% 
C) A Treasury bond paying 7% 
D) A municipal bond paying 6%

Question 4

Suppose your company is in equilibrium,with its capital stock at its desired level.A permanent decline in the expected real interest 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

Question 5

When a company must consider taxes in determining investment,its desired capital stock is chosen such that

Accepted Answer

A) MPKf = uc(1 - t) 
B) MPKf = uc/(1 - t) 
C) MPKf = t × uc 
D) t × MPKf = uc

Question 6

At the start of the year,your firm's capital stock equaled $100 million,and at the end of the year it equaled $105 million.The average depreciation rate on your capital stock is 20%.Gross investment during the year equaled

Accepted Answer

A) $1 million. 
B) $5 million. 
C) $7 million. 
D) $25 million.

Question 7

The user cost of capital is given by the following formula,where pK is the real price of capital goods,d is the depreciation rate,and r is the expected real interest rate.

Accepted Answer

A) uc = (r + d)/pK 
B) uc = pK/(r + d) 
C) uc = dpK/r 
D) uc = (r + d)pK

Question 8

In forecasting consumer spending using surveys of consumer confidence,research suggests that

Accepted Answer

A) the forecasts are improved when using consumer confidence measures. 
B) the forecasts are not improved when using consumer confidence measures. 
C) the forecasts are improved when using consumer confidence measures for forecasts made during recessions, but not expansions. 
D) the forecasts are not improved when using consumer confidence measures for forecasts made during expansions, but not recessions.

Question 9

A firm should invest more if Tobin's q

Accepted Answer

A) equals zero. 
B) is less than one. 
C) equals one. 
D) is more than one.

Exam 4: Consumption, saving, and Investment