Question 1

The Q-theory of investment was originally developed by

Accepted Answer

A)  Paul Samuelson. 
B)  John Maynard Keynes. 
C)  James Tobin. 
D)  Dale Jorgenson. 
A)  Paul Samuelson. 
B)  John Maynard Keynes. 
C)  James Tobin. 
D)  Dale Jorgenson. C

Question 2

Why does investment spending rise and fall with the overall level of GDP in the economy?

Accepted Answer

If firms believe that GDP will continue to increase into the future, they may want to invest in anticipation of high future demand for their products.Similarly, if GDP falls and firms believe that this will continue into the future, they are less likely to invest, as their expectation of the future seems less lucrative.

Question 3

If you want to purchase a new sailboat in two years for $9,000, how much would you presently need to have in your bank account to have $9,000 in two years? Assume your bank account pays 3 percent interest.

Accepted Answer

A)  $8,484 
B)  $8,613 
C)  $8,738 
D)  $8,822 
A)  $8,484 
B)  $8,613 
C)  $8,738 
D)  $8,822 A

Question 4

Table 12.2
Returns on Investment
  
-If Table 12.2 represents all the investments available to the economy, the nominal interest rate is 2.5 percent and there is no inflation, what will be the level of investment in the economy?

Accepted Answer

A)  $0 
B)  $200 
C)  $600 
D)  $900 
A)  $0 
B)  $200 
C)  $600 
D)  $900

Question 5

The payoffs resulting from new investment

Accepted Answer

A)  occur in the future and are known with certainty. 
B)  occur in the present and are known with certainty. 
C)  occur in the future but are not known with certainty. 
D)  depend only on current profits. 
A)  occur in the future and are known with certainty. 
B)  occur in the present and are known with certainty. 
C)  occur in the future but are not known with certainty. 
D)  depend only on current profits.

Question 6

The real-nominal principle can be stated as

Accepted Answer

A)  production generates income. 
B)  only final goods and services should be counted in GDP. 
C)  what matters to people is the purchasing power of money or income. 
D)  only the manufacture of real goods is production. 
A)  production generates income. 
B)  only final goods and services should be counted in GDP. 
C)  what matters to people is the purchasing power of money or income. 
D)  only the manufacture of real goods is production.

Question 7

When a firm has earnings it has not yet paid out to the owners, those earnings are called

Accepted Answer

A)  surplus capital. 
B)  cash reserves. 
C)  retained earnings. 
D)  unearned income. 
A)  surplus capital. 
B)  cash reserves. 
C)  retained earnings. 
D)  unearned income.

Question 8

Recall the Application about energy price uncertainty and its impact on investment spending and GDP growth to answer the following question(s). Increases in oil prices can lead to a drop in GDP. However, uncertainty about oil prices is also an important factor. The volatility of oil prices creates uncertainty for firms making investment decisions, and adversely affects GDP growth.
-This application addresses the idea that

Accepted Answer

A)  financial intermediaries facilitate investment spending. 
B)  government spending is needed to pull an economy out of a recession. 
C)  investment spending is the least stable component of GDP. 
D)  consumer spending is the most stable component of GDP. 
A)  financial intermediaries facilitate investment spending. 
B)  government spending is needed to pull an economy out of a recession. 
C)  investment spending is the least stable component of GDP. 
D)  consumer spending is the most stable component of GDP.

Question 9

Compared to consumption, investment is a much ________ component of GDP and is much more ________.

Accepted Answer

A)  larger; stable 
B)  smaller; stable 
C)  larger; volatile 
D)  smaller; volatile 
A)  larger; stable 
B)  smaller; stable 
C)  larger; volatile 
D)  smaller; volatile

Question 10

The theory of investment that emphasizes the role of expected growth in real GDP on investment spending is known as

Accepted Answer

A)  real business cycle theory. 
B)  the theory of animal spirits. 
C)  the accelerator theory. 
D)  the multiplier theory. 
A)  real business cycle theory. 
B)  the theory of animal spirits. 
C)  the accelerator theory. 
D)  the multiplier theory.

Question 11

Financial intermediaries

Accepted Answer

A)  increase the risks associated with investment. 
B)  increase the costs associated with investment. 
C)  allow for a greater volume of investment in the economy. 
D)  only provide services for the wealthy. 
A)  increase the risks associated with investment. 
B)  increase the costs associated with investment. 
C)  allow for a greater volume of investment in the economy. 
D)  only provide services for the wealthy.

Question 12

The security provided by the federal government on money in banks is called

Accepted Answer

A)  social security. 
B)  deposit insurance. 
C)  investment equity. 
D)  a hedge fund. 
A)  social security. 
B)  deposit insurance. 
C)  investment equity. 
D)  a hedge fund.

Question 13

Which of the following is an example of risk diversification?

Accepted Answer

A)  an insurance company writing earthquake insurance only for the Los Angeles area 
B)  an individual investing all of her savings in a single, new firm 
C)  an individual purchasing only IBM stock 
D)  a lumber mill purchasing trees from various forests across the western United States 
A)  an insurance company writing earthquake insurance only for the Los Angeles area 
B)  an individual investing all of her savings in a single, new firm 
C)  an individual purchasing only IBM stock 
D)  a lumber mill purchasing trees from various forests across the western United States

Question 14

Explain why it is difficult to determine expected real rates of interest.

Accepted Answer

It is difficult to determine expected re

Question 15

All other things being equal, when the level of the stock market is ________, investment spending ________.

Accepted Answer

A)  high; tends to be high 
B)  high; tends to be low 
C)  low; tends to be high 
D)  high or low; does not seem to change 
A)  high; tends to be high 
B)  high; tends to be low 
C)  low; tends to be high 
D)  high or low; does not seem to change

Question 16

The price of a stock is equal to the present value of expected future dividend payments from the stock.

Accepted Answer

A) True 
 B)False

Question 17

Financial intermediaries are institutions that facilitate the movement of funds from savers to investors because they

Accepted Answer

A)  eliminate the costs of negotiating such transactions. 
B)  eliminate risks. 
C)  provide liquidity. 
D)  guarantee positive returns on investments. 
A)  eliminate the costs of negotiating such transactions. 
B)  eliminate risks. 
C)  provide liquidity. 
D)  guarantee positive returns on investments.

Question 18

The present value of a payment K that is schedule to be received t periods from now is

Accepted Answer

A)  K / (1 + i)t. 
B)  K - i / (1 + i)t. 
C)  K / (1 - i)k. 
D)  K / (K + i)t. 
A)  K / (1 + i)t. 
B)  K - i / (1 + i)t. 
C)  K / (1 - i)k. 
D)  K / (K + i)t.

Question 19

Retained earnings are corporate earnings that are paid as dividends to stockholders.

Accepted Answer

A) True 
 B)False

Question 20

In the late 1970s, savings and loans institutions were in financial trouble because they

Accepted Answer

A)  had to pay high interest rates to attract depositors, but were earning low interest rates from past investments. 
B)  had to pay low interest rates to attract depositors, but were earning low interest rates from past investments. 
C)  had to pay high interest rates to attract depositors, but were earning high interest rates from past investments. 
D)  had to pay low interest rates to attract depositors, but were earning high interest rates from past investments. 
A)  had to pay high interest rates to attract depositors, but were earning low interest rates from past investments. 
B)  had to pay low interest rates to attract depositors, but were earning low interest rates from past investments. 
C)  had to pay high interest rates to attract depositors, but were earning high interest rates from past investments. 
D)  had to pay low interest rates to attract depositors, but were earning high interest rates from past investments.

The Q-theory of investment was originally developed by

Why does investment spending rise and fall with the overall level of GDP in the economy?

If you want to purchase a new sailboat in two years for $9,000, how much would you presently need to have in your bank account to have $9,000 in two years? Assume your bank account pays 3 percent interest.

Table 12.2 Returns on Investment -If Table 12.2 represents all the investments available to the economy, the nominal interest rate is 2.5 percent and there is no inflation, what will be the level of investment in the economy?

The payoffs resulting from new investment

The real-nominal principle can be stated as

When a firm has earnings it has not yet paid out to the owners, those earnings are called

Compared to consumption, investment is a much component of GDP and is much more .

The theory of investment that emphasizes the role of expected growth in real GDP on investment spending is known as

Financial intermediaries

The security provided by the federal government on money in banks is called

Which of the following is an example of risk diversification?

Explain why it is difficult to determine expected real rates of interest.

All other things being equal, when the level of the stock market is , investment spending .

The price of a stock is equal to the present value of expected future dividend payments from the stock.

Financial intermediaries are institutions that facilitate the movement of funds from savers to investors because they

The present value of a payment K that is schedule to be received t periods from now is

Retained earnings are corporate earnings that are paid as dividends to stockholders.

In the late 1970s, savings and loans institutions were in financial trouble because they

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow?

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 12: Investment and Financial Markets

The Q-theory of investment was originally developed by

Why does investment spending rise and fall with the overall level of GDP in the economy?

If you want to purchase a new sailboat in two years for $9,000, how much would you presently need to have in your bank account to have $9,000 in two years? Assume your bank account pays 3 percent interest.

Table 12.2 Returns on Investment -If Table 12.2 represents all the investments available to the economy, the nominal interest rate is 2.5 percent and there is no inflation, what will be the level of investment in the economy?

The payoffs resulting from new investment

The real-nominal principle can be stated as

When a firm has earnings it has not yet paid out to the owners, those earnings are called

Compared to consumption, investment is a much ________ component of GDP and is much more ________.

The theory of investment that emphasizes the role of expected growth in real GDP on investment spending is known as

Financial intermediaries

The security provided by the federal government on money in banks is called

Which of the following is an example of risk diversification?

Explain why it is difficult to determine expected real rates of interest.

All other things being equal, when the level of the stock market is ________, investment spending ________.

The price of a stock is equal to the present value of expected future dividend payments from the stock.

Financial intermediaries are institutions that facilitate the movement of funds from savers to investors because they

The present value of a payment K that is schedule to be received t periods from now is

Retained earnings are corporate earnings that are paid as dividends to stockholders.

In the late 1970s, savings and loans institutions were in financial trouble because they

Introduction: What Is Economics?

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nation's Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow?

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Income-Expenditure Model

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Compared to consumption, investment is a much component of GDP and is much more .

All other things being equal, when the level of the stock market is , investment spending .