Exam 19: The Microfoundations of Consumption and Investment

If the replacement cost of installed capital equals $20 trillion and the market value of installed capital equals $25 trillion, then according to q theory, businesses should:

When the capital stock reaches a steady state, the:

Milton Friedman argued that, over long periods of time, the average propensity to consume is constant because, over these long periods of time:

John Maynard Keynes believed that the average propensity to consume:

Economic booms should stimulate investment spending because during booms:

The function showing total spending on investment would be shifted inward and to the left by:

The profit rate of a firm that rents capital is equal to:

The life-cycle model predicts that if the proportion of the population that is elderly increases over the next 20 years, then the national saving rate _____ over the next 20 years.

During recessions, investment spending usually decreases because:

The cost of capital for investment, if the price of capital goods rises with the price of other goods, and in the absence of taxes, may be summarized as the:

The rate of depreciation is the:

The investment demand function would shift for all of the following reasons except:

According to the permanent-income hypothesis, if consumers receive a one-time income bonus, then they will:

According to Modigliani's life-cycle hypothesis, if a consumer wants equal consumption in every year, and the interest rate is zero, there are 40 years until retirement, and 60 years of life remaining, then the marginal propensity to consume out of income equals:

According to the neoclassical model of investment, the immediate impact of an earthquake that destroys part of the capital stock will be to:

The theory behind Tobin's q indicates that:

Economists based their prediction that secular stagnation would occur as economies prospered on the conjecture that:

Use the neoclassical model of business fixed investment to illustrate graphically how a hurricane that destroys a large amount of capital (holding other factors constant) would change the rental price of capital. If other factors remained unchanged, how would this change the quantity of investment spending in the economy?

Other things being equal, the neoclassical model of investment predicts that net investment will increase when the:

Assume that a car-rental company buys cars for $20,000 each and rents them out to other businesses. The company faces a nominal interest rate of 10 percent per year, and car prices are rising at 6 percent per year. If cars depreciate at 30 percent per year, what will be the company's cost of capital per car?