Question 1

Inventory investment includes spending on:

Accepted Answer

A) equipment and structures that businesses buy to use in production. 
B) goods that businesses put aside in storage, including materials and supplies, work in progress, and finished goods. 
C) goods that businesses produce to sell to other businesses. 
D) capital equipment less depreciation expense. 
A) equipment and structures that businesses buy to use in production. 
B) goods that businesses put aside in storage, including materials and supplies, work in progress, and finished goods. 
C) goods that businesses produce to sell to other businesses. 
D) capital equipment less depreciation expense.

Question 2

The investment spending component of GDP includes all of the following except:

Accepted Answer

A) business fixed investment. 
B) net foreign investment. 
C) residential investment. 
D) inventory investment. 
A) business fixed investment. 
B) net foreign investment. 
C) residential investment. 
D) inventory investment.

Question 3

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

Accepted Answer

A) marginal product of capital falls. 
B) price of new capital goods rises. 
C) real interest rate falls. 
D) depreciation rate rises. 
A) marginal product of capital falls. 
B) price of new capital goods rises. 
C) real interest rate falls. 
D) depreciation rate rises.

Question 4

The inventories as a factor of production motive for holding inventories suggests that:

Accepted Answer

A) firms hold inventories in order to produce more output. 
B) when sales are low, firms produce more than they sell and put the extra goods in inventories. 
C) firms hold inventories to avoid losing sales. 
D) when a product is only partly completed, its components are counted as part of the firm's inventory. 
A) firms hold inventories in order to produce more output. 
B) when sales are low, firms produce more than they sell and put the extra goods in inventories. 
C) firms hold inventories to avoid losing sales. 
D) when a product is only partly completed, its components are counted as part of the firm's inventory.

Question 5

According to the efficient-market hypothesis, changes in stock prices are:

Accepted Answer

A) driven by irrational waves of optimism. 
B) driven by irrational waves of pessimism. 
C) rational reflections of underlying economic fundamentals. 
D) possible to predict from available information. 
A) driven by irrational waves of optimism. 
B) driven by irrational waves of pessimism. 
C) rational reflections of underlying economic fundamentals. 
D) possible to predict from available information.

Question 6

According to the neoclassical model of investment, when the real interest rate increases, business fixed investment
Because the of capital increases.

Accepted Answer

A) increases; marginal product 
B) increases; cost 
C) decreases; marginal product 
D) decreases; cost 
A) increases; marginal product 
B) increases; cost 
C) decreases; marginal product 
D) decreases; cost

Question 7

Loans made to subprime borrowers in the early 2000s had the immediate impact of housing demand and
Housing prices.

Accepted Answer

A) increasing; increasing 
B) increasing; decreasing 
C) decreasing; decreasing 
D) decreasing; increasing 
A) increasing; increasing 
B) increasing; decreasing 
C) decreasing; decreasing 
D) decreasing; increasing

Question 8

A firm renting out capital does not bear as cost the:

Accepted Answer

A) lost interest it could have earned by depositing the purchase price of the capital in a bank. 
B) wear and tear on the capital. 
C) wages of the labor that works with the capital. 
D) capital loss or gain in the asset's value. 
A) lost interest it could have earned by depositing the purchase price of the capital in a bank. 
B) wear and tear on the capital. 
C) wages of the labor that works with the capital. 
D) capital loss or gain in the asset's value.

Question 9

The corporate income tax is a tax on the:

Accepted Answer

A) earnings of employees of a corporation. 
B) dividends paid to the shareholders of a corporation. 
C) earnings of the managers of a corporation. 
D) profits of a corporation. 
A) earnings of employees of a corporation. 
B) dividends paid to the shareholders of a corporation. 
C) earnings of the managers of a corporation. 
D) profits of a corporation.

Question 10

The construction a new shopping center is an example of:

Accepted Answer

A) business fixed investment. 
B) residential investment. 
C) inventory.investment. 
D) financial investment. 
A) business fixed investment. 
B) residential investment. 
C) inventory.investment. 
D) financial investment.

Question 11

If firms are earning a profit, then this raises the value of installed capital and implies a value of Tobin's
Q)

Accepted Answer

A) market; low 
B) market; high 
C) replacement; low 
D) replacement; high 
A) market; low 
B) market; high 
C) replacement; low 
D) replacement; high

Question 12

The theory behind Tobin's q indicates that:

Accepted Answer

A) the stock market may be expected to predict every turning point in real GDP. 
B) the stock market may be expected to be closely tied to fluctuations in output and employment. 
C) every time investment goes up we would expect the stock market to go down. 
D) the stock market and the economy are basically independent of each other. 
A) the stock market may be expected to predict every turning point in real GDP. 
B) the stock market may be expected to be closely tied to fluctuations in output and employment. 
C) every time investment goes up we would expect the stock market to go down. 
D) the stock market and the economy are basically independent of each other.

Question 13

If corporate profit were defined as the real price of capital minus the properly defined cost of capital, then:

Accepted Answer

A) having a tax on corporate profits would be more favorable to investment than having no tax at all. 
B) having a tax on corporate profits would be less favorable to investment than having no tax at all. 
C) having a tax on corporate profits would leave investment incentives the same as having no tax at all. 
D) whether a corporate profits tax was more or less favorable for investment than no tax at all would depend on the rate of tax. 
A) having a tax on corporate profits would be more favorable to investment than having no tax at all. 
B) having a tax on corporate profits would be less favorable to investment than having no tax at all. 
C) having a tax on corporate profits would leave investment incentives the same as having no tax at all. 
D) whether a corporate profits tax was more or less favorable for investment than no tax at all would depend on the rate of tax.

Question 14

If the real rental price of capital is $10,000 per unit and the real cost of capital is $9,000 per unit, to maximize profits a firm should:

Accepted Answer

A) add to its capital stock. 
B) let its capital stock shrink. 
C) keep its capital stock unchanged. 
D) reduce the real rental price of capital. 
A) add to its capital stock. 
B) let its capital stock shrink. 
C) keep its capital stock unchanged. 
D) reduce the real rental price of capital.

Question 15

Inventory investment is the component of aggregate spending and very .

Accepted Answer

A) largest; volatile 
B) largest; stable 
C) smallest; volatile 
D) smallest; stable 
A) largest; volatile 
B) largest; stable 
C) smallest; volatile 
D) smallest; stable

Question 16

During a banking crisis and credit crunch, the curve shifts leftward, resulting in a(n) in aggregate demand, production, and employment.

Accepted Answer

A) IS; increase 
B) IS; decrease 
C) LM; increase 
D) LM; decrease 
A) IS; increase 
B) IS; decrease 
C) LM; increase 
D) LM; decrease

Question 17

Inventory investment, at least in theory, should:

Accepted Answer

A) rise when the real interest rate rises, other things being equal. 
B) not depend on the real interest rate, other things being equal. 
C) fall when the real interest rate rises, other things being equal. 
D) depend only on the change in real GDP. 
A) rise when the real interest rate rises, other things being equal. 
B) not depend on the real interest rate, other things being equal. 
C) fall when the real interest rate rises, other things being equal. 
D) depend only on the change in real GDP.

Question 18

The most volatile component of real GDP is:

Accepted Answer

A) consumption spending. 
B) government spending. 
C) investment spending. 
D) net exports. 
A) consumption spending. 
B) government spending. 
C) investment spending. 
D) net exports.

Question 19

A toy manufacturer accumulates inventories because of the uncertainty of the demand for their product at Christmas and the desire not to lose any potential sales. This is an example of the motive for holding inventories.

Accepted Answer

A) production smoothing 
B) inventories as a factor of production 
C) stock-out avoidance 
D) work in progress 
A) production smoothing 
B) inventories as a factor of production 
C) stock-out avoidance 
D) work in progress

Question 20

For a firm facing financing constraints on its investment spending, the most important determinant of how much it invests is the:

Accepted Answer

A) firm's expected future profitability. 
B) firm's current profitability. 
C) interest rate. 
D) firm's cost of capital. 
A) firm's expected future profitability. 
B) firm's current profitability. 
C) interest rate. 
D) firm's cost of capital.

Inventory investment includes spending on:

The investment spending component of GDP includes all of the following except:

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

The inventories as a factor of production motive for holding inventories suggests that:

According to the efficient-market hypothesis, changes in stock prices are:

According to the neoclassical model of investment, when the real interest rate increases, business fixed investment Because the of capital increases.

Loans made to subprime borrowers in the early 2000s had the immediate impact of housing demand and Housing prices.

A firm renting out capital does not bear as cost the:

The corporate income tax is a tax on the:

The construction a new shopping center is an example of:

If firms are earning a profit, then this raises the value of installed capital and implies a value of Tobin's Q)

The theory behind Tobin's q indicates that:

If corporate profit were defined as the real price of capital minus the properly defined cost of capital, then:

If the real rental price of capital is $10,000 per unit and the real cost of capital is $9,000 per unit, to maximize profits a firm should:

Inventory investment is the component of aggregate spending and very .

During a banking crisis and credit crunch, the curve shifts leftward, resulting in a(n) in aggregate demand, production, and employment.

Inventory investment, at least in theory, should:

The most volatile component of real GDP is:

A toy manufacturer accumulates inventories because of the uncertainty of the demand for their product at Christmas and the desire not to lose any potential sales. This is an example of the motive for holding inventories.

For a firm facing financing constraints on its investment spending, the most important determinant of how much it invests is the:

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

A Macroeconomic Theory of the Open Economy

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Exam 18: Open-Economy Macroeconomics: Basic Concepts

Inventory investment includes spending on:

The investment spending component of GDP includes all of the following except:

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

The inventories as a factor of production motive for holding inventories suggests that:

According to the efficient-market hypothesis, changes in stock prices are:

According to the neoclassical model of investment, when the real interest rate increases, business fixed investment Because the of capital increases.

Loans made to subprime borrowers in the early 2000s had the immediate impact of housing demand and Housing prices.

A firm renting out capital does not bear as cost the:

The corporate income tax is a tax on the:

The construction a new shopping center is an example of:

If firms are earning a profit, then this raises the value of installed capital and implies a value of Tobin's Q)

The theory behind Tobin's q indicates that:

If corporate profit were defined as the real price of capital minus the properly defined cost of capital, then:

If the real rental price of capital is $10,000 per unit and the real cost of capital is $9,000 per unit, to maximize profits a firm should:

Inventory investment is the component of aggregate spending and very .

During a banking crisis and credit crunch, the curve shifts leftward, resulting in a(n) in aggregate demand, production, and employment.

Inventory investment, at least in theory, should:

The most volatile component of real GDP is:

A toy manufacturer accumulates inventories because of the uncertainty of the demand for their product at Christmas and the desire not to lose any potential sales. This is an example of the motive for holding inventories.

For a firm facing financing constraints on its investment spending, the most important determinant of how much it invests is the:

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

A Macroeconomic Theory of the Open Economy

Filters