Question 1

The opportunity cost of holding inventories is the:

Accepted Answer

A) real interest rate. 
B) nominal interest rate. 
C) raw materials used up in the production of inventories. 
D) labor used in the production of inventories. 
A) real interest rate. 
B) nominal interest rate. 
C) raw materials used up in the production of inventories. 
D) labor used in the production of inventories.

Question 2

According to the neoclassical model of investment, business fixed investment does not depend on:

Accepted Answer

A) the realized profits of firms. 
B) the marginal product of capital. 
C) the interest rate. 
D) tax rules affecting firms. 
A) the realized profits of firms. 
B) the marginal product of capital. 
C) the interest rate. 
D) tax rules affecting firms.

Question 3

Because of the way that U.S. tax law defines depreciation, depreciation for tax purposes is:

Accepted Answer

A) always less than true economic depreciation. 
B) always greater than true economic 
C) depreciation. always equal to true economic depreciation. 
D) sometimes greater than true economic depreciation and sometimes less. 
A) always less than true economic depreciation. 
B) always greater than true economic 
C) depreciation. always equal to true economic depreciation. 
D) sometimes greater than true economic depreciation and sometimes less.

Question 4

Tobin's q equals the:

Accepted Answer

A) cost of buying and renting out one unit of capital measured in units of the economy's output. 
B) marginal product of capital minus the cost of capital. 
C) ratio of the replacement value of installed capital to the market value of installed capital. 
D) ratio of the market value of installed capital to the replacement cost of installed capital. 
A) cost of buying and renting out one unit of capital measured in units of the economy's output. 
B) marginal product of capital minus the cost of capital. 
C) ratio of the replacement value of installed capital to the market value of installed capital. 
D) ratio of the market value of installed capital to the replacement cost of installed capital.

Question 5

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:

Accepted Answer

A) add to capital stock. 
B) let capital stock shrink. 
C) keep capital stock unchanged. 
D) reduce product prices to increase profits. 
A) add to capital stock. 
B) let capital stock shrink. 
C) keep capital stock unchanged. 
D) reduce product prices to increase profits.

Question 6

The investment tax credit:

Accepted Answer

A) enables a firm to deduct a certain proportion of each dollar spent on capital goods from its profits. 
B) enables a firm to deduct a certain proportion of each dollar spent on capital goods from its tax bill. 
C) reduces the corporate tax rate in proportion to each dollar spent on capital goods. 
D) allows a firm to count a certain proportion of each dollar spent on capital goods as depreciation expense. 
A) enables a firm to deduct a certain proportion of each dollar spent on capital goods from its profits. 
B) enables a firm to deduct a certain proportion of each dollar spent on capital goods from its tax bill. 
C) reduces the corporate tax rate in proportion to each dollar spent on capital goods. 
D) allows a firm to count a certain proportion of each dollar spent on capital goods as depreciation expense.

Question 7

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

Accepted Answer

A) follow a random walk. 
B) can be predicted from available information. 
C) are driven by irrational waves of optimism and pessimism. 
D) are based on what investors expect other investors to pay. 
A) follow a random walk. 
B) can be predicted from available information. 
C) are driven by irrational waves of optimism and pessimism. 
D) are based on what investors expect other investors to pay.

Question 8

Business fixed investment, residential investment, and inventory investment as the real interest rate increases and as output increases.

Accepted Answer

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

Question 9

How will a decrease in output during a recession affect:
a. business fixed investment?
b. residential investment?
c. inventory investment?

Accepted Answer

a. Lower output reduces employment and t

Question 10

The stock-out avoidance 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 11

Holding other factors constant, the decline in aggregate income during a recession will the price of housing and the flow of residential housing investment.

Accepted Answer

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

Question 12

Economic booms should stimulate investment spending because during booms:

Accepted Answer

A) the real interest rate increases. 
B) corporate tax rates usually increase. 
C) the purchase price of capital increases. 
D) higher levels of employment increase the marginal product of capital. 
A) the real interest rate increases. 
B) corporate tax rates usually increase. 
C) the purchase price of capital increases. 
D) higher levels of employment increase the marginal product of capital.

Question 13

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

Accepted Answer

A) an improvement in technology raises the marginal product of capital. 
B) an increase in population raises the demand for housing. 
C) an increase in government spending raises the real interest rate. 
D) the investment tax credit is reinstated. 
A) an improvement in technology raises the marginal product of capital. 
B) an increase in population raises the demand for housing. 
C) an increase in government spending raises the real interest rate. 
D) the investment tax credit is reinstated.

Question 14

If Tobin's q is greater than 1, then managers should:

Accepted Answer

A) increase the capital stock of the firm. 
B) maintain the existing capital stock of the firm. 
C) allow inventories to run down. 
D) decrease the capital stock of the firm. 
A) increase the capital stock of the firm. 
B) maintain the existing capital stock of the firm. 
C) allow inventories to run down. 
D) decrease the capital stock of the firm.

Question 15

Holding other factors constant, a decline in the real interest rate will the price of housing and the flow of residential housing investment.

Accepted Answer

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

Question 16

According to the efficient-market hypothesis, stock price changes reflect , but according to Keynes, stock price changes often reflect .

Accepted Answer

A) the inventory accelerator; changes in Tobin's q 
B) changes in the real cost of capital; financing constraints 
C) changes in the underlying economic fundamentals; irrational waves of optimism or pessimism 
D) reductions in investment tax credits; the use of historical cost rather than replacement cost in computing depreciation costs 
A) the inventory accelerator; changes in Tobin's q 
B) changes in the real cost of capital; financing constraints 
C) changes in the underlying economic fundamentals; irrational waves of optimism or pessimism 
D) reductions in investment tax credits; the use of historical cost rather than replacement cost in computing depreciation costs

Question 17

Holding other factors constant, an increase in population due to a large increase in immigrants will the price of housing and the flow of residential housing investment.

Accepted Answer

A) increase; increase 
D) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
A) increase; increase 
D) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Question 18

In equilibrium, other things being equal, all of the following changes will increase the real rental price of capital except:

Accepted Answer

A) a lower quantity of labor employed. 
B) a lower stock of capital. 
C) better technology. 
D) a higher labor-capital ratio. 
A) a lower quantity of labor employed. 
B) a lower stock of capital. 
C) better technology. 
D) a higher labor-capital ratio.

Question 19

The demand for housing is brought into equilibrium with the existing stock of housing by changes in the:

Accepted Answer

A) real interest rate. nominal 
B) interest rate. relative 
C) price of housing. overall 
D) price level. 
A) real interest rate. nominal 
B) interest rate. relative 
C) price of housing. overall 
D) price level.

Question 20

The real interest rate should be inversely related to investment in:

Accepted Answer

A) plant and equipment, home building, and inventories. 
B) plant and equipment and home building, but not inventories. 
C) plant and equipment and inventories, but not home building. 
D) inventories and home building, but not plant and equipment. 
A) plant and equipment, home building, and inventories. 
B) plant and equipment and home building, but not inventories. 
C) plant and equipment and inventories, but not home building. 
D) inventories and home building, but not plant and equipment.

The opportunity cost of holding inventories is the:

According to the neoclassical model of investment, business fixed investment does not depend on:

Because of the way that U.S. tax law defines depreciation, depreciation for tax purposes is:

Tobin's q equals the:

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:

The investment tax credit:

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

Business fixed investment, residential investment, and inventory investment as the real interest rate increases and as output increases.

How will a decrease in output during a recession affect: a. business fixed investment? b. residential investment? c. inventory investment?

The stock-out avoidance motive for holding inventories suggests that:

Holding other factors constant, the decline in aggregate income during a recession will the price of housing and the flow of residential housing investment.

Economic booms should stimulate investment spending because during booms:

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

If Tobin's q is greater than 1, then managers should:

Holding other factors constant, a decline in the real interest rate will the price of housing and the flow of residential housing investment.

According to the efficient-market hypothesis, stock price changes reflect , but according to Keynes, stock price changes often reflect .

Holding other factors constant, an increase in population due to a large increase in immigrants will the price of housing and the flow of residential housing investment.

In equilibrium, other things being equal, all of the following changes will increase the real rental price of capital except:

The demand for housing is brought into equilibrium with the existing stock of housing by changes in the:

The real interest rate should be inversely related to investment in:

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

Exam 18: Open-Economy Macroeconomics: Basic Concepts

The opportunity cost of holding inventories is the:

According to the neoclassical model of investment, business fixed investment does not depend on:

Because of the way that U.S. tax law defines depreciation, depreciation for tax purposes is:

Tobin's q equals the:

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:

The investment tax credit:

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

Business fixed investment, residential investment, and inventory investment as the real interest rate increases and as output increases.

How will a decrease in output during a recession affect: a. business fixed investment? b. residential investment? c. inventory investment?

The stock-out avoidance motive for holding inventories suggests that:

Holding other factors constant, the decline in aggregate income during a recession will the price of housing and the flow of residential housing investment.

Economic booms should stimulate investment spending because during booms:

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

If Tobin's q is greater than 1, then managers should:

Holding other factors constant, a decline in the real interest rate will the price of housing and the flow of residential housing investment.

According to the efficient-market hypothesis, stock price changes reflect , but according to Keynes, stock price changes often reflect .

Holding other factors constant, an increase in population due to a large increase in immigrants will the price of housing and the flow of residential housing investment.

In equilibrium, other things being equal, all of the following changes will increase the real rental price of capital except:

The demand for housing is brought into equilibrium with the existing stock of housing by changes in the:

The real interest rate should be inversely related to investment in:

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