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

Accepted Answer

A) to the right and increase the real interest rate. 
B) to the right and decrease the real interest rate. 
C) to the left and increase the real interest rate. 
D) to the left and decrease the real interest rate. 
A) to the right and increase the real interest rate. 
B) to the right and decrease the real interest rate. 
C) to the left and increase the real interest rate. 
D) to the left and decrease the real interest rate. B

Question 2

The nominal interest rate is 10%,the expected inflation rate is 5%,and the combined state-federal tax is 35%.The expected real after-tax rate of return is

Accepted Answer

A) 1.50%. 
B) 3.25%. 
C) 5.00%. 
D) 6.50%. 
A) 1.50%. 
B) 3.25%. 
C) 5.00%. 
D) 6.50%. A

Question 3

A firm has current and future marginal productivity of capital given by MPK = 10,000 - 2K + N,and marginal productivity of labour given by MPN = 50 - 2N + K.The price of capital is $5,000,the real interest rate is 10%,and capital depreciates at a 15% rate.The real wage is $15.
a.Calculate the user cost of capital.
b.Find the firm's optimal amount of employment and the size of the capital stock.

Accepted Answer

a.uc = (r + d)pK = .25 × $5000 = $1250.
b.Setting w = MPN gives 15 = 50 - 2N + K,or 2N = 35 + K.Setting uc = MPK gives 1250 = 10,000 - 2K + N,or N = -8750 - 2K or 2N = -17,500 + 4K.Setting = 17,500 - 4K = 35 - K gives 3K = 17,535 which yields K = 5845.Then N = 2940.

Question 4

You are trying to figure out how much capacity to add to your factory.You will increase capacity as long as

Accepted Answer

A) the expected marginal product of capital is positive. 
B) the expected marginal product of capital is greater than or equal to the marginal product of capital. 
C) the expected marginal product of capital is greater than or equal to the expected marginal product of labour. 
D) the expected marginal product of capital is greater than or equal to the user cost of capital. 
A) the expected marginal product of capital is positive. 
B) the expected marginal product of capital is greater than or equal to the marginal product of capital. 
C) the expected marginal product of capital is greater than or equal to the expected marginal product of labour. 
D) the expected marginal product of capital is greater than or equal to the user cost of capital.

Question 5

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 
A) uc = (r + d)/PK 
B) uc = PK/(r + d) 
C) uc = dPK/r 
D) uc = (r + d)PK

Question 6

A higher real interest rate will

Accepted Answer

A) increase the profitability of new investment. 
B) decrease lending of funds from firms to other economic agents. 
C) reduce the desired investment of all firms. 
D) reduce the desired investment of only those firms that have to borrow. 
A) increase the profitability of new investment. 
B) decrease lending of funds from firms to other economic agents. 
C) reduce the desired investment of all firms. 
D) reduce the desired investment of only those firms that have to borrow.

Question 7

If the aggregate consumption function is C = 20 + 0.75 Y,the aggregate saving function will be

Accepted Answer

A) S = 20 - 0.75 Y. 
B) S = 20 + 0.75 Y. 
C) S = -20 + 0.75 Y. 
D) S = -20 + 0.25 Y. 
A) S = 20 - 0.75 Y. 
B) S = 20 + 0.75 Y. 
C) S = -20 + 0.75 Y. 
D) S = -20 + 0.25 Y.

Question 8

A temporary increase in government purchases of goods and services

Accepted Answer

A) increases desired investment. 
B) increases desired consumption. 
C) decreases desired consumption. 
D) increases desired saving. 
A) increases desired investment. 
B) increases desired consumption. 
C) decreases desired consumption. 
D) increases desired saving.

Question 9

An economy has government purchases of 2000.Desired national saving and desired investment are given by
Sᵈ = 200 + 5000r + 0.10 Y - 20G
Iᵈ = 1000 - 4000r
When the full-employment level of output equals 5000,then the real interest rate that clears the goods market will be

Accepted Answer

A) 7.78%. 
B) 10.00%. 
C) 14.44%. 
D) 23.33%. 
A) 7.78%. 
B) 10.00%. 
C) 14.44%. 
D) 23.33%.

Question 10

An economy has government purchases of 1000.Desired national saving and desired investment are given by
Sᵈ = 200 + 5000r + .10Y - .20G
Iᵈ = 1000 - 4000r
When the full-employment level of output equals 5000,then the real interest rate that clears the goods market will be

Accepted Answer

A) 1.11%. 
B) 5.56%. 
C) 16.67%. 
D) 21.11%. 
A) 1.11%. 
B) 5.56%. 
C) 16.67%. 
D) 21.11%.

Question 11

An invention that raises the future marginal product of capital would cause an increase in desired investment,which would cause the investment curve to shift to the ________ and would cause the real interest rate to ________.

Accepted Answer

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

Question 12

The nominal interest rate on taxable bonds is 8%,while on municipal bonds (which aren't taxable)it is 5%.The expected inflation rate is 3% and the tax rate on interest income is 40%.Calculate the expected after-tax real interest rate on both bonds.Which would be the better investment? Now suppose the actual inflation rate turned out to be 6%.Which bond was the better investment? Would your answer change if inflation had turned out to be 0%?

Accepted Answer

rₐ₋t (taxable bond)= (1 - .40)8% - 3% =

Question 13

What are the economic consequences of reductions in defense spending by the government? What happens to national saving,the interest rate,and investment?

Accepted Answer

The reduction in defense spending increa

Question 14

An increase in housing prices in Canada will likely have stronger effect on the aggregate consumption than a similar increase in the stock prices,because

Accepted Answer

A) there are more Canadian stockholders than Canadian homeowners. 
B) stock prices are far more volatile than the housing prices. 
C) changes in stock prices are seen as permanent changes in wealth. 
D) housing prices are more volatile than the stock prices. 
A) there are more Canadian stockholders than Canadian homeowners. 
B) stock prices are far more volatile than the housing prices. 
C) changes in stock prices are seen as permanent changes in wealth. 
D) housing prices are more volatile than the stock prices.

Question 15

When a person gets an increase in current income,what is likely to happen to consumption and saving?

Accepted Answer

A) Consumption increases and saving increases. 
B) Consumption increases and saving decreases. 
C) Consumption decreases and saving increases. 
D) Consumption decreases and saving decreases. 
A) Consumption increases and saving increases. 
B) Consumption increases and saving decreases. 
C) Consumption decreases and saving increases. 
D) Consumption decreases and saving decreases.

Question 16

The after-tax real interest rate

Accepted Answer

A) can only be positive. 
B) increases with expected inflation rates. 
C) decreases with nominal interest rate. 
D) can be negative. 
A) can only be positive. 
B) increases with expected inflation rates. 
C) decreases with nominal interest rate. 
D) can be negative.

Question 17

An increase in the expected real interest rate tends to

Accepted Answer

A) raise desired savings only. 
B) raise desired investment only. 
C) raise both desired savings and desired investment. 
D) raise desired savings,but lower desired investment. 
A) raise desired savings only. 
B) raise desired investment only. 
C) raise both desired savings and desired investment. 
D) raise desired savings,but lower desired investment.

Question 18

A temporary increase in government purchases,when total output is held constant,would

Accepted Answer

A) reduce desired consumption but would increase desired national saving. 
B) increase desired consumption but would reduce desired national saving. 
C) increase both desired consumption and desired national saving. 
D) reduce both desired consumption and desired national saving. 
A) reduce desired consumption but would increase desired national saving. 
B) increase desired consumption but would reduce desired national saving. 
C) increase both desired consumption and desired national saving. 
D) reduce both desired consumption and desired national saving.

Question 19

An increase in expected real interest rates would probably cause desired national saving to rise because

Accepted Answer

A) less must be saved to reach a given saving target. 
B) the increased return makes saving more attractive. 
C) the government would respond by increasing expenditures. 
D) current interest rates would fall in response to higher expected real interest rates in the future. 
A) less must be saved to reach a given saving target. 
B) the increased return makes saving more attractive. 
C) the government would respond by increasing expenditures. 
D) current interest rates would fall in response to higher expected real interest rates in the future.

Question 20

Explain how and why Canadians might change their consumption in response to an increase in wealth arising from a rise in stock prices and an increase in housing prices.

Accepted Answer

Household wealth held in the form of hou

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

The nominal interest rate is 10%,the expected inflation rate is 5%,and the combined state-federal tax is 35%.The expected real after-tax rate of return is

You are trying to figure out how much capacity to add to your factory.You will increase capacity as long as

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.

A higher real interest rate will

If the aggregate consumption function is C = 20 + 0.75 Y,the aggregate saving function will be

A temporary increase in government purchases of goods and services

An economy has government purchases of 2000.Desired national saving and desired investment are given by Sᵈ = 200 + 5000r + 0.10 Y - 20G Iᵈ = 1000 - 4000r When the full-employment level of output equals 5000,then the real interest rate that clears the goods market will be

An economy has government purchases of 1000.Desired national saving and desired investment are given by Sᵈ = 200 + 5000r + .10Y - .20G Iᵈ = 1000 - 4000r When the full-employment level of output equals 5000,then the real interest rate that clears the goods market will be

An invention that raises the future marginal product of capital would cause an increase in desired investment,which would cause the investment curve to shift to the and would cause the real interest rate to .

What are the economic consequences of reductions in defense spending by the government? What happens to national saving,the interest rate,and investment?

An increase in housing prices in Canada will likely have stronger effect on the aggregate consumption than a similar increase in the stock prices,because

When a person gets an increase in current income,what is likely to happen to consumption and saving?

The after-tax real interest rate

An increase in the expected real interest rate tends to

A temporary increase in government purchases,when total output is held constant,would

An increase in expected real interest rates would probably cause desired national saving to rise because

Explain how and why Canadians might change their consumption in response to an increase in wealth arising from a rise in stock prices and an increase in housing prices.

Introduction to Macroeconomics

The Measurement and Structure of the Canadian Economy

Productivity, output, and Employment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lm-Fe Model: a General Framework for Macroeconomic Analysis

Exchange Rates, business Cycles, and Macroeconomic Policy

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Keynesian Business Cycle Analysis: Non Market Clearing Macroeconomics

Unemployment and Inflation

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

Filters

Exam 4: Consumption, saving, and Investment

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

The nominal interest rate is 10%,the expected inflation rate is 5%,and the combined state-federal tax is 35%.The expected real after-tax rate of return is

You are trying to figure out how much capacity to add to your factory.You will increase capacity as long as

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.

A higher real interest rate will

If the aggregate consumption function is C = 20 + 0.75 Y,the aggregate saving function will be

A temporary increase in government purchases of goods and services

An economy has government purchases of 2000.Desired national saving and desired investment are given by Sᵈ = 200 + 5000r + 0.10 Y - 20G Iᵈ = 1000 - 4000r When the full-employment level of output equals 5000,then the real interest rate that clears the goods market will be

An economy has government purchases of 1000.Desired national saving and desired investment are given by Sᵈ = 200 + 5000r + .10Y - .20G Iᵈ = 1000 - 4000r When the full-employment level of output equals 5000,then the real interest rate that clears the goods market will be

An invention that raises the future marginal product of capital would cause an increase in desired investment,which would cause the investment curve to shift to the ________ and would cause the real interest rate to ________.

What are the economic consequences of reductions in defense spending by the government? What happens to national saving,the interest rate,and investment?

An increase in housing prices in Canada will likely have stronger effect on the aggregate consumption than a similar increase in the stock prices,because

When a person gets an increase in current income,what is likely to happen to consumption and saving?

The after-tax real interest rate

An increase in the expected real interest rate tends to

A temporary increase in government purchases,when total output is held constant,would

An increase in expected real interest rates would probably cause desired national saving to rise because

Explain how and why Canadians might change their consumption in response to an increase in wealth arising from a rise in stock prices and an increase in housing prices.

Introduction to Macroeconomics

The Measurement and Structure of the Canadian Economy

Productivity, output, and Employment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, money, and Prices

Business Cycles

The Is-Lm-Fe Model: a General Framework for Macroeconomic Analysis

Exchange Rates, business Cycles, and Macroeconomic Policy

Classical Business Cycle Analysis: Market-Clearing Macroeconomics

Keynesian Business Cycle Analysis: Non Market Clearing Macroeconomics

Unemployment and Inflation

Monetary Policy and the Bank of Canada

Government Spending and Its Financing

Filters

An invention that raises the future marginal product of capital would cause an increase in desired investment,which would cause the investment curve to shift to the and would cause the real interest rate to .