Question 1

The saving-investment diagram shows that a higher real interest rate due to a leftward shift of the saving curve

Accepted Answer

A)  raises the profitability of investment for firms. 
B)  causes the amount of firms' investment to increase. 
C)  increases the total amount of saving because of the increase in the real interest rate. 
D)  causes the total amounts of saving and investment to fall. 
A)  raises the profitability of investment for firms. 
B)  causes the amount of firms' investment to increase. 
C)  increases the total amount of saving because of the increase in the real interest rate. 
D)  causes the total amounts of saving and investment to fall. D

Question 2

When a person receives an increase in wealth, 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. B

Question 3

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 increases national saving, so that the desired saving curve shifts to the right. As a result, the real interest rate declines and investment increases along with saving.

Question 4

An increase in expected future output while holding today's output constant would

Accepted Answer

A)  increase today's desired consumption and increase desired national saving. 
B)  increase today's desired consumption and decrease desired national saving. 
C)  decrease today's desired consumption and increase desired national saving. 
D)  decrease today's desired consumption and decrease desired national saving. 
A)  increase today's desired consumption and increase desired national saving. 
B)  increase today's desired consumption and decrease desired national saving. 
C)  decrease today's desired consumption and increase desired national saving. 
D)  decrease today's desired consumption and decrease desired national saving.

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 temporary supply shock, such as a drought, would

Accepted Answer

A)  increase the marginal product of capital and increase desired investment. 
B)  decrease the marginal product of capital and decrease desired investment. 
C)  have little or no effect on desired investment. 
D)  decrease both the marginal product of capital and the marginal product of labour in the long-term future. 
A)  increase the marginal product of capital and increase desired investment. 
B)  decrease the marginal product of capital and decrease desired investment. 
C)  have little or no effect on desired investment. 
D)  decrease both the marginal product of capital and the marginal product of labour in the long-term future.

Question 7

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 8

Desired national saving would unambiguously increase if there were

Accepted Answer

A)  an increase in current output and expected future output. 
B)  an increase in expected future output and government purchases. 
C)  an increase in expected future output and the expected real interest rate. 
D)  a fall in both government purchases and expected future output. 
A)  an increase in current output and expected future output. 
B)  an increase in expected future output and government purchases. 
C)  an increase in expected future output and the expected real interest rate. 
D)  a fall in both government purchases and expected future output.

Question 9

Aunt Agatha has just left her nephew $5000. The most likely response is for her nephew to

Accepted Answer

A)  increase current consumption, but not future consumption. 
B)  decrease current consumption, but increase future consumption. 
C)  increase future consumption, but not current consumption. 
D)  increase both current consumption and future consumption. 
A)  increase current consumption, but not future consumption. 
B)  decrease current consumption, but increase future consumption. 
C)  increase future consumption, but not current consumption. 
D)  increase both current consumption and future consumption.

Question 10

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent decline in the real interest rate now has what effect on your desired capital stock?

Accepted Answer

A)  raises it, because the future marginal productivity of capital is higher 
B)  lowers it, because the future marginal productivity of capital is lower 
C)  raises it, because the user cost of capital is now lower 
D)  lowers it, because the user cost of capital is now higher 
A)  raises it, because the future marginal productivity of capital is higher 
B)  lowers it, because the future marginal productivity of capital is lower 
C)  raises it, because the user cost of capital is now lower 
D)  lowers it, because the user cost of capital is now higher

Question 11

Jane wants to save $1000 of current income. With an RRSP, no taxes are paid on income or interest until the money is withdrawn in five years. Without an RRSP, taxes must be paid whenever income or interest is received. Jane's tax bracket is 35%, and the nominal interest rate is 8%.
a. How much money will Jane have if she puts her money in an RRSP and withdraws the money in five years?
b. How much money will Jane have if she does not put her money in an RRSP, but rather in a regular (taxable) savings account, for five years?
c. How much does Jane gain in five years by using an RRSP rather than a regular savings account?

Accepted Answer

a. $995.06 = [$1000 × (1.08)⁵]

Question 12

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 13

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent increase in the tax rate on your firm's revenues now has what effect on your desired capital stock?

Accepted Answer

A)  raises it, because the future marginal productivity of capital is higher 
B)  lowers it, because the future marginal productivity of capital is lower 
C)  raises it, because the after-tax user cost of capital is now lower 
D)  lowers it, because the after-tax user cost of capital is now higher 
A)  raises it, because the future marginal productivity of capital is higher 
B)  lowers it, because the future marginal productivity of capital is lower 
C)  raises it, because the after-tax user cost of capital is now lower 
D)  lowers it, because the after-tax user cost of capital is now higher

Question 14

The stock market just crashed; the Dow Jones Industrial Average fell by 750 points. You would expect the effect on aggregate consumption to be the largest if which of the following facts were true?

Accepted Answer

A)  The crash had been preceded by a large run-up in the price of stocks. 
B)  Most stocks were owned by insurance companies. 
C)  Most stocks were owned by pension funds that invested in the market. 
D)  Many individuals had invested in the stock market immediately prior to the crash. 
A)  The crash had been preceded by a large run-up in the price of stocks. 
B)  Most stocks were owned by insurance companies. 
C)  Most stocks were owned by pension funds that invested in the market. 
D)  Many individuals had invested in the stock market immediately prior to the crash.

Question 15

According to Tobin's q,

Accepted Answer

A)  when the stock market is high, firms do not change their investment. 
B)  when the stock market is low, firms increase their investment. 
C)  when the stock market is high, firms increase their investment. 
D)  firms' decisions on investment do not depend on the stock market. 
A)  when the stock market is high, firms do not change their investment. 
B)  when the stock market is low, firms increase their investment. 
C)  when the stock market is high, firms increase their investment. 
D)  firms' decisions on investment do not depend on the stock market.

Question 16

The tendency to reduce current consumption and increase future consumption as the real interest rate increases is called

Accepted Answer

A)  the substitution effect of the real interest rate on saving. 
B)  the income effect of the real interest rate on saving. 
C)  the net effect of the real interest rate on saving. 
D)  the substitution effect of the real interest rate on investment. 
A)  the substitution effect of the real interest rate on saving. 
B)  the income effect of the real interest rate on saving. 
C)  the net effect of the real interest rate on saving. 
D)  the substitution effect of the real interest rate on investment.

Question 17

Franco the economist uses data for Canada to estimate a Keynesian consumption function: Cd = 0.46 + 0.92Y
In this equation, what is the marginal propensity to consume?

Accepted Answer

A)  0.46 
B)  0.50 
C)  0.92 
D)  1.38 
A)  0.46 
B)  0.50 
C)  0.92 
D)  1.38

Question 18

All else equal, a decrease in effective tax rate will lead to

Accepted Answer

A)  a fall in the desired investment. 
B)  an increase in the interest rate. 
C)  an increase in the desired investment. 
D)  an increase in inventory. 
A)  a fall in the desired investment. 
B)  an increase in the interest rate. 
C)  an increase in the desired investment. 
D)  an increase in inventory.

Question 19

If consumers foresee future taxes completely, a reduction in taxes this year that is accompanied by an offsetting increase in future taxes would cause

Accepted Answer

A)  a rightward shift in the saving curve and a rightward shift in the investment curve. 
B)  a shift in neither the saving nor the investment curve. 
C)  a leftward shift in the saving curve, but no shift in the investment curve. 
D)  no shift in the saving curve, but a rightward shift in the investment curve. 
A)  a rightward shift in the saving curve and a rightward shift in the investment curve. 
B)  a shift in neither the saving nor the investment curve. 
C)  a leftward shift in the saving curve, but no shift in the investment curve. 
D)  no shift in the saving curve, but a rightward shift in the investment curve.

Question 20

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

Accepted Answer

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

The saving-investment diagram shows that a higher real interest rate due to a leftward shift of the saving curve

When a person receives an increase in wealth, what is likely to happen to consumption and saving?

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 expected future output while holding today's output constant would

The user cost of capital is given by the following formula, where P_K is the real price of capital goods, d is the depreciation rate, and r is the expected real interest rate:

A temporary supply shock, such as a drought, would

A higher real interest rate will

Desired national saving would unambiguously increase if there were

Aunt Agatha has just left her nephew $5000. The most likely response is for her nephew to

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent decline in the real interest rate now has what effect on your desired capital stock?

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

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent increase in the tax rate on your firm's revenues now has what effect on your desired capital stock?

The stock market just crashed; the Dow Jones Industrial Average fell by 750 points. You would expect the effect on aggregate consumption to be the largest if which of the following facts were true?

According to Tobin's q,

The tendency to reduce current consumption and increase future consumption as the real interest rate increases is called

Franco the economist uses data for Canada to estimate a Keynesian consumption function: C^d = 0.46 + 0.92Y In this equation, what is the marginal propensity to consume?

All else equal, a decrease in effective tax rate will lead to

If consumers foresee future taxes completely, a reduction in taxes this year that is accompanied by an offsetting increase in future taxes would cause

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

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-LMAD-AS Model: A General Framework for Macroeconomic Analysis

Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy

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

The saving-investment diagram shows that a higher real interest rate due to a leftward shift of the saving curve

When a person receives an increase in wealth, what is likely to happen to consumption and saving?

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 expected future output while holding today's output constant would

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 temporary supply shock, such as a drought, would

A higher real interest rate will

Desired national saving would unambiguously increase if there were

Aunt Agatha has just left her nephew $5000. The most likely response is for her nephew to

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent decline in the real interest rate now has what effect on your desired capital stock?

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

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent increase in the tax rate on your firm's revenues now has what effect on your desired capital stock?

The stock market just crashed; the Dow Jones Industrial Average fell by 750 points. You would expect the effect on aggregate consumption to be the largest if which of the following facts were true?

According to Tobin's q,

The tendency to reduce current consumption and increase future consumption as the real interest rate increases is called

Franco the economist uses data for Canada to estimate a Keynesian consumption function: Cd = 0.46 + 0.92Y In this equation, what is the marginal propensity to consume?

All else equal, a decrease in effective tax rate will lead to

If consumers foresee future taxes completely, a reduction in taxes this year that is accompanied by an offsetting increase in future taxes would cause

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

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-LMAD-AS Model: A General Framework for Macroeconomic Analysis

Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy

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

The user cost of capital is given by the following formula, where P_K is the real price of capital goods, d is the depreciation rate, and r is the expected real interest rate:

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

Franco the economist uses data for Canada to estimate a Keynesian consumption function: C^d = 0.46 + 0.92Y In this equation, what is the marginal propensity to consume?