Question 1

A firm that is maximizing its profits will keep renting machines up to the point where:

Accepted Answer

A) the marginal productivity of a capital is maximized. 
B) the marginal value product of machines is maximized. 
C) the marginal value product of machines is equal to the market rental rate for machines. 
D) the machine's market rental rate is minimized. 
A) the marginal productivity of a capital is maximized. 
B) the marginal value product of machines is maximized. 
C) the marginal value product of machines is equal to the market rental rate for machines. 
D) the machine's market rental rate is minimized. C

Question 2

A rise in interest rates leads to:

Accepted Answer

A) an increase in the PDV of profits from owning a machine. 
B) a decrease in the PDV of profits from owning a machine. 
C) offsetting the effects on the costs and benefits of owning a machine. 
D) no effect on either the costs or benefits of owning a machine. 
A) an increase in the PDV of profits from owning a machine. 
B) a decrease in the PDV of profits from owning a machine. 
C) offsetting the effects on the costs and benefits of owning a machine. 
D) no effect on either the costs or benefits of owning a machine. B

Question 3

Accelerated depreciation laws may increase firms' investment in equipment because:

Accepted Answer

A) machines will wear out more rapidly. 
B) profits will be increased. 
C) the rental rate on capital will be reduced. 
D) the price of machines will fall. 
A) machines will wear out more rapidly. 
B) profits will be increased. 
C) the rental rate on capital will be reduced. 
D) the price of machines will fall. C

Question 4

In a perfectly competitive market,a firm's rental rate for a machine (v)will be given by:  
Where r is the prevailing rate of interest and d is the depreciation rate.In this formula,p represents:

Accepted Answer

A) the present market price of the machine. 
B) the initial purchase price of the machine (assuming this differs from its present market price). 
C) the price of the firm's product. 
D) the depreciated value of the machine. 
A) the present market price of the machine. 
B) the initial purchase price of the machine (assuming this differs from its present market price). 
C) the price of the firm's product. 
D) the depreciated value of the machine.

Question 5

Suppose an individual has a fixed amount of wealth to allocate between consumption in two periods (c1 and c2).Any funds not spent in period 1 will earn interest (at the rate r)which will increase purchasing power in period 2.Consider four possible reactions to an increase in r:
I.c1 increases.
II.c1 decreases.
III.c2 increases.
IV.c2 decreases.
Which of these is consistent with the hypothesis that both c1 and c2 are normal goods?

Accepted Answer

A) I,II,III,and IV 
B) I,II,and IV,but not III 
C) I,III,and IV,but not II 
D) I,II and III,but not IV 
A) I,II,III,and IV 
B) I,II,and IV,but not III 
C) I,III,and IV,but not II 
D) I,II and III,but not IV

Question 6

Under competitive conditions,the relative price of a finite resource would be expected to:

Accepted Answer

A) rise at an increasing rate. 
B) rise at a rate equal to the real interest rate. 
C) rise at a rate equal to the nominal interest rate. 
D) rise at a rate determined by demand conditions. 
A) rise at an increasing rate. 
B) rise at a rate equal to the real interest rate. 
C) rise at a rate equal to the nominal interest rate. 
D) rise at a rate determined by demand conditions.

Question 7

If a person's inter-temporal utility function is given by   ,lower values for   Will:

Accepted Answer

A) make this person more averse to consumption fluctuations. 
B) make this person less averse to consumption fluctuations. 
C) reduce overall consumption levels. 
D) reduce savings. 
A) make this person more averse to consumption fluctuations. 
B) make this person less averse to consumption fluctuations. 
C) reduce overall consumption levels. 
D) reduce savings.

Question 8

If the interest rate rises,the present discounted value of a stream of payments owed in the future:

Accepted Answer

A) rises. 
B) stays constant. 
C) falls. 
D) may rise or fall depending on the shape of the stream. 
A) rises. 
B) stays constant. 
C) falls. 
D) may rise or fall depending on the shape of the stream.

Question 9

A fall in interest rates leads to:

Accepted Answer

A) an increase in the rental rate on a machine. 
B) a decrease in the rental rate on a machine. 
C) no change in the rental rate on a machine. 
D) a fall in the marginal productivity of capital. 
A) an increase in the rental rate on a machine. 
B) a decrease in the rental rate on a machine. 
C) no change in the rental rate on a machine. 
D) a fall in the marginal productivity of capital.

Question 10

The "rate of return" refers to:

Accepted Answer

A) the increase in future output made possible by investing one unit of current output in capital accumulation. 
B) the dividend payments made on corporate issued stock. 
C) the increase in current output made possible by investing in units of future output in capital accumulation. 
D) the rate at which capital depreciates. 
A) the increase in future output made possible by investing one unit of current output in capital accumulation. 
B) the dividend payments made on corporate issued stock. 
C) the increase in current output made possible by investing in units of future output in capital accumulation. 
D) the rate at which capital depreciates.

Question 11

The annual rental rate for a machine is:

Accepted Answer

A) the yearly depreciation and maintenance costs for the machine. 
B) the yearly interest costs associated with owning the machine. 
C) the initial purchase price of the machine divided by the number of years the machine is expected to last. 
D) the sum of the yearly depreciation,maintenance,and interest costs associated with owning the machine. 
A) the yearly depreciation and maintenance costs for the machine. 
B) the yearly interest costs associated with owning the machine. 
C) the initial purchase price of the machine divided by the number of years the machine is expected to last. 
D) the sum of the yearly depreciation,maintenance,and interest costs associated with owning the machine.

Question 12

The present value of $1 payable in two years is:

Accepted Answer

A) $1. 
B) $1/(1 + 2r). 
C) $1/(1 - 2r). 
D) $1/(1 + r)2. 
A) $1. 
B) $1/(1 + 2r). 
C) $1/(1 - 2r). 
D) $1/(1 + r)2.

Question 13

If a tree's value (v)is growing according to the equation  
With an annual interest rate of 5 percent,the tree should be harvested when t =:

Accepted Answer

A) 5 years. 
B) 10 years. 
C) 25 years. 
D) 100 years. 
A) 5 years. 
B) 10 years. 
C) 25 years. 
D) 100 years.

Question 14

Adding uncertainty to future consumption will tend to increase savings providing:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 15

The present value of $1 payable in the future decreases:

Accepted Answer

A) the higher r is and the sooner it is to be paid. 
B) the lower r is and the sooner it is to be paid. 
C) the higher r is and the longer time until it is paid. 
D) the lower r is and the longer time until it is paid. 
A) the higher r is and the sooner it is to be paid. 
B) the lower r is and the sooner it is to be paid. 
C) the higher r is and the longer time until it is paid. 
D) the lower r is and the longer time until it is paid.

Question 16

In Fisher's model of the determination of the rate of return,the price of a "future good" is:

Accepted Answer

A) less than the price of a current good if the interest rate is negative. 
B) equal to the price of a current good if the interest rate is positive. 
C) greater than the price of a current good if the interest rate is positive. 
D) less than the price of a current good if the interest rate is positive. 
A) less than the price of a current good if the interest rate is negative. 
B) equal to the price of a current good if the interest rate is positive. 
C) greater than the price of a current good if the interest rate is positive. 
D) less than the price of a current good if the interest rate is positive.

Question 17

A consumption-based theory of the determination of the real interest rate is based on the assumption that:​

Accepted Answer

A) ​a rise in the real interest rate will increase current consumption. 
B) ​the real interest rate must adjust to make people willing to experience changing consumption levels over time. 
C) ​the real interest rate is determined by the supply and demand for investment and is therefore unaffected by consumption decisions. 
D) the real interest rate must be positive. 
A) ​a rise in the real interest rate will increase current consumption. 
B) ​the real interest rate must adjust to make people willing to experience changing consumption levels over time. 
C) ​the real interest rate is determined by the supply and demand for investment and is therefore unaffected by consumption decisions. 
D) the real interest rate must be positive.

Question 18

Under a consumption-based theory of the pricing of risky assets,uncertain returns on such an asset should be discounted by a "stochastic discount factor" that takes into account:​

Accepted Answer

A) ​the mean and standard deviation of the uncertain return. 
B) ​whether the uncertain return has a normal distribution. 
C) ​both the nominal and real interest rates. 
D) ​the rate of time preference and present and future marginal utility of wealth. 
A) ​the mean and standard deviation of the uncertain return. 
B) ​whether the uncertain return has a normal distribution. 
C) ​both the nominal and real interest rates. 
D) ​the rate of time preference and present and future marginal utility of wealth.

Question 19

An increase in the corporate profits tax will most likely lead to:

Accepted Answer

A) a decrease in the rental rate of capital in the corporate sector. 
B) no change in the rental rate of capital in the corporate sector. 
C) no change in the rental rate of capital in the non-corporate sector. 
D) an increase in the rental rate of capital in the corporate sector. 
A) a decrease in the rental rate of capital in the corporate sector. 
B) no change in the rental rate of capital in the corporate sector. 
C) no change in the rental rate of capital in the non-corporate sector. 
D) an increase in the rental rate of capital in the corporate sector.

Question 20

​If individuals make intertemporal choices using "hyperbolic discounting",this may create inefficient choices because individuals will:

Accepted Answer

A) ​not take account of their time preferences. 
B) ​make choices that are inconsistent over time. 
C) ​have a preference for only consuming in the future. 
D) ​confuse nominal and real interest rates. 
A) ​not take account of their time preferences. 
B) ​make choices that are inconsistent over time. 
C) ​have a preference for only consuming in the future. 
D) ​confuse nominal and real interest rates.

A firm that is maximizing its profits will keep renting machines up to the point where:

A rise in interest rates leads to:

Accelerated depreciation laws may increase firms' investment in equipment because:

In a perfectly competitive market,a firm's rental rate for a machine (v)will be given by: Where r is the prevailing rate of interest and d is the depreciation rate.In this formula,p represents:

Under competitive conditions,the relative price of a finite resource would be expected to:

If a person's inter-temporal utility function is given by ,lower values for Will:

If the interest rate rises,the present discounted value of a stream of payments owed in the future:

A fall in interest rates leads to:

The "rate of return" refers to:

The annual rental rate for a machine is:

The present value of $1 payable in two years is:

If a tree's value (v)is growing according to the equation With an annual interest rate of 5 percent,the tree should be harvested when t =:

Adding uncertainty to future consumption will tend to increase savings providing:

The present value of $1 payable in the future decreases:

In Fisher's model of the determination of the rate of return,the price of a "future good" is:

A consumption-based theory of the determination of the real interest rate is based on the assumption that:

Under a consumption-based theory of the pricing of risky assets,uncertain returns on such an asset should be discounted by a "stochastic discount factor" that takes into account:

An increase in the corporate profits tax will most likely lead to:

If individuals make intertemporal choices using "hyperbolic discounting",this may create inefficient choices because individuals will:

Preferences and Utility

Utility Maximization and Choice

Income and Substitution Effects

Demand Relationships Among Goods

Uncertainty

Game Theory

Production Functions

Cost Functions

Profit Maximization

The Partial Equilibrium Competitive Model

General Equilibrium and Welfare

Monopoly

Imperfect Competition

Labor Markets

Asymmetric Information

Externalities and Public Goods

Filters

Exam 15: Capital and Time

A firm that is maximizing its profits will keep renting machines up to the point where:

A rise in interest rates leads to:

Accelerated depreciation laws may increase firms' investment in equipment because:

In a perfectly competitive market,a firm's rental rate for a machine (v)will be given by: Where r is the prevailing rate of interest and d is the depreciation rate.In this formula,p represents:

Under competitive conditions,the relative price of a finite resource would be expected to:

If a person's inter-temporal utility function is given by ,lower values for Will:

If the interest rate rises,the present discounted value of a stream of payments owed in the future:

A fall in interest rates leads to:

The "rate of return" refers to:

The annual rental rate for a machine is:

The present value of $1 payable in two years is:

If a tree's value (v)is growing according to the equation With an annual interest rate of 5 percent,the tree should be harvested when t =:

Adding uncertainty to future consumption will tend to increase savings providing:

The present value of $1 payable in the future decreases:

In Fisher's model of the determination of the rate of return,the price of a "future good" is:

A consumption-based theory of the determination of the real interest rate is based on the assumption that:​

Under a consumption-based theory of the pricing of risky assets,uncertain returns on such an asset should be discounted by a "stochastic discount factor" that takes into account:​

An increase in the corporate profits tax will most likely lead to:

​If individuals make intertemporal choices using "hyperbolic discounting",this may create inefficient choices because individuals will:

Preferences and Utility

Utility Maximization and Choice

Income and Substitution Effects

Demand Relationships Among Goods

Uncertainty

Game Theory

Production Functions

Cost Functions

Profit Maximization

The Partial Equilibrium Competitive Model

General Equilibrium and Welfare

Monopoly

Imperfect Competition

Labor Markets

Asymmetric Information

Externalities and Public Goods

Filters

A consumption-based theory of the determination of the real interest rate is based on the assumption that:

Under a consumption-based theory of the pricing of risky assets,uncertain returns on such an asset should be discounted by a "stochastic discount factor" that takes into account:

If individuals make intertemporal choices using "hyperbolic discounting",this may create inefficient choices because individuals will: