Question 1

When desired national saving equals desired national investment (in a closed economy),what market is in equilibrium?

Accepted Answer

A) The goods market 
B) The money market 
C) The foreign exchange market 
D) The stock market 
A) The goods market 
B) The money market 
C) The foreign exchange market 
D) The stock market A

Question 2

The yield curve generally slopes upward because

Accepted Answer

A) longer maturity bonds typically pay higher interest rates than shorter maturity bonds. 
B) longer maturity bonds typically pay lower interest rates than shorter maturity bonds. 
C) shorter maturity bonds have more default risk. 
D) longer maturity bonds are not taxable. 
A) longer maturity bonds typically pay higher interest rates than shorter maturity bonds. 
B) longer maturity bonds typically pay lower interest rates than shorter maturity bonds. 
C) shorter maturity bonds have more default risk. 
D) longer maturity bonds are not taxable. A

Question 3

Cummins,Hubbard,and Hassett found that investment responded to a tax change that affected the user cost of capital,with an elasticity of

Accepted Answer

A) 0) 
B) -0.25. 
C) -0.66. 
D) -1. 
A) 0) 
B) -0.25. 
C) -0.66. 
D) -1. C

Question 4

You have just purchased a home that cost $250,000.The nominal mortgage interest rate is 8% per annum,mortgage interest payments are tax deductible,and you are in a 30% tax bracket.The expected inflation rate is 4%.Maintenance and other expenses are 8% of the initial value of the house.What is the real user cost of your house?

Accepted Answer

A) $20,000 
B) $24,000 
C) $27,000 
D) $30,000 
A) $20,000 
B) $24,000 
C) $27,000 
D) $30,000

Question 5

What is the difference between gross investment and net investment?

Accepted Answer

A) Net investment = gross investment minus taxes 
B) Net investment = gross investment minus net factor payments 
C) Net investment = gross investment minus inventory accumulation 
D) Net investment = gross investment minus depreciation 
A) Net investment = gross investment minus taxes 
B) Net investment = gross investment minus net factor payments 
C) Net investment = gross investment minus inventory accumulation 
D) Net investment = gross investment minus depreciation

Question 6

An increase in the expected real interest rate will

Accepted Answer

A) increase the desired capital stock. 
B) decrease the desired capital stock. 
C) have no effect on the desired capital stock. 
D) have the same effect on the desired capital stock as a decrease in corporate taxes. 
A) increase the desired capital stock. 
B) decrease the desired capital stock. 
C) have no effect on the desired capital stock. 
D) have the same effect on the desired capital stock as a decrease in corporate taxes.

Question 7

Desired national saving would increase unambiguously if there were

Accepted Answer

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

Question 8

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 was 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 9

An economy has government purchases of 1000.Desired national saving and desired investment are given by
  = 200 + 5000r + 0.10Y - 0.20G
  = 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 10

Tobin's q is equal to

Accepted Answer

A) the ratio of capital's market value to its replacement cost. 
B) the ratio of capital's replacement cost to its market value. 
C) the expected after-tax real interest rate. 
D) the stock market value of a firm. 
A) the ratio of capital's market value to its replacement cost. 
B) the ratio of capital's replacement cost to its market value. 
C) the expected after-tax real interest rate. 
D) the stock market value of a firm.

Question 11

The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut

Accepted Answer

A) causes inflation. 
B) causes a current account deficit. 
C) raises interest rates. 
D) doesn't affect consumption. 
A) causes inflation. 
B) causes a current account deficit. 
C) raises interest rates. 
D) doesn't affect consumption.

Question 12

If the rate of depreciation increases,then user cost ________ and the desired capital stock ________.

Accepted Answer

A) falls; falls 
B) falls; rises 
C) rises; rises 
D) rises; falls 
A) falls; falls 
B) falls; rises 
C) rises; rises 
D) rises; falls

Question 13

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 labor 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 labor in the long-term future.

Question 14

Suppose the nominal interest rate is 6%,the tax rate on interest income is 30%,and expected inflation is 3%.
(a)Calculate the expected after-tax real interest rate.
(b)Calculate the expected after-tax real interest rate if the nominal interest rate falls to 4%.
(c)Calculate the expected after-tax real interest rate if the tax rate increases to 50% (with the nominal interest rate at its original value of 6%).
(d)Calculate the expected after-tax real interest rate if expected inflation increases to 5% (with the nominal interest rate at its original value of 6% and the tax rate at its original value of 30%).

Accepted Answer

The expected after-tax real interest rat

Question 15

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 16

An economy has full-employment output of 5000.Government purchases are 1000.Desired consumption and desired investment are given by
  = 3000 - 2000r + 0.10Y
  = 1000 - 4000r
Where Y is output and r is the real interest rate.The real interest rate that clears the goods market is equal to

Accepted Answer

A) 1)25%. 
B) 2)50%. 
C) 8)33%. 
D) 25.00%. 
A) 1)25%. 
B) 2)50%. 
C) 8)33%. 
D) 25.00%.

Question 17

A curve that connects all the consumption combinations that yield the same level of utility is known as

Accepted Answer

A) an isoquant. 
B) a yield curve. 
C) a budget line. 
D) an indifference curve. 
A) an isoquant. 
B) a yield curve. 
C) a budget line. 
D) an indifference curve.

Question 18

Draw a diagram showing the determination of a firm's optimal capital stock,showing the relationship between the user cost of capital and the future marginal product of capital.Suppose the real interest rate declines.Show what happens to the firm's optimal capital stock.What happens to the firm's desired investment?

Accepted Answer

This is the standard diagram with the us

Question 19

If an investor has a tax rate on interest income of 25% and the inflation rate is 4%,which bond has the lowest expected after-tax real interest rate?

Accepted Answer

A) A Treasury bond paying 9% 
B) A corporate bond paying 8% 
C) A Treasury bond paying 7% 
D) A municipal bond paying 6% 
A) A Treasury bond paying 9% 
B) A corporate bond paying 8% 
C) A Treasury bond paying 7% 
D) A municipal bond paying 6%

Question 20

How would the desired capital stock be affected by a decline in the user cost of capital?

Accepted Answer

A firm sets its capital stock such that

When desired national saving equals desired national investment (in a closed economy),what market is in equilibrium?

The yield curve generally slopes upward because

Cummins,Hubbard,and Hassett found that investment responded to a tax change that affected the user cost of capital,with an elasticity of

What is the difference between gross investment and net investment?

An increase in the expected real interest rate will

Desired national saving would increase unambiguously if there were

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 was true?

An economy has government purchases of 1000.Desired national saving and desired investment are given by = 200 + 5000r + 0.10Y - 0.20G = 1000 - 4000r When the full-employment level of output equals 5000,then the real interest rate that clears the goods market will be

Tobin's q is equal to

The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut

If the rate of depreciation increases,then user cost and the desired capital stock .

A temporary supply shock,such as a drought,would

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

An economy has full-employment output of 5000.Government purchases are 1000.Desired consumption and desired investment are given by = 3000 - 2000r + 0.10Y = 1000 - 4000r Where Y is output and r is the real interest rate.The real interest rate that clears the goods market is equal to

A curve that connects all the consumption combinations that yield the same level of utility is known as

If an investor has a tax rate on interest income of 25% and the inflation rate is 4%,which bond has the lowest expected after-tax real interest rate?

How would the desired capital stock be affected by a decline in the user cost of capital?

Introduction to Macroeconomics

The Measurement and Structure of the National 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/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

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

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Exam 4: Consumption, Saving, and Investment

When desired national saving equals desired national investment (in a closed economy),what market is in equilibrium?

The yield curve generally slopes upward because

Cummins,Hubbard,and Hassett found that investment responded to a tax change that affected the user cost of capital,with an elasticity of

What is the difference between gross investment and net investment?

An increase in the expected real interest rate will

Desired national saving would increase unambiguously if there were

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 was true?

An economy has government purchases of 1000.Desired national saving and desired investment are given by = 200 + 5000r + 0.10Y - 0.20G = 1000 - 4000r When the full-employment level of output equals 5000,then the real interest rate that clears the goods market will be

Tobin's q is equal to

The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut

If the rate of depreciation increases,then user cost ________ and the desired capital stock ________.

A temporary supply shock,such as a drought,would

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

An economy has full-employment output of 5000.Government purchases are 1000.Desired consumption and desired investment are given by = 3000 - 2000r + 0.10Y = 1000 - 4000r Where Y is output and r is the real interest rate.The real interest rate that clears the goods market is equal to

A curve that connects all the consumption combinations that yield the same level of utility is known as

If an investor has a tax rate on interest income of 25% and the inflation rate is 4%,which bond has the lowest expected after-tax real interest rate?

How would the desired capital stock be affected by a decline in the user cost of capital?

Introduction to Macroeconomics

The Measurement and Structure of the National 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/AD-AS Model

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

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

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

If the rate of depreciation increases,then user cost and the desired capital stock .