Question 1

Which of the following is a component of physical investment?
i. Nonresidential fixed investment
ii. Residential fixed investment
iii. Inventory

Accepted Answer

A)  i 
B)  ii 
C)  i and iii 
D)  ii and iii 
E)  i, ii, and iii 
A)  i 
B)  ii 
C)  i and iii 
D)  ii and iii 
E)  i, ii, and iii E

Question 2

From the residential arbitrage equation, a rise in the rent will ________ the price of the house, while an increase in the depreciation rate will ________ the house price.

Accepted Answer

A)  raise; reduce 
B)  reduce; raise 
C)  have no effect on; raise 
D)  raise; raise 
E)  reduce; have no effect on 
A)  raise; reduce 
B)  reduce; raise 
C)  have no effect on; raise 
D)  raise; raise 
E)  reduce; have no effect on A

Question 3

Over the long run, the average P/E ratio is about 23.8.

Accepted Answer

A) True 
 B)False  False

Question 4

From the residential arbitrage equation, a rise in the down payment will ________ the price of the house, while an increase in the real interest rate will ________ the house price.

Accepted Answer

A)  reduce; raise 
B)  raise; reduce 
C)  reduce; reduce 
D)  raise; have no effect on 
E)  raise; raise 
A)  reduce; raise 
B)  raise; reduce 
C)  reduce; reduce 
D)  raise; have no effect on 
E)  raise; raise

Question 5

The company that was one of the first adopters of supply-chain management was:

Accepted Answer

A)  Exxon. 
B)  Albertson's. 
C)  IBM. 
D)  Walmart. 
E)  Apple. 
A)  Exxon. 
B)  Albertson's. 
C)  IBM. 
D)  Walmart. 
E)  Apple.

Question 6

In the mid to late 2000s, several housing markets in the United States had a bubble in residential investment. One cause was likely:

Accepted Answer

A)  consistently rising real interest rates. 
B)  falling residential capital gains. 
C)  rising residential depreciation. 
D)  more lax down-payment requirements. 
E)  controls that held rents down. 
A)  consistently rising real interest rates. 
B)  falling residential capital gains. 
C)  rising residential depreciation. 
D)  more lax down-payment requirements. 
E)  controls that held rents down.

Question 7

Figure 17.4: Capital Arbitrage  
-Consider Figure 17.4. Write down the equation for the user cost of capital. Discuss what happens to the user cost in the following scenarios:
(a) the corporate income tax rises;
(b) the real interest rises; and
(c) there is an increase in capital gains.
Graphically show what happens to capital investment.

Accepted Answer

The user cost is @#IMG-DLM& .
(a) @#IMG-DLM& : Raises the us

Question 8

One reason we are interested in investment is its:

Accepted Answer

A)  contribution to higher interest rates. 
B)  negative impact on current consumption. 
C)  relationship to exchange rate markets. 
D)  impact on financial markets. 
E)  link to long-term economic growth. 
A)  contribution to higher interest rates. 
B)  negative impact on current consumption. 
C)  relationship to exchange rate markets. 
D)  impact on financial markets. 
E)  link to long-term economic growth.

Question 9

If the marginal product of capital is 3 percent, the real interest rate is 4 percent, and the capital depreciation rate is 10 percent, what is the equilibrium stock price?

Accepted Answer

A)  $1.33 
B)  $83.33 
C)  $25.00 
D)  $0.18 
E)  Not enough information is given. 
A)  $1.33 
B)  $83.33 
C)  $25.00 
D)  $0.18 
E)  Not enough information is given.

Question 10

In the growth model, we assumed the savings rate was given by ________, which is exogenous, but from the chapter on investment, we know it is equal to ________.

Accepted Answer

A)  the saving rate; the growth rate of capital 
B)    
C)    
D)  a savings shock;   
E)  total factor productivity;   
A)  the saving rate; the growth rate of capital 
B)    
C)    
D)  a savings shock;   
E)  total factor productivity;

Question 11

If R is the real interest rate, w is the real wage, MPK is the marginal product of capital, and MPL is the marginal product of labor, which of the following conditions informs the profit-maximizing firm how much capital to invest?

Accepted Answer

A)  R = MPK 
B)  R = w 
C)  R = 0 and MPK= MPL 
D)  MPK = MPL 
E)  MPK  $\gt$ MPL if R $\lt$ w 
A)  R = MPK 
B)  R = w 
C)  R = 0 and MPK= MPL 
D)  MPK = MPL 
E)  MPK  $\gt$ MPL if R $\lt$ w

Question 12

Tobin's q is:

Accepted Answer

A)  the ratio of stock market value of a stock to the value of its capital. 
B)  the ratio of user cost to the corporate tax rate. 
C)  equal to a stock's capital gains plus any dividends paid. 
D)  the difference between the marginal product of capital and the real interest rate. 
E)  an index of the economic environment. 
A)  the ratio of stock market value of a stock to the value of its capital. 
B)  the ratio of user cost to the corporate tax rate. 
C)  equal to a stock's capital gains plus any dividends paid. 
D)  the difference between the marginal product of capital and the real interest rate. 
E)  an index of the economic environment.

Question 13

If the bank real interest rate is 2 percent, the percent gain in physical capital gain is 2 percent, the marginal product of capital is 3 percent, and the percent dividend return is 5 percent, what is the financial capital gain?

Accepted Answer

A)  1 percent 
B)  0 percent 
C)  8 percent 
D)  -3 percent 
E)  3 percent 
A)  1 percent 
B)  0 percent 
C)  8 percent 
D)  -3 percent 
E)  3 percent

Question 14

If the bank real interest rate is 4 percent, the percent gain in physical capital gain is 3 percent, the marginal product of capital is 2 percent, and the capital gain of financial capital is 1 percent, what is the percent dividend return?

Accepted Answer

A)  1 percent 
B)  6 percent 
C)  50 percent 
D)  2 percent 
E)  5 percent 
A)  1 percent 
B)  6 percent 
C)  50 percent 
D)  2 percent 
E)  5 percent

Question 15

One reason we are interested in investment is its link to long-term economic growth.

Accepted Answer

A) True 
 B)False

Question 16

According to data in the text, which is the country with the highest corporate tax rate?

Accepted Answer

A)  Italy 
B)  Finland 
C)  France 
D)  the United States 
E)  Ireland 
A)  Italy 
B)  Finland 
C)  France 
D)  the United States 
E)  Ireland

Question 17

In the equation   is the:

Accepted Answer

A)  rate of return to dividends. 
B)  dollar value of the stock market. 
C)  capital return. 
D)  marginal product of stocks. 
E)  discount factor. 
A)  rate of return to dividends. 
B)  dollar value of the stock market. 
C)  capital return. 
D)  marginal product of stocks. 
E)  discount factor.

Question 18

A financial market is efficient if financial prices reflect information only available to traders.

Accepted Answer

A) True 
 B)False

Question 19

We can use the arbitrage equation:

Accepted Answer

A)  to forecast government spending. 
B)  for understanding fluctuations in precautionary saving. 
C)  for maximizing profits. 
D)  to analyze investment in capital, financial assets, and human capital. 
E)  to improve our understanding of the quantity theory of money. 
A)  to forecast government spending. 
B)  for understanding fluctuations in precautionary saving. 
C)  for maximizing profits. 
D)  to analyze investment in capital, financial assets, and human capital. 
E)  to improve our understanding of the quantity theory of money.

Question 20

Refer to the following figure when answering the following questions.
Figure 17.1: Capital Arbitrage  
-Consider Figure 17.1. If there is an increase in the use cost of capital, then curve ________ would shift to curve ________. If the MPK falls, curve ________ would shift to ________.

Accepted Answer

A)  d; c; a; b 
B)  b; a; c; d 
C)  d; c; b; a 
D)  a; b; d; c 
E)  Not enough information is given. 
A)  d; c; a; b 
B)  b; a; c; d 
C)  d; c; b; a 
D)  a; b; d; c 
E)  Not enough information is given.

Which of the following is a component of physical investment? i. Nonresidential fixed investment ii. Residential fixed investment iii. Inventory

From the residential arbitrage equation, a rise in the rent will the price of the house, while an increase in the depreciation rate will the house price.

Over the long run, the average P/E ratio is about 23.8.

From the residential arbitrage equation, a rise in the down payment will the price of the house, while an increase in the real interest rate will the house price.

The company that was one of the first adopters of supply-chain management was:

In the mid to late 2000s, several housing markets in the United States had a bubble in residential investment. One cause was likely:

One reason we are interested in investment is its:

If the marginal product of capital is 3 percent, the real interest rate is 4 percent, and the capital depreciation rate is 10 percent, what is the equilibrium stock price?

In the growth model, we assumed the savings rate was given by , which is exogenous, but from the chapter on investment, we know it is equal to .

If R is the real interest rate, w is the real wage, MPK is the marginal product of capital, and MPL is the marginal product of labor, which of the following conditions informs the profit-maximizing firm how much capital to invest?

Tobin's q is:

If the bank real interest rate is 2 percent, the percent gain in physical capital gain is 2 percent, the marginal product of capital is 3 percent, and the percent dividend return is 5 percent, what is the financial capital gain?

If the bank real interest rate is 4 percent, the percent gain in physical capital gain is 3 percent, the marginal product of capital is 2 percent, and the capital gain of financial capital is 1 percent, what is the percent dividend return?

One reason we are interested in investment is its link to long-term economic growth.

According to data in the text, which is the country with the highest corporate tax rate?

In the equation is the:

A financial market is efficient if financial prices reflect information only available to traders.

We can use the arbitrage equation:

Refer to the following figure when answering the following questions. Figure 17.1: Capital Arbitrage -Consider Figure 17.1. If there is an increase in the use cost of capital, then curve would shift to curve . If the MPK falls, curve would shift to .

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Consumption

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

Exam 17: Investment

Which of the following is a component of physical investment? i. Nonresidential fixed investment ii. Residential fixed investment iii. Inventory

From the residential arbitrage equation, a rise in the rent will ________ the price of the house, while an increase in the depreciation rate will ________ the house price.

Over the long run, the average P/E ratio is about 23.8.

From the residential arbitrage equation, a rise in the down payment will ________ the price of the house, while an increase in the real interest rate will ________ the house price.

The company that was one of the first adopters of supply-chain management was:

In the mid to late 2000s, several housing markets in the United States had a bubble in residential investment. One cause was likely:

One reason we are interested in investment is its:

If the marginal product of capital is 3 percent, the real interest rate is 4 percent, and the capital depreciation rate is 10 percent, what is the equilibrium stock price?

In the growth model, we assumed the savings rate was given by ________, which is exogenous, but from the chapter on investment, we know it is equal to ________.

If R is the real interest rate, w is the real wage, MPK is the marginal product of capital, and MPL is the marginal product of labor, which of the following conditions informs the profit-maximizing firm how much capital to invest?

Tobin's q is:

If the bank real interest rate is 2 percent, the percent gain in physical capital gain is 2 percent, the marginal product of capital is 3 percent, and the percent dividend return is 5 percent, what is the financial capital gain?

If the bank real interest rate is 4 percent, the percent gain in physical capital gain is 3 percent, the marginal product of capital is 2 percent, and the capital gain of financial capital is 1 percent, what is the percent dividend return?

One reason we are interested in investment is its link to long-term economic growth.

According to data in the text, which is the country with the highest corporate tax rate?

In the equation is the:

A financial market is efficient if financial prices reflect information only available to traders.

We can use the arbitrage equation:

Refer to the following figure when answering the following questions. Figure 17.1: Capital Arbitrage -Consider Figure 17.1. If there is an increase in the use cost of capital, then curve ________ would shift to curve ________. If the MPK falls, curve ________ would shift to ________.

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

The Is Curve

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Consumption

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

From the residential arbitrage equation, a rise in the rent will the price of the house, while an increase in the depreciation rate will the house price.

From the residential arbitrage equation, a rise in the down payment will the price of the house, while an increase in the real interest rate will the house price.

In the growth model, we assumed the savings rate was given by , which is exogenous, but from the chapter on investment, we know it is equal to .

Refer to the following figure when answering the following questions. Figure 17.1: Capital Arbitrage -Consider Figure 17.1. If there is an increase in the use cost of capital, then curve would shift to curve . If the MPK falls, curve would shift to .