Exam 17: The Theory of Investment

Graphically illustrate how house prices and residential investment were affected by lowered lending standards that allowed many people with less than perfect credit (subprime borrowers), who had previously been unable to obtain mortgages, to purchase houses.

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Question 1

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The relative price of housing increases and the flow of residential investment increases as a result of the increase in demand from the subprime borrowers.

What are the economic incentives that lie behind rental firms' investment decisions?

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Question 2

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The firm's decision regarding its capital stock-that is, whether to add to it or to let it depreciate-depends on whether owning and renting out capital is profitable. The change in the capital stock, called net investment, depends on the difference between the marginal product of capital and the cost of capital. If the marginal product of capital exceeds the cost of capital, firms find it profitable to add to their capital stock. If the marginal product of capital falls short of the cost of capital, they let their capital stock shrink.

If a great wave of immigration increased employment in the United States, this wave would:

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Question 3

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The standard model of business fixed investment is called the ______ of investment.

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Question 4

If stock prices follow a random walk, then:

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Question 5

The price of housing relative to the price of other goods is determined in the short run by the:

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Question 6

The function showing total spending on investment would be shifted inward and to the left by:

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Question 7

Holding other factors constant, a fall in the interest rate will ______ inventory investment.

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Question 8

Suppose it is an election year and the economy is in a recession. The opposition candidate proposes an investment tax credit to take effect next year after he takes office. If the public believes the opposition candidate has a good chance of winning, the effect of this promise will likely be to:

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Question 9

Residential investment spending includes spending on:

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Question 10

The stock-out avoidance motive for holding inventories suggests that:

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Question 11

A toy manufacturer accumulates inventories because of the uncertainty of the demand for their product at Christmas and the desire not to lose any potential sales. This is an example of the ______ motive for holding inventories.

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Question 12

Explain how tight credit markets (credit crunches) affect: a. business fixed investment, b. residential investment, and c. inventory investment.

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Question 13

The cost of capital for investment, if the price of capital goods rises with the price of other goods and in the absence of taxes, may be summarized as the:

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Question 14

If corporate profit were defined as the real price of capital minus the properly defined cost of capital, then:

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Question 15

Describe the relationship between the business fixed investment and interest rate in an investment function.

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Question 16

The work in process motive for holding inventories suggests that:

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Question 17

When the capital stock reaches a steady state, the:

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Question 18

The construction of a new shopping center is an example of:

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Question 19

Use the model of residential investment to illustrate graphically the impact of a hurricane that destroyed a substantial quantity of the existing housing stock (holding other factors constant) on housing prices and the quantity of residential housing investment. Explain your answer in words.

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Question 20

Showing 1 - 20 of 112

Graphically illustrate how house prices and residential investment were affected by lowered lending standards that allowed many people with less than perfect credit (subprime borrowers), who had previously been unable to obtain mortgages, to purchase houses.

What are the economic incentives that lie behind rental firms' investment decisions?

If a great wave of immigration increased employment in the United States, this wave would:

The standard model of business fixed investment is called the ______ of investment.

If stock prices follow a random walk, then:

The price of housing relative to the price of other goods is determined in the short run by the:

The function showing total spending on investment would be shifted inward and to the left by:

Holding other factors constant, a fall in the interest rate will ______ inventory investment.

Suppose it is an election year and the economy is in a recession. The opposition candidate proposes an investment tax credit to take effect next year after he takes office. If the public believes the opposition candidate has a good chance of winning, the effect of this promise will likely be to:

Residential investment spending includes spending on:

The stock-out avoidance motive for holding inventories suggests that:

A toy manufacturer accumulates inventories because of the uncertainty of the demand for their product at Christmas and the desire not to lose any potential sales. This is an example of the ______ motive for holding inventories.

Explain how tight credit markets (credit crunches) affect: a. business fixed investment, b. residential investment, and c. inventory investment.

The cost of capital for investment, if the price of capital goods rises with the price of other goods and in the absence of taxes, may be summarized as the:

If corporate profit were defined as the real price of capital minus the properly defined cost of capital, then:

Describe the relationship between the business fixed investment and interest rate in an investment function.

The work in process motive for holding inventories suggests that:

When the capital stock reaches a steady state, the:

The construction of a new shopping center is an example of:

Use the model of residential investment to illustrate graphically the impact of a hurricane that destroyed a substantial quantity of the existing housing stock (holding other factors constant) on housing prices and the quantity of residential housing investment. Explain your answer in words.

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

Aggregate Demand Ii: Applying the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

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