Question 1

The existence of financing constraints makes investment:

Accepted Answer

A)  more sensitive to current conditions. 
B)  less sensitive to current conditions. 
C)  spending follow a random walk. 
D)  spending increase during recessions. 
A)  more sensitive to current conditions. 
B)  less sensitive to current conditions. 
C)  spending follow a random walk. 
D)  spending increase during recessions.

Question 2

The inventories of a company that manufactures snow blowers increase in the summer and decline in the winter. This example is most consistent with which of the following explanations for holding inventories?

Accepted Answer

A)  production smoothing 
B)  inventories as factors of production 
C)  stock-out avoidance 
D)  work in process 
A)  production smoothing 
B)  inventories as factors of production 
C)  stock-out avoidance 
D)  work in process

Question 3

In the mortgage market, a rise in the real interest rate:

Accepted Answer

A)  lowers housing demand, housing prices, and residential investment. 
B)  raises housing demand, housing prices, and residential investment. 
C)  lowers housing demand and residential investment but raises housing prices. 
D)  raises housing demand but lowers housing prices and residential investment. 
A)  lowers housing demand, housing prices, and residential investment. 
B)  raises housing demand, housing prices, and residential investment. 
C)  lowers housing demand and residential investment but raises housing prices. 
D)  raises housing demand but lowers housing prices and residential investment.

Question 4

The opportunity cost of holding inventories is the:

Accepted Answer

A)  real interest rate. 
B)  nominal interest rate. 
C)  raw materials used up in the production of inventories. 
D)  labor used in the production of inventories. 
A)  real interest rate. 
B)  nominal interest rate. 
C)  raw materials used up in the production of inventories. 
D)  labor used in the production of inventories.

Question 5

Explain the relationship between the marginal product of capital and the total amount of capital. What decision should be made by production firms to maximize its profit?

Accepted Answer

The marginal product of capital declines

Question 6

Use the following to answer questions :
Exhibit: Residential Investment  
-(Exhibit: Residential Investment) Based on the graph, if the capital market is initially in equilibrium at A with the relative price of housing equal to PH3/P and the stock of housing capital equal to KH2, then holding other factors constant, if a massive earthquake destroys a significant portion of the stock of housing capital, house prices will move to ______ and the flow of residential housing will move to______.

Accepted Answer

A)  PH1/P; IH4 
B)  PH2/P; IH3 
C)  PH3/P; IH2 
D)  PH4/P; IH1 
A)  PH1/P; IH4 
B)  PH2/P; IH3 
C)  PH3/P; IH2 
D)  PH4/P; IH1

Question 7

How will a decrease in output during a recession affect: a. business fixed investment?
b. residential investment?
c. inventory investment?

Accepted Answer

a. Lower output reduces employment and t

Question 8

According to the efficient markets hypothesis, changes in stock prices are:

Accepted Answer

A)  driven by irrational waves of optimism. 
B)  driven by irrational waves of pessimism. 
C)  rational reflections of underlying economic fundamentals. 
D)  possible to predict from available information. 
A)  driven by irrational waves of optimism. 
B)  driven by irrational waves of pessimism. 
C)  rational reflections of underlying economic fundamentals. 
D)  possible to predict from available information.

Question 9

The link between the flow of new housing and the stock of existing housing is the:

Accepted Answer

A)  relative price of housing. 
B)  demand for housing. 
C)  demand for residential investment. 
D)  real interest rate. 
A)  relative price of housing. 
B)  demand for housing. 
C)  demand for residential investment. 
D)  real interest rate.

Question 10

According to the neoclassical model of investment, the immediate impact of a rise in the real interest rate will be to:

Accepted Answer

A)  increase the cost of capital, the rental price of capital, and the rate of investment. 
B)  increase the cost of capital and the rental price of capital, but to lower the rate of investment. 
C)  increase the rental price of capital and the rate of investment, but to leave the cost of capital unchanged. 
D)  increase the cost of capital and lower the rate of investment, but to leave the rental price of capital unchanged. 
A)  increase the cost of capital, the rental price of capital, and the rate of investment. 
B)  increase the cost of capital and the rental price of capital, but to lower the rate of investment. 
C)  increase the rental price of capital and the rate of investment, but to leave the cost of capital unchanged. 
D)  increase the cost of capital and lower the rate of investment, but to leave the rental price of capital unchanged.

Question 11

James Tobin reasoned that:

Accepted Answer

A)  the stock market is a "random walk." 
B)  if the stock market values capital at less than its replacement cost, the stock market will go up. 
C)  if the stock market values capital at less than its replacement cost, the stock market will go down. 
D)  if the stock market values capital at less than its replacement cost, the firm's managers will not replace capital as it wears out. 
A)  the stock market is a "random walk." 
B)  if the stock market values capital at less than its replacement cost, the stock market will go up. 
C)  if the stock market values capital at less than its replacement cost, the stock market will go down. 
D)  if the stock market values capital at less than its replacement cost, the firm's managers will not replace capital as it wears out.

Question 12

Use the following to answer questions :
Exhibit: Residential Investment  
-(Exhibit: Residential Investment) Based on the graph, if the capital market is initially in equilibrium at A with the relative price of housing equal to PH3/P and the stock of housing capital equal to KH2, then holding other factors constant, an economic recession that reduces national income will cause the relative price of housing to move to ______ and the flow of residential housing to move to ______.

Accepted Answer

A)  PH1/P; IH4 
B)  PH2/P; IH3 
C)  PH3/P; IH2 
D)  PH4/P; IH1 
A)  PH1/P; IH4 
B)  PH2/P; IH3 
C)  PH3/P; IH2 
D)  PH4/P; IH1

Question 13

As firms' profits increase during a boom, business fixed investment will increase because:

Accepted Answer

A)  the marginal product of capital falls. 
B)  stock-out avoidance diminishes. 
C)  corporate tax payments decrease. 
D)  the high profit levels relax financing constraints. 
A)  the marginal product of capital falls. 
B)  stock-out avoidance diminishes. 
C)  corporate tax payments decrease. 
D)  the high profit levels relax financing constraints.

Question 14

Assume that the government levies a one-time-only tax on oil companies equal to a proportion of the value of the company's oil reserves. According to the neoclassical model, if firms face no financing constraints and also believe the tax will not be repeated, the effect of this tax on investment by these firms will be to:

Accepted Answer

A)  decrease investment. 
B)  not affect investment. 
C)  increase investment. 
D)  decrease the rental price of capital but not change the cost of capital. 
A)  decrease investment. 
B)  not affect investment. 
C)  increase investment. 
D)  decrease the rental price of capital but not change the cost of capital.

Question 15

According to the neoclassical model of investment, business fixed investment does not depend on:

Accepted Answer

A)  the realized profits of firms. 
B)  the marginal product of capital. 
C)  the interest rate. 
D)  tax rules affecting firms. 
A)  the realized profits of firms. 
B)  the marginal product of capital. 
C)  the interest rate. 
D)  tax rules affecting firms.

Question 16

If firms are earning a profit, then this raises the ______ value of installed capital and implies a ______ value of Tobin's q.

Accepted Answer

A)  market; low 
B)  market; high 
C)  replacement; low 
D)  replacement; high 
A)  market; low 
B)  market; high 
C)  replacement; low 
D)  replacement; high

Question 17

What are the two kinds of firms in the economy, as described by the neoclassical model?

Accepted Answer

There are two kinds of firms in the econ

Question 18

A firm renting out capital does not bear as cost the:

Accepted Answer

A)  lost interest it could have earned by depositing the purchase price of the capital in a bank. 
B)  wear and tear on the capital. 
C)  wages of the labor that works with the capital. 
D)  capital loss or gain in the asset's value. 
A)  lost interest it could have earned by depositing the purchase price of the capital in a bank. 
B)  wear and tear on the capital. 
C)  wages of the labor that works with the capital. 
D)  capital loss or gain in the asset's value.

Question 19

The profit rate of a firm that rents capital is equal to:

Accepted Answer

A)  the marginal product of capital minus the cost of capital. 
B)  the cost of capital minus the marginal product of capital. 
C)  zero. 
D)  a negative number, if it is adding to its capital stock. 
A)  the marginal product of capital minus the cost of capital. 
B)  the cost of capital minus the marginal product of capital. 
C)  zero. 
D)  a negative number, if it is adding to its capital stock.

Question 20

The construction of a new apartment building is an example of:

Accepted Answer

A)  business fixed investment. 
B)  residential investment. 
C)  inventory investment. 
D)  financial investment. 
A)  business fixed investment. 
B)  residential investment. 
C)  inventory investment. 
D)  financial investment.

The existence of financing constraints makes investment:

The inventories of a company that manufactures snow blowers increase in the summer and decline in the winter. This example is most consistent with which of the following explanations for holding inventories?

In the mortgage market, a rise in the real interest rate:

The opportunity cost of holding inventories is the:

Explain the relationship between the marginal product of capital and the total amount of capital. What decision should be made by production firms to maximize its profit?

How will a decrease in output during a recession affect: a. business fixed investment? b. residential investment? c. inventory investment?

According to the efficient markets hypothesis, changes in stock prices are:

The link between the flow of new housing and the stock of existing housing is the:

According to the neoclassical model of investment, the immediate impact of a rise in the real interest rate will be to:

James Tobin reasoned that:

As firms' profits increase during a boom, business fixed investment will increase because:

According to the neoclassical model of investment, business fixed investment does not depend on:

If firms are earning a profit, then this raises the value of installed capital and implies a value of Tobin's q.

What are the two kinds of firms in the economy, as described by the neoclassical model?

A firm renting out capital does not bear as cost the:

The profit rate of a firm that rents capital is equal to:

The construction of a new apartment building is an example of:

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

Filters

Exam 17: The Theory of Investment

The existence of financing constraints makes investment:

The inventories of a company that manufactures snow blowers increase in the summer and decline in the winter. This example is most consistent with which of the following explanations for holding inventories?

In the mortgage market, a rise in the real interest rate:

The opportunity cost of holding inventories is the:

Explain the relationship between the marginal product of capital and the total amount of capital. What decision should be made by production firms to maximize its profit?

How will a decrease in output during a recession affect: a. business fixed investment? b. residential investment? c. inventory investment?

According to the efficient markets hypothesis, changes in stock prices are:

The link between the flow of new housing and the stock of existing housing is the:

According to the neoclassical model of investment, the immediate impact of a rise in the real interest rate will be to:

James Tobin reasoned that:

As firms' profits increase during a boom, business fixed investment will increase because:

According to the neoclassical model of investment, business fixed investment does not depend on:

If firms are earning a profit, then this raises the ______ value of installed capital and implies a ______ value of Tobin's q.

What are the two kinds of firms in the economy, as described by the neoclassical model?

A firm renting out capital does not bear as cost the:

The profit rate of a firm that rents capital is equal to:

The construction of a new apartment building is an example of:

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

Filters

If firms are earning a profit, then this raises the value of installed capital and implies a value of Tobin's q.