Question 1

Other things being equal, the ratio of Tobin's q will rise if:

Accepted Answer

A)  stock prices fall. 
B)  the replacement cost of capital rises. 
C)  more capital is installed. 
D)  stock prices rise. 
A)  stock prices fall. 
B)  the replacement cost of capital rises. 
C)  more capital is installed. 
D)  stock prices rise.

Question 2

Because of the way that U.S. tax law defines depreciation, depreciation for tax purposes is:

Accepted Answer

A)  always less than true economic depreciation. 
B)  always greater than true economic depreciation. 
C)  always equal to true economic depreciation. 
D)  sometimes greater than true economic depreciation and sometimes less. 
A)  always less than true economic depreciation. 
B)  always greater than true economic depreciation. 
C)  always equal to true economic depreciation. 
D)  sometimes greater than true economic depreciation and sometimes less.

Question 3

The inventories as a factor of production motive for holding inventories suggests that:

Accepted Answer

A)  firms hold inventories in order to produce more output. 
B)  when sales are low, firms produce more than they sell and put the extra goods in inventories. 
C)  firms hold inventories to avoid paying wages to labor. 
D)  when a product is only partly completed, its components are counted as part of the firm's inventory. 
A)  firms hold inventories in order to produce more output. 
B)  when sales are low, firms produce more than they sell and put the extra goods in inventories. 
C)  firms hold inventories to avoid paying wages to labor. 
D)  when a product is only partly completed, its components are counted as part of the firm's inventory.

Question 4

If the replacement cost of installed capital equals $20 trillion and the market value of installed capital equals $25 trillion, then according to q theory, businesses should:

Accepted Answer

A)  add to capital stock. 
B)  let capital stock shrink. 
C)  keep capital stock unchanged. 
D)  reduce product prices to increase profits. 
A)  add to capital stock. 
B)  let capital stock shrink. 
C)  keep capital stock unchanged. 
D)  reduce product prices to increase profits.

Question 5

Inventory investment, at least in theory, should:

Accepted Answer

A)  rise when the real interest rate rises, other things being equal. 
B)  not depend on the real interest rate, other things being equal. 
C)  fall when the real interest rate rises, other things being equal. 
D)  depend only on the change in real GDP. 
A)  rise when the real interest rate rises, other things being equal. 
B)  not depend on the real interest rate, other things being equal. 
C)  fall when the real interest rate rises, other things being equal. 
D)  depend only on the change in real GDP.

Question 6

If Tobin's q is greater than 1, then managers should:

Accepted Answer

A)  increase the capital stock of the firm. 
B)  maintain the existing capital stock of the firm. 
C)  allow inventories to run down. 
D)  decrease the capital stock of the firm. 
A)  increase the capital stock of the firm. 
B)  maintain the existing capital stock of the firm. 
C)  allow inventories to run down. 
D)  decrease the capital stock of the firm.

Question 7

According to Hall, consumption spending follows a random walk and, according to the efficient-markets model, stock prices follow a random walk. a. What determines changes in consumption and stock prices in this case?
b. What is the implication of following a random walk for predicting changes in consumption and stock prices?

Accepted Answer

a. Changes in consumption are the result

Question 8

The most volatile component of real GDP is:

Accepted Answer

A)  consumption spending. 
B)  government spending. 
C)  investment spending. 
D)  net exports. 
A)  consumption spending. 
B)  government spending. 
C)  investment spending. 
D)  net exports.

Question 9

The investment spending component of GDP includes all of the following except:

Accepted Answer

A)  business fixed investment. 
B)  net foreign investment. 
C)  residential investment. 
D)  inventory investment. 
A)  business fixed investment. 
B)  net foreign investment. 
C)  residential investment. 
D)  inventory investment.

Question 10

Inventory investment is the ______ component of aggregate spending and is very ______.

Accepted Answer

A)  largest; volatile 
B)  largest; stable 
C)  smallest; volatile 
D)  smallest; stable 
A)  largest; volatile 
B)  largest; stable 
C)  smallest; volatile 
D)  smallest; stable

Question 11

The rate of depreciation is the:

Accepted Answer

A)  nominal interest rate times the purchase price of capital. 
B)  capital losses resulting from decreases in the price of capital. 
C)  fraction of the value of capital lost per period because of wear and tear. 
D)  change in the q value of the firm. 
A)  nominal interest rate times the purchase price of capital. 
B)  capital losses resulting from decreases in the price of capital. 
C)  fraction of the value of capital lost per period because of wear and tear. 
D)  change in the q value of the firm.

Question 12

Graphically illustrate: (1) what happens to the rental price of capital and the marginal product of capital as the stock of capital increases, and (2) how the change in the marginal product of capital changes the investment demand function. Explain in words how this process will continue in the long run until the steady state is reached.

Accepted Answer

@#IMG-DLM& Panel A illustrates that the increase i

Question 13

Adding to the stock of spare parts that a manufacturer keeps on hand to replace worn out or broken parts is an example of:

Accepted Answer

A)  the efficient markets hypothesis. 
B)  precautionary saving. 
C)  inventory investment. 
D)  reserve requirements. 
A)  the efficient markets hypothesis. 
B)  precautionary saving. 
C)  inventory investment. 
D)  reserve requirements.

Question 14

The demand for housing is brought into equilibrium with the existing stock of housing by changes in the:

Accepted Answer

A)  real interest rate. 
B)  nominal interest rate. 
C)  relative price of housing. 
D)  overall price level. 
A)  real interest rate. 
B)  nominal interest rate. 
C)  relative price of housing. 
D)  overall price level.

Question 15

If the price index for capital goods is the same as the price index for other goods, an index of the real cost of capital for investment, in the absence of taxes, may be summarized as the:

Accepted Answer

A)  nominal interest rate plus the depreciation rate. 
B)  real interest rate plus the depreciation rate. 
C)  purchase price of a capital good multiplied by the sum of the nominal interest rate plus the depreciation rate. 
D)  purchase price of a capital good multiplied by the sum of the real interest rate plus the depreciation rate. 
A)  nominal interest rate plus the depreciation rate. 
B)  real interest rate plus the depreciation rate. 
C)  purchase price of a capital good multiplied by the sum of the nominal interest rate plus the depreciation rate. 
D)  purchase price of a capital good multiplied by the sum of the real interest rate plus the depreciation rate.

Question 16

Business fixed investment, residential investment, and inventory investment ______ as the real interest rate increases and ______ as output increases.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; increase 
D)  decrease; decrease

Question 17

According to the efficient markets hypothesis, stock price changes reflect ______, but according to Keynes, stock price changes often reflect ______.

Accepted Answer

A)  the inventory accelerator; changes in Tobin's q 
B)  changes in the real cost of capital; financing constraints 
C)  changes in the underlying economic fundamentals; irrational waves of optimism or pessimism 
D)  reductions in investment tax credits; the use of historical cost rather than replacement cost in computing depreciation costs 
A)  the inventory accelerator; changes in Tobin's q 
B)  changes in the real cost of capital; financing constraints 
C)  changes in the underlying economic fundamentals; irrational waves of optimism or pessimism 
D)  reductions in investment tax credits; the use of historical cost rather than replacement cost in computing depreciation costs

Question 18

In case of capital in the rental market, why does the demand curve slope downwards?

Accepted Answer

The demand curve slopes downward because

Question 19

In equilibrium, other things being equal, all of the following changes will increase the real rental price of capital except:

Accepted Answer

A)  a lower quantity of labor employed. 
B)  a lower stock of capital. 
C)  better technology. 
D)  a higher labor-capital ratio. 
A)  a lower quantity of labor employed. 
B)  a lower stock of capital. 
C)  better technology. 
D)  a higher labor-capital ratio.

Question 20

According to Keynes, movements in stock prices:

Accepted Answer

A)  follow a random walk. 
B)  reflect rational valuations of underlying economic fundamentals. 
C)  result when new information becomes available. 
D)  are often driven by irrational waves of optimism and pessimism. 
A)  follow a random walk. 
B)  reflect rational valuations of underlying economic fundamentals. 
C)  result when new information becomes available. 
D)  are often driven by irrational waves of optimism and pessimism.

Other things being equal, the ratio of Tobin's q will rise if:

Because of the way that U.S. tax law defines depreciation, depreciation for tax purposes is:

The inventories as a factor of production motive for holding inventories suggests that:

If the replacement cost of installed capital equals $20 trillion and the market value of installed capital equals $25 trillion, then according to q theory, businesses should:

Inventory investment, at least in theory, should:

If Tobin's q is greater than 1, then managers should:

The most volatile component of real GDP is:

The investment spending component of GDP includes all of the following except:

Inventory investment is the component of aggregate spending and is very .

The rate of depreciation is the:

Adding to the stock of spare parts that a manufacturer keeps on hand to replace worn out or broken parts is an example of:

The demand for housing is brought into equilibrium with the existing stock of housing by changes in the:

If the price index for capital goods is the same as the price index for other goods, an index of the real cost of capital for investment, in the absence of taxes, may be summarized as the:

Business fixed investment, residential investment, and inventory investment as the real interest rate increases and as output increases.

According to the efficient markets hypothesis, stock price changes reflect , but according to Keynes, stock price changes often reflect .

In case of capital in the rental market, why does the demand curve slope downwards?

In equilibrium, other things being equal, all of the following changes will increase the real rental price of capital except:

According to Keynes, movements in stock prices:

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

Other things being equal, the ratio of Tobin's q will rise if:

Because of the way that U.S. tax law defines depreciation, depreciation for tax purposes is:

The inventories as a factor of production motive for holding inventories suggests that:

If the replacement cost of installed capital equals $20 trillion and the market value of installed capital equals $25 trillion, then according to q theory, businesses should:

Inventory investment, at least in theory, should:

If Tobin's q is greater than 1, then managers should:

The most volatile component of real GDP is:

The investment spending component of GDP includes all of the following except:

Inventory investment is the ______ component of aggregate spending and is very ______.

The rate of depreciation is the:

Adding to the stock of spare parts that a manufacturer keeps on hand to replace worn out or broken parts is an example of:

The demand for housing is brought into equilibrium with the existing stock of housing by changes in the:

If the price index for capital goods is the same as the price index for other goods, an index of the real cost of capital for investment, in the absence of taxes, may be summarized as the:

Business fixed investment, residential investment, and inventory investment ______ as the real interest rate increases and ______ as output increases.

According to the efficient markets hypothesis, stock price changes reflect ______, but according to Keynes, stock price changes often reflect ______.

In case of capital in the rental market, why does the demand curve slope downwards?

In equilibrium, other things being equal, all of the following changes will increase the real rental price of capital except:

According to Keynes, movements in stock prices:

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

Inventory investment is the component of aggregate spending and is very .

Business fixed investment, residential investment, and inventory investment as the real interest rate increases and as output increases.

According to the efficient markets hypothesis, stock price changes reflect , but according to Keynes, stock price changes often reflect .