Question 1

Table 14-1
 
-Refer to Table 14-1. If the market interest rate is 11%, the last project undertaken is

Accepted Answer

A)   Project Garron.
B)   Project Hattrick.
C)   Project Iroda.
D)   Project Jemma.E) C) and D)
F) A) and D)

Question 2

Which of the following is included in gross private domestic investment? 
I. Macy's purchase of new computerized cash registers
II. repairs to and replacements to the carpeting at Macy's
III. your purchase of a new queen-sized mattress from Macy's
IV. changes in Macy's business inventories

Accepted Answer

A)   I only
B)   I and II only
C)   I, II, and IV only
D)   I, II, III, and IVE) B) and D)
F) A) and C)

Question 3

A decrease in the interest rate will cause a(n)

Accepted Answer

A)   increase in the investment demand curve.
B)   decrease in the investment demand curve.
C)   movement up along the investment demand curve.
D)   movement down along the investment demand curve.E) B) and D)
F) None of the above

Question 4

If gross private domestic investment exceeds depreciation, then

Accepted Answer

A)   net private domestic investment is zero.
B)   net private domestic investment is negative.
C)   the capital stock is declining.
D)   the capital stock is increasing.E) C) and D)
F) A) and B)

Question 5

In the short run, a decrease in the interest rate

Accepted Answer

A)   will shift the aggregate demand curve to the right.
B)   will shift the investment demand curve to the right.
C)   will shift the long-run aggregate supply curve to the right.
D)   will shift the short-run aggregate supply curve to the right.E) None of the above
F) A) and B)

Question 6

If gross private domestic investment exceeds depreciation, then

Accepted Answer

A)   net private domestic investment is positive.
B)   net private domestic investment is negative.
C)   the capital stock is declining.
D)   the capital stock is unchanged.E) B) and D)
F) B) and C)

Question 7

Figure 14-4 
-Refer to Figure 14-4. The economy is in short-run equilibrium. To move the economy to a long-run equilibrium, policy makers should

Accepted Answer

A)   increase interest rates and discourage investment to close the inflationary gap.
B)   reduce interest rates and encourage investment to close the recessionary gap.
C)   increase interest rates and encourage investment to close the inflationary gap.
D)   reduce interest rates and discourage investment to close the recessionary gap.E) C) and D)
F) B) and D)

Question 8

Changes in the corporate profits tax rate will shift the investment demand curve.

Accepted Answer

A) True 
 B)False

Question 9

In the short run, the most important consequence of an increase in investment is a(n)

Accepted Answer

A)   increase in the capital stock.
B)   decrease in the capital stock.
C)   increase in aggregate demand.
D)   decrease in aggregate demand.E) B) and C)
F) A) and D)

Question 10

Figure 14-2 
-Refer to Figure 14-2. Which panel shows the result of a lower interest rate?

Accepted Answer

A)   Panel (a) 
B)   Panel (b) 
C)   Panel (c) , a movement from B to A
D)   Panel (c) , a movement from A to BE) A) and C)
F) A) and B)

Question 11

Investment contributes to economic growth.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following will not shift the investment demand curve?

Accepted Answer

A)   An expansionary monetary policy that lowers interest rates
B)   A decrease in corporate income tax rates
C)   Businesses become more optimistic about the level of economic activity
D)   New markets open in Chile and Brazil for U.S. productsE) None of the above
F) A) and B)

Question 13

Consider the following two events: (i)  an increase in the cost of new capital goods; and (ii)  a decrease in corporate income tax rates. How will these events affect the demand for investment?

Accepted Answer

A)   The demand for investment increases.
B)   The demand for investment decreases.
C)   The two events have opposite effects on investment. Therefore, the demand for investment remains the same.
D)   These events have an indeterminate effect on the demand for investment.E) B) and C)
F) C) and D)

Question 14

If the Fed wishes to stimulate aggregate demand, it will conduct an open market

Accepted Answer

A)   sale which will lower bond prices, lower interest rates, and stimulate investment.
B)   purchase which will lower bond prices, lower interest rates, and discourage investment.
C)   sale which will lower bond prices, raise interest rates, and discourage investment.
D)   purchase which will raise bond prices, lower interest rates, and stimulate investment.E) All of the above
F) B) and D)

Question 15

A nation's capital stock will decrease if

Accepted Answer

A)   a firm purchases used equipment.
B)   inventories of intermediate goods (such as lumber for housing construction)  decrease.
C)   obsolete equipment is not replaced.
D)   the stock of existing homes for sale decreases.E) B) and C)
F) C) and D)

Question 16

Changes in the interest rate will lead to shifts in the investment demand curve.

Accepted Answer

A) True 
 B)False

Question 17

Suppose your firm is considering an investment project that will generate an expected return of 5%. The project costs $200,000. Suppose further that your firm has $200,000 of retained earnings. If the market interest rate is 10%, your firm should

Accepted Answer

A)   loan the retained earnings out at 5%.
B)   loan the retained earnings out at 10%.
C)   loan the retained earnings out at 15%.
D)   invest the $200,000 of retained earnings in the project.E) B) and D)
F) B) and C)

Question 18

Table 14-1
 
-Refer to Table 14-1. If the market interest rate declines from 15% to 13%, what happens to the quantity of investment demanded?

Accepted Answer

A)   It decreases by $2,200 because investment is now less profitable.
B)   It decreases by $1,000 because investment is now less profitable.
C)   It increases by $200 because investment is now more profitable.
D)   It increases by $2,200 because investment is now more profitable.E) A) and B)
F) A) and C)

Question 19

There is a _____ relationship between the quantity of investment demanded and the rate of interest.

Accepted Answer

A)   Positive
B)   Direct
C)   Negative
D)   VolatileE) All of the above
F) A) and D)

Question 20

An increase in the interest rate causes a decrease in investment by shifting the investment demand curve to the left.

Accepted Answer

A) True 
 B)False

Exam 14: Investment and Economic Activity

If gross private domestic investment exceeds depreciation, then

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A decrease in the interest rate will cause a(n)

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Changes in the corporate profits tax rate will shift the investment demand curve.

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Table 14-1 -Refer to Table 14-1. If the market interest rate is 11%, the last project undertaken is

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Figure 14-4 -Refer to Figure 14-4. The economy is in short-run equilibrium. To move the economy to a long-run equilibrium, policy makers should

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An increase in the interest rate causes a decrease in investment by shifting the investment demand curve to the left.

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If gross private domestic investment exceeds depreciation, then

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If the Fed wishes to stimulate aggregate demand, it will conduct an open market

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Changes in the interest rate will lead to shifts in the investment demand curve.

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In the short run, a decrease in the interest rate

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Which of the following is included in gross private domestic investment? I. Macy's purchase of new computerized cash registers II. repairs to and replacements to the carpeting at Macy's III. your purchase of a new queen-sized mattress from Macy's IV. changes in Macy's business inventories

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Consider the following two events: (i) an increase in the cost of new capital goods; and (ii) a decrease in corporate income tax rates. How will these events affect the demand for investment?

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In the short run, the most important consequence of an increase in investment is a(n)

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Figure 14-2 -Refer to Figure 14-2. Which panel shows the result of a lower interest rate?

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A nation's capital stock will decrease if

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Suppose your firm is considering an investment project that will generate an expected return of 5%. The project costs $200,000. Suppose further that your firm has $200,000 of retained earnings. If the market interest rate is 10%, your firm should

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Investment contributes to economic growth.

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Which of the following will not shift the investment demand curve?

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There is a _____ relationship between the quantity of investment demanded and the rate of interest.

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Table 14-1 -Refer to Table 14-1. If the market interest rate declines from 15% to 13%, what happens to the quantity of investment demanded?

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