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| 1 | |
Which of the following will NOT affect the productive capacity of a country? |
| | A) | more people getting a higher education |
| | B) | more people investing in government bonds |
| | C) | the government improving the infrastructure such as bridges and highways |
| | D) | firms replacing old PCs with newer, more efficient ones |
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| 2 | |
In absence of taxation, the rental cost of capital can be defined as |
| | A) | rc = i + πe - d |
| | B) | rc = i - πe - d |
| | C) | rc = i - πe + d |
| | D) | rc = i + πe + d |
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| 3 | |
If we ignore taxation and know that the rental cost of capital is 12%, the expected rate of inflation is 4%, and the nominal interest rate is 9%, we can conclude that the rate of depreciation must be |
| | A) | d = 1% |
| | B) | d = 7% |
| | C) | d = 17% |
| | D) | d = 25% |
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| 4 | |
If the rental cost of capital is above the marginal product of capital, then a firm should |
| | A) | increase its investment spending |
| | B) | decrease its investment spending |
| | C) | not replace some of the machines that have broken down in the production process |
| | D) | undertake primarily replacement investments |
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| 5 | |
Assume a Cobb-Douglas production function of the form Y = AK0.2N0.8. If the rental cost of capital is rc = 5%, the desired capital stock of a cost-minimizing firm should be equal to |
| | A) | K* = 2Y |
| | B) | K* = 4Y |
| | C) | K* = 5Y |
| | D) | K* = 8Y |
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| 6 | |
Assume the market interest rate is 10% and is not expected to change over the next three years. If an investment project has net returns of $2,420 after one year, $3,630 after the second year, and $3,993 after the third year, what is its net present discounted value? |
| | A) | $10,043 |
| | B) | $9,130 |
| | C) | $9,020 |
| | D) | $8,200 |
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| 7 | |
The most likely source of funding for a U.S. firm wishing to finance a new investment project is |
| | A) | a credit line with a bank |
| | B) | retained earnings |
| | C) | selling bonds |
| | D) | issuing equity (stocks) |
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| 8 | |
According to the accelerator model, |
| | A) | a change in investment is proportional to the level of output |
| | B) | the level of investment spending is proportional to the level of output |
| | C) | the level of investment spending is proportional to the change in output |
| | D) | the level of investment spending is mainly affected by interest rate changes |
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| 9 | |
Expansionary monetary policy has an effect on the housing market since it |
| | A) | decreases the price of all assets, including housing prices |
| | B) | lowers real interest rates in the long run, so people will postpone buying homes |
| | C) | lowers nominal interest rates, so banks find mortgage lending less profitable |
| | D) | lowers nominal interest rates, so more homebuyers are able to qualify for mortgages |
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| 10 | |
An unanticipated decrease in the level of inventories may occur |
| | A) | in the midst of a boom, as firms prepare for the upcoming recession |
| | B) | in a boom when increased sales cannot be met by increases in production |
| | C) | in a recession when firms expect lower profits and try to keep their costs low |
| | D) | at the beginning of a recession as firms slash their prices to induce more sales |
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