Question 1

Use Tobin's q theory and the neoclassical theory of investment to explain how optimistic scenarios of the "information age" would cause overinvestment in computer-related capital goods,and how that overinvestment would cause a sudden reversal.

Accepted Answer

A high expected marginal product of capi...

Question 2

Applying neoclassical theory to the housing market,________ cause a decrease in the user cost of housing.

Accepted Answer

A)  higher expected household incomes
B)  higher rates of household formation
C)  increases in the expected relative price of housing
D)  tighter constraints on mortgage financingE) None of the above
F) B) and D)

Question 3

When Tobin's q is greater than one,________.

Accepted Answer

A)  a unit of a firm's stock (equity) is worth more than a unit of the firm's capital
B)  a new unit of capital has more value than a new unit of stock (equity) 
C)  installed capital is worth less than new capital
D)  a unit of capital that a firm owns has more value than a unit it might buyE) All of the above
F) A) and B)

Question 4

The user cost of capital is negatively related to ________.

Accepted Answer

A)  the real rate of interest
B)  the depreciation rate
C)  the expected rate of change of the real price of capital
D)  the tertiary log of the nominal price of capitalE) B) and D)
F) All of the above

Question 5

The federal government has encouraged home ownership through ________.

Accepted Answer

A)  an increase in home prices
B)  an increase in domestic interest rates
C)  a decrease in the implicit rent on residential housing
D)  allowing mortgage interest to be tax deductibleE) B) and D)
F) B) and C)

Question 6

If the market value of a firm is $6 billion and Tobin's q is equal to 2,then the replacement cost of installed capital must be ________.

Accepted Answer

A)  $2 billion
B)  $3 billion
C)  $9 billion
D)  $18 billionE) B) and C)
F) A) and D)

Question 7

The most volatile component of total investment spending is ________.

Accepted Answer

A)  construction spending by firms
B)  spending by firms on equipment
C)  residential construction by households
D)  inventory investmentE) A) and C)
F) B) and C)

Question 8

An increase in the rate of depreciation is associated with ________.

Accepted Answer

A)  a decrease in the rate of productivity
B)  a decrease in gross investment
C)  a decrease in net investment
D)  an increase in net investmentE) A) and B)
F) A) and C)

Question 9

A decline in Tobin's q can be caused by ________.

Accepted Answer

A)  a rise in the market value of a firm
B)  an increase in stock prices
C)  a decline in stock prices
D)  a decline in the replacement cost of capitalE) A) and B)
F) A) and C)

Question 10

Desired Level of the Capital Stock 
-Consider the two graphs above.Suppose there is an increase in the real interest rate.This would ________ the desired level of the capital stock,as depicted in graph ________.

Accepted Answer

A)  increase;B
B)  increase;A
C)  decrease;B
D)  decrease;AE) B) and D)
F) None of the above

Question 11

Desired Level of the Capital Stock 
-Consider the two graphs above.Suppose that allowable deductions from taxable business income are increased.This would ________ the desired level of the capital stock,as depicted in graph ________.

Accepted Answer

A)  increase;B
B)  increase;A
C)  decrease;B
D)  decrease;AE) A) and B)
F) None of the above

Question 12

Firms that continue to produce when sales are temporarily low in an effort to avoid costly fluctuations in production are engaging in ________.

Accepted Answer

A)  second degree price discrimination
B)  stock out avoidance
C)  work in progress
D)  production smoothingE) A) and C)
F) A) and B)

Question 13

The expected real cost of using a unit of capital over a given period of time is known as ________.

Accepted Answer

A)  the real rate of interest
B)  the nominal rate of interest
C)  depreciation
D)  the user cost of capitalE) A) and C)
F) B) and C)

Question 14

Applying neoclassical theory to the housing market,the idea that "housing is a good investment" refers to ________.

Accepted Answer

A)  higher expected household income
B)  the inability to buy as much housing at a higher price
C)  an expected increase in the relative price of housing
D)  a decrease in the cost of building new housesE) B) and C)
F) None of the above

Question 15

Applying neoclassical theory to the housing market,________ cause a decrease in the desired stock of houses.

Accepted Answer

A)  higher expected household incomes
B)  higher rates of household formation
C)  increases in the expected relative price of housing
D)  tighter constraints on mortgage financingE) A) and B)
F) A) and C)

Question 16

Investment spending is a potent force in the macroeconomy,because ________.

Accepted Answer

A)  it is subject to large fluctuations
B)  it is larger than other spending categories
C)  it is the focus of macroeconomic policies
D)  it expresses entrepreneurial talentE) None of the above
F) A) and B)

Question 17

A decline in real mortgage rates will lead,other things the same,to ________.

Accepted Answer

A)  lower demand for housing
B)  tighter financing constraints
C)  an increase in residential investment
D)  a lower relative price of housingE) A) and B)
F) A) and C) C

Question 18

A decline in the desired level of capital and investment will result from ________.

Accepted Answer

A)  a rise in the real price of capital
B)  a decrease in the rate of depreciation
C)  a decrease in the real interest rate
D)  a decrease in the real price of capitalE) A) and B)
F) All of the above A

Question 19

Desired Level of the Capital Stock 
-Consider the two graphs above.Suppose that improvements in storage technology reduce inventory losses.This would ________ the desired level of inventories,as depicted in graph ________.

Accepted Answer

A)  increase;B
B)  increase;A
C)  decrease;B
D)  decrease;AE) B) and C)
F) None of the above

Question 20

Investment spending in the U.S.________.

Accepted Answer

A)  comprises the majority of total spending
B)  is equal to approximately 15 percent of total spending
C)  is equal to approximately 81 percent of total spending
D)  is the smallest component part of household consumption spendingE) A) and B)
F) B) and C) B

Exam 19: Investment

Use Tobin's q theory and the neoclassical theory of investment to explain how optimistic scenarios of the "information age" would cause overinvestment in computer-related capital goods,and how that overinvestment would cause a sudden reversal.

Correct AnswerverifiedA high expected marginal product of capi...View AnswerShow Answer

Applying neoclassical theory to the housing market,________ cause a decrease in the user cost of housing.

Correct AnswerverifiedShow Answer

When Tobin's q is greater than one,________.

Correct AnswerverifiedShow Answer

The user cost of capital is negatively related to ________.

Correct AnswerverifiedShow Answer

The federal government has encouraged home ownership through ________.

Correct AnswerverifiedShow Answer

If the market value of a firm is $6 billion and Tobin's q is equal to 2,then the replacement cost of installed capital must be ________.

Correct AnswerverifiedShow Answer

The most volatile component of total investment spending is ________.

Correct AnswerverifiedShow Answer

An increase in the rate of depreciation is associated with ________.

Correct AnswerverifiedShow Answer

A decline in Tobin's q can be caused by ________.

Correct AnswerverifiedShow Answer

Desired Level of the Capital Stock -Consider the two graphs above.Suppose there is an increase in the real interest rate.This would ________ the desired level of the capital stock,as depicted in graph ________.

Correct AnswerverifiedShow Answer

Desired Level of the Capital Stock -Consider the two graphs above.Suppose that allowable deductions from taxable business income are increased.This would ________ the desired level of the capital stock,as depicted in graph ________.

Correct AnswerverifiedShow Answer

Firms that continue to produce when sales are temporarily low in an effort to avoid costly fluctuations in production are engaging in ________.

Correct AnswerverifiedShow Answer

The expected real cost of using a unit of capital over a given period of time is known as ________.

Correct AnswerverifiedShow Answer

Applying neoclassical theory to the housing market,the idea that "housing is a good investment" refers to ________.

Correct AnswerverifiedShow Answer

Applying neoclassical theory to the housing market,________ cause a decrease in the desired stock of houses.

Correct AnswerverifiedShow Answer

Investment spending is a potent force in the macroeconomy,because ________.

Correct AnswerverifiedShow Answer

A decline in real mortgage rates will lead,other things the same,to ________.

Correct AnswerverifiedC

A decline in the desired level of capital and investment will result from ________.

Correct AnswerverifiedA

Desired Level of the Capital Stock -Consider the two graphs above.Suppose that improvements in storage technology reduce inventory losses.This would ________ the desired level of inventories,as depicted in graph ________.

Correct AnswerverifiedShow Answer

Investment spending in the U.S.________.

Correct AnswerverifiedB

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Desired Level of the Capital Stock -Consider the two graphs above.Suppose there is an increase in the real interest rate.This would the desired level of the capital stock,as depicted in graph .

Correct Answer
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Desired Level of the Capital Stock -Consider the two graphs above.Suppose that allowable deductions from taxable business income are increased.This would the desired level of the capital stock,as depicted in graph .

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C

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A

Desired Level of the Capital Stock -Consider the two graphs above.Suppose that improvements in storage technology reduce inventory losses.This would the desired level of inventories,as depicted in graph .

Correct Answer
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B