For a borrower, an increase in the real interest rate will lead to

For a borrower, an increase in the real interest rate will lead to  (a) higher current consumption and less borrowing. (b) higher current consumption...

The substitution effect of a decrease in real interest rates is to cause a consumer to

The substitution effect of a decrease in real interest rates is to cause a consumer to  (a) increase future consumption and decrease current...

If Claudette gets a permanent increase in her income of $1000 per year, she saves an extra $200 this year and consumes an extra $800 this year. If the increase in income had been temporary instead of permanent, she would have saved _____ of the extra income.

If Claudette gets a permanent increase in her income of $1000 per year, she saves an extra $200 this year and consumes an extra $800 this year. If the...

If Claudette gets a permanent increase in her income of $1000 per year, she saves an extra $200 this year and consumes an extra $800 this year. If the increase in income had been temporary instead of permanent, she would have saved _____ of the extra income.

If Claudette gets a permanent increase in her income of $1000 per year, she saves an extra $200 this year and consumes an extra $800 this year. If the...

A curve that connects all the consumption combinations that yield the same level of utility is known as

A curve that connects all the consumption combinations that yield the same level of utility is known as  (a) an isoquant. (b) a yield curve. (c)...

Rachel earns nothing during her learning period, 1100 during her working period, and nothing during her retirement period. She has initial assets of 300. The real interest rate is zero. Rachel is not allowed to borrow by the banks. Whenever possible,Rachel wants to smooth consumption between periods. How much will she save during her working period?

Rachel earns nothing during her learning period, 1100 during her working period, and nothing during her retirement period. She has initial assets of...

David consumes 200 in the current period and 330 in the future period. The real interest rate is 10% per period. David's present value of lifetime consumption is

David consumes 200 in the current period and 330 in the future period. The real interest rate is 10% per period. David's present value of lifetime consumption...

A temporary supply shock, such as a drought, would

A temporary supply shock, such as a drought, would  (a) increase the marginal product of capital and increase desired investment. (b) decrease...

An invention that raises the future marginal product of capital would cause an increase in desired investment, which would cause the investment curve to shift to the ________ and would cause the real interest rate to ________.

An invention that raises the future marginal product of capital would cause an increase in desired investment, which would cause the investment curve...

If consumers foresee future taxes completely, a reduction in taxes this year that is accompanied by an offsetting increase in future taxes would cause

If consumers foresee future taxes completely, a reduction in taxes this year that is accompanied by an offsetting increase in future taxes would cause  (a)...

A temporary decrease in government purchases would cause

A temporary decrease in government purchases would cause  (a) a rightward shift in the saving curve and a leftward shift in the investment...

The saving-investment diagram shows that a higher real interest rate due to a leftward shift of the saving curve

The saving-investment diagram shows that a higher real interest rate due to a leftward shift of the saving curve  (a) raises the profitability...

An increase in the expected real interest rate tends to

An increase in the expected real interest rate tends to  (a) raise desired savings only. (b) raise desired investment only. (c) raise both desired...

Any change in the economy that raises desired national saving for a given value of the real interest rate will shift the desired national saving curve to

Any change in the economy that raises desired national saving for a given value of the real interest rate will shift the desired national saving curve...

An economy has government purchases of 1000. Desired national saving and desired investment are given by

An economy has government purchases of 1000. Desired national saving and desired investment are given by  S d =200 +5000r +0.10Y- 0.20G I d =1000...

An economy has full-employment output of 5000. Government Purchases are 1000. Desired consumption and desired investment are given by

An economy has full-employment output of 5000. Government Purchases are 1000. Desired consumption and desired investment are given by  C d =3000...

When desired national saving equals desired national investment, what market is in equilibrium?

When desired national saving equals desired national investment, what market is in equilibrium?  (a) The goods market (b) The money market (c)...

Your firm has capital stock of $10 million and a depreciation rate of 15%. Gross investment is $3 million. How much is net investment?

Your firm has capital stock of $10 million and a depreciation rate of 15%. Gross investment is $3 million. How much is net investment?  (a)...

Your firm has capital stock of $10 million and a depreciation rate of 15%. Gross investment is $3 million. How much is net investment?

Your firm has capital stock of $10 million and a depreciation rate of 15%. Gross investment is $3 million. How much is net investment?  (a)...

In 2003, your firm's capital stock equaled $10 million, and in 2004 it equaled $15 million. The average depreciation rate on your capital stock was 20%. Net investment in 2004 equaled

In 2003, your firm's capital stock equaled $10 million, and in 2004 it equaled $15 million. The average depreciation rate on your capital stock was...

In 2003, your firm's capital stock equaled $100 million, and in 2004 it equaled $105 million. The average depreciation rate on your capital stock is 20%. Gross investment in 2004 equaled

In 2003, your firm's capital stock equaled $100 million, and in 2004 it equaled $105 million. The average depreciation rate on your capital stock is...

What is the difference between gross investment and net investment?

What is the difference between gross investment and net investment?  (a) Net investment =gross investment minus taxes (b) Net investment =gross...

Cummins, Hubbard, and Hassett studied the effects of taxes on investment by

Cummins, Hubbard, and Hassett studied the effects of taxes on investment by  (a) seeing if investment spending is correlated with taxes on investment. (b)...

Cummins, Hubbard, and Hassett studied the effects of taxes on investment by

Cummins, Hubbard, and Hassett studied the effects of taxes on investment by  (a) seeing if investment spending is correlated with taxes on investment. (b)...

Calculate the tax-adjusted user cost of capital of a machine that costs $10,000 and depreciates at a rate of 10%, when the real interest rate is 3% and the tax rate on revenue is 5%.

Calculate the tax-adjusted user cost of capital of a machine that costs $10,000 and depreciates at a rate of 10%, when the real interest rate is 3%...

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent increase in the depreciation rate now has what effect on your desired capital stock?

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent increase in the depreciation rate now has what effect...

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent decline in the expected real interest rate now has what effect on your desired capital stock?

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent decline in the expected real interest rate now has...

A technological improvement will

A technological improvement will  (a) increase the desired capital stock. (b) decrease the desired capital stock. (c) have no effect on the desired...

A firm should invest more if Tobin's q

A firm should invest more if Tobin's q (a) equals zero. (b) is less than one. (c) equals one. (d) is more than one. Answer:...

If the stock market value of a firm is $10 million and the firm owns $15 million of capital, then Tobin's q equals

If the stock market value of a firm is $10 million and the firm owns $15 million of capital, then Tobin's q equals  (a) 2/3. (b) 1. (c) 3/2. (d)...

The relationship between stock prices and firms' investments in physical capital is captured by what theory?

The relationship between stock prices and firms' investments in physical capital is captured by what theory?  (a) User-cost-of-capital theory (b)...

The relationship between stock prices and firms' investments in physical capital is captured by what theory?

The relationship between stock prices and firms' investments in physical capital is captured by what theory?  (a) User-cost-of-capital theory (b)...

You are trying to figure out how much capacity to add to your factory. You will increase capacity as long as

You are trying to figure out how much capacity to add to your factory. You will increase capacity as long as  (a) the expected marginal product...

Calculate the user cost of capital of a machine that costs $100,000 and depreciates at a rate of 25%, when the nominal interest rate is 4% and the expected inflation rate is 1%.

Calculate the user cost of capital of a machine that costs $100,000 and depreciates at a rate of 25%, when the nominal interest rate is 4% and the expected...

Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a rate of 25%, when the nominal interest rate is 10% and the expected inflation rate is 5%.

Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a rate of 25%, when the nominal interest rate is 10% and the expected...

Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a rate of 25%, when the expected real interest rate is 5%.

Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a rate of 25%, when the expected real interest rate is 5%.  (a)...

Which of the following machines has the lowest user cost? Machine A costs $15,000 and depreciates at a rate of 25%; machine B costs $10,000 and depreciates at a rate of 20%; machine C costs $20,000 and depreciates at a rate of 10%; and machine D costs $17,000 and depreciates at a rate of 11%. The expected real interest rate is 0%.

Which of the following machines has the lowest user cost? Machine A costs $15,000 and depreciates at a rate of 25%; machine B costs $10,000 and depreciates...

Which of the following machines has the lowest user cost? Machine A costs $15,000 and depreciates at a rate of 25%; machine B costs $10,000 and depreciates at a rate of 20%; machine C costs $20,000 and depreciates at a rate of 10%; and machine D costs $17,000 and depreciates at a rate of 11%. The expected real interest rate is 5%.

Which of the following machines has the lowest user cost? Machine A costs $15,000 and depreciates at a rate of 25%; machine B costs $10,000 and depreciates...

The user cost of capital is given by the following formula, where p K is the real price of capital goods, did the depreciation rate, and ris the expected real interest rate.

The user cost of capital is given by the following formula, where p K is the real price of capital goods, did the depreciation rate, and ris the expected...

Which of the factors listed below might cause the Ricardian equivalence proposition to be violated?

Which of the factors listed below might cause the Ricardian equivalence proposition to be violated?  (a) There may be international capital inflows...

If the government cuts taxes today, issuing debt today and repaying the debt plus interest next year, a rational taxpayer will

If the government cuts taxes today, issuing debt today and repaying the debt plus interest next year, a rational taxpayer will  (a) spend the...

The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut

The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut  (a) causes inflation. (b) causes a current account...

Desired national saving would increase unambiguously if there were

Desired national saving would increase unambiguously if there were  (a) an increase in current outputand expected future output. (b) an increase...

The yield curve shows

The yield curve shows  (a) the yields on stocks of different maturities. (b) the interest rates on bonds of different maturities. (c) the yields...

If an investor has a tax rate on interest income of 25% and the inflation rate is 4%, which bond has the lowest expected after-tax real interest rate?

If an investor has a tax rate on interest income of 25% and the inflation rate is 4%, which bond has the lowest expected after-tax real interest rate?  (a)...

Three factors that cause interest rates among different financial instruments to vary are

Three factors that cause interest rates among different financial instruments to vary are  (a) default risk, expected inflation, and taxability. (b)...

The nominal interest rate is 10%, the expected inflation rate is 5%, and the combined state-federal tax rate is 35%. The expected after-tax real interest rate is

The nominal interest rate is 10%, the expected inflation rate is 5%, and the combined state-federal tax rate is 35%. The expected after-tax real interest...

With a nominal interest rate of 4%, an expected inflation rate of 1%, and interest income taxed at a rate of 25%, what is the expected after-tax real interest rate?

With a nominal interest rate of 4%, an expected inflation rate of 1%, and interest income taxed at a rate of 25%, what is the expected after-tax real...

The stock market just crashed; the Dow Jones Industrial Average fell by 750 points. You would expect the effect on aggregate consumption to be the largest if which of the following facts was true?

The stock market just crashed; the Dow Jones Industrial Average fell by 750 points. You would expect the effect on aggregate consumption to be the largest...

The stock market just crashed; the Dow Jones Industrial Average fell by 750 points. You would expect the effect on aggregate consumption to be the largest if which of the following facts was true?

The stock market just crashed; the Dow Jones Industrial Average fell by 750 points. You would expect the effect on aggregate consumption to be the largest...

The stock market just crashed; the Dow Jones Industrial Average fell by 750 points. You would expect the effect on aggregate consumption to be the largest if which of the following facts was true?

The stock market just crashed; the Dow Jones Industrial Average fell by 750 points. You would expect the effect on aggregate consumption to be the largest...

Aunt Agatha has just left her nephew $5000. The most likely response is for her nephew to

Aunt Agatha has just left her nephew $5000. The most likely response is for her nephew to  (a) increase current consumption, but not future...

When a person receives an increase in wealth, what is likely to happen to consumption and saving?

When a person receives an increase in wealth, what is likely to happen to consumption and saving?  (a) Consumption increases and saving increases. (b)...

An increase in expected future output while holding today's output constant would

An increase in expected future output while holding today's output constant would  (a) increase today's desired consumption and increase desired...

The fraction of additional current income that a person consumes in the current period is known as the

The fraction of additional current income that a person consumes in the current period is known as the  (a) consumption-smoothing motive. (b)...

Last year, Linus earned a salary of $25,000 and he spent $24,000, thus saving $1000. At the end of the year, he received a bonus of $1000 and he spent $500 of it, saving the other $500. What was his marginal propensity to consume?

Last year, Linus earned a salary of $25,000 and he spent $24,000, thus saving $1000. At the end of the year, he received a bonus of $1000 and he spent...

When a person gets an increase in current income, what is likely to happen to consumption and saving?

When a person gets an increase in current income, what is likely to happen to consumption and  saving?  (a) Consumption increases and saving...

Suppose the current level of output is 5000 and the elasticity of output with respect to capital is 0.4. A 10% increase in capital would increase the current level of output to

Suppose the current level of output is 5000 and the elasticity of output with respect to capital is 0.4.  A 10% increase in capital would increase...

The elasticity of output with respect to capital

The elasticity of output with respect to capital  (a) is the increase in output resulting from an increase in the capital stock. (b) is the percentage...

Between 1870 and 1996, among the United States, Germany, Japan, and Australia, _____ grew at the fastest rate and _____ grew at the slowest rate.

Between 1870 and 1996, among the United States, Germany, Japan, and Australia, _____ grew at  the fastest rate and _____ grew at the slowest rate.  (a)...

A coupon bond which pays interest of $50 annually, has a par value of $1,000, matures in 5 years, and is selling today at an $84.52 discount from par value. The current yield on this bond is __________.

A coupon bond which pays interest of $50 annually, has a par value of $1,000, matures in 5 years, and is selling today at an $84.52 discount from par...

An investor pays $989.40 for a bond. The bond has an annual coupon rate of 4.8%. What is the current yield on this bond?

An investor pays $989.40 for a bond. The bond has an annual coupon rate of 4.8%. What is the current yield on this bond?  A) 4.80% B) 4.85% C)...

The yield to maturity of an 8-year zero coupon bond, with a par value of $1,000 and a market price of $623.20, is ______.

The yield to maturity of an 8-year zero coupon bond, with a par value of $1,000 and a market price of $623.20, is ______.  A) 6.09% B) 8.8% C)...

Consider the expectations theory of the term structure of interest rates. If the yield curve is downward sloping, this indicates that investors expect interest rates to __________ in the future.

Consider the expectations theory of the term structure of interest rates. If the yield curve is downward sloping, this indicates that investors expect...

The bonds of Elbow Grease Dishwashing Company have received a rating of "D" by Moody's. The "D" rating indicates __________.

The bonds of Elbow Grease Dishwashing Company have received a rating of "D" by Moody's. The "D" rating indicates __________.  A) the bonds are...

Under the pure expectations hypothesis, an upward sloping yield curve would indicate ________

Under the pure expectations hypothesis, an upward sloping yield curve would indicate ___________________. A) expected increases in inflation over...

Consider a 7-year bond with a 9% coupon and a present yield to maturity of 12%. If interest rates remain constant, one year from now the price of this bond will be __________.

Consider a 7-year bond with a 9% coupon and a present yield to maturity of 12%. If interest rates remain constant, one year from now the price of this...

Analysis of bond returns over a multiyear horizon, based on forecasts of the bond's yield to maturity and reinvestment rate of coupons is called ___.

Analysis of bond returns over a multiyear horizon, based on forecasts of the bond's yield to maturity and reinvestment rate of coupons is called ___.  A)...

A zero-coupon bond has a yield to maturity of 5% and a par value of $1,000. If the bond matures in 16 years, it should sell for a price of __________ today based on annual compound.

A zero-coupon bond has a yield to maturity of 5% and a par value of $1,000. If the bond matures in 16 years, it should sell for a price of __________...

A bond with a 10% coupon, 10 years to maturity and a market price of 95 % of par has a yield to maturity of __________, assuming annual compound.

A bond with a 10% coupon, 10 years to maturity and a market price of 95 % of par has a yield to maturity of __________, assuming annual compound.  A)...

A coupon bond which pays interest annually, has a par value of $1,000, matures in 5 years and has a yield to maturity of 12%. If the coupon rate is 9%, the present value of the bond today should be __________.

A coupon bond which pays interest annually, has a par value of $1,000, matures in 5 years and has a yield to maturity of 12%. If the coupon rate is...

A callable bond pays annual interest of $60, has a par value of $1,000, matures in 20 years but is callable in 10 years at a price of $1,100, and has a value today of $1055.84. The yield to call on this bond is __________.

A callable bond pays annual interest of $60, has a par value of $1,000, matures in 20 years but is callable in 10 years at a price of $1,100, and has...

A coupon bond which pays interest of $40 annually, has a par value of $1,000, matures in 5 years, and is selling today at a $159.71 discount from par value. The actual yield to maturity on this bond is __________.

A coupon bond which pays interest of $40 annually, has a par value of $1,000, matures in 5 years, and is selling today at a $159.71 discount from par...

The average annual return of holding the bond until it is callable is called ___.

The average annual return of holding the bond until it is callable is called ___.  A) yield to maturity B) yield to call C) current yield D)...

A debenture is __________.

A debenture is __________.  A) secured by other securities held by the firm B) secured by equipment owned by the firm C) secured by property...

A mortgage bond is ________.

A mortgage bond is ________.  A) secured by other securities held by the firm B) secured by equipment owned by the firm C) secured by assets...

The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of .8 to offer a rate of return of 12 percent, then you should __________.

The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of .8 to offer a rate of return of 12 percent,...

You invest $600 in security A with a beta of 1.5 and $400 in security B with a beta of .90. The beta of this formed portfolio is __________.

You invest $600 in security A with a beta of 1.5 and $400 in security B with a beta of .90. The beta of this formed portfolio is __________.  A)...

Security X has an actual return of 13% and a beta of 1.15. The risk-free rate is 5% and the market expected rate of return is 15%. According to the capital asset pricing model, security X is __________.

Security X has an actual return of 13% and a beta of 1.15. The risk-free rate is 5% and the market expected rate of return is 15%. According to the...

According to the capital asset pricing model, __________.

According to the capital asset pricing model, __________.  A) all securities must lie on the capital market line B) all securities must lie on...

According to the capital asset pricing model, a well-diversified portfolio's rate of return is a function of __________.

According to the capital asset pricing model, a well-diversified portfolio's rate of return is a function of __________.  A) market risk B)...

In a well diversified portfolio, __________ risk is negligible.

In a well diversified portfolio, __________ risk is negligible.  A) nondiversifiable B) market C) systematic D) unsystematic Answer: ...

The market portfolio has a beta of __________.

The market portfolio has a beta of __________.  A) -1.0 B) 0 C) 0.5 D) 1.0 Answer: ...

In the context of the capital asset pricing model, the systematic measure of risk is __________.

In the context of the capital asset pricing model, the systematic measure of risk is __________.  A) unique risk B) beta C) standard deviation...