Macroeconomics 302a,b,d Prof. Nilsen l 1 Macro Quiz 2b 1. When a person gets an increase in current income, what is likely to happen to consumption and saving? (a) Consumption increases and saving increases. (b) Consumption increases and saving decreases. (c) Consumption decreases and saving increases. (d) Consumption decreases and saving decreases. Answer: A 2. 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 (a) 1.50%. (b) 3.25%. (c) 5.00%. (d) 6.50%. Answer: A 3. 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%. (a) $150 (b) $500 (c) $1500 (d) $5000 Answer: C 4. If a U.S. firm buys tulips from a Dutch firm and the Dutch firm uses the dollars it gets to buy U.S. stocks, the U.S. trade balance ________ and the U.S.
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This note was uploaded on 04/30/2009 for the course ECONOMICS 302 taught by Professor N during the Spring '09 term at American University in Bulgaria.