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BUAD 350
Macroeconomics Analysis for Business Decisions
Fall 2010
Practice Midterm
October 2010
1. Calculate the user cost of capital of a machine that costs $10,000 and depreciates at a rate
of 20% when the expected real interest rate is 5%
A) 2000
B) 2500
C) 3000
D) 1500
2. If the income eﬀect is stronger than the substitution eﬀect, an increase in the real interest
rate implies that the desired savings
A) decrease for a borrower
B) decrease for a saver
C) increase for savers and borrowers
D) decrease for savers and borrowers
3. An increase in TFP will
A) shift the investment curve to the right
B) shift the investment curve to the left
C) shift the saving curve to the right
D) shift the saving curve to the left
4. Suppose that the marginal product of capital in the economy can be described by
MPK
=
A
(10

0
.
05
K
), where
K
is the capital stock, and
A
is TFP. The depreciation rate of capital,
d
, is 6% per period, and the real interest rate is 4%. If
A
= 1, the desired level of capital is
A) 200
B) 198
C) 198.66
D) 100.66
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View Full Document5. Suppose that the marginal product of capital in the economy can be described by
MPK
=
A
(10

0
.
05
K
), where
K
is the capital stock, and
A
is TFP. The depreciation rate of capital,
d
, is 6% per period, and the real interest rate is 4%. If
A
= 1
.
5, the desired level of capital
is
A) 200
B) 198
C) 198.66
D) 100.66
6. Suppose that the current level of output is 1000 and the elasticity of output with respect
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