Econ 110B Ch16 Questions

Econ 110B Ch16 Questions - 7) Explain each of the...

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Economics 110B Practice Questions for Chapter 16 Questions 1) Explain what decisions and calculations a very foresighted consumer must make to determine her consumption decisions in any period. 2) Discuss the various components of wealth. 3) Explain why current consumption is likely to respond less than one for one to changes in current income. 4) Explain why current consumption might change even if current income does not change. 5) Suppose individuals expect future output to be lower and future interest rates to be lower. Given this information, how will individuals alter consumption in the current period? Explain. 6) Explain what decisions and calculations a firm must make when it is considering the purchase of new capital (i.e., making an investment decision).
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Unformatted text preview: 7) Explain each of the determinants of the present value of expected profits from a buying a new machine. 8) First, briefly explain what the user cost or rental cost of capital represents. Second, explain what factors would cause an increase in the user cost or rental cost of capital. 9) What is the difference between "profitability" and "cash flow"? 10) Explain how a change in expected future output could affect current output. 11) Explain why consumption is less volatile than investment. 12) Suppose firms expect future output to be higher and future interest rates to be higher. Given this information, how will firms alter investment in the current period? Explain. 1...
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