Chap014 - Chapter 14 - Investment Spending Chapter 14...

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Chapter 14 - Investment Spending Chapter 14 Investment Spending Multiple Choice Questions 1. Investment spending a. Is responsible for much of the fluctuations in GDP b. Is greatly affected by interest rates and is thus the primary link through which monetary policy affects the economy c. Has little effect on aggregate supply in the short run d. Adds to the size of the capital stock and therefore helps to determine economic progress E . All of the above Difficulty: Easy 2. Which of the following statements is FALSE? a. Investment is the primary link through which monetary policy affects the economy b. Faster growing countries often devote a larger share of GDP to investment C . Inventory and residential investment are relatively volatile but business fixed investment tends to be a fairly constant fraction of GDP d. Financial investment (buying stocks) is not part of real investment e. The swings in investment are proportionally greater than the swings in total output Difficulty: Medium 3. If the marginal product of capital is above the rental cost of capital, then a firm should A . Increase investment spending to increase the capital stock b. Decrease investment spending since any new investment projects will be unprofitable c. Leave investment spending at the current level since any additions to the existing capital stock will not be profitable d. Undertake only replacement investments since any additions to the capital stock will not be profitable e. Lower the actual capital stock by not replacing machines that have broken down in the production process Difficulty: Medium 14-1
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Chapter 14 - Investment Spending 4. It is important to understand the factors that influence investment spending since a. Investment is important in determining a nation's capital stock b. Investment behavior is of particular interest in the study of economic cycles c. A nation's productive capacity is dependent on how much investment takes place d. Fiscal and monetary policies both significantly affect investment but often with a lag E . All of the above Difficulty: Easy 5. Which of the following is NOT included as investment in the national income accounts? a. Investment in human capital b. Investment in new knowledge c. Government investment in a country's infrastructure d. Financial investment (the buying of stocks and bonds) E . All of the above Difficulty: Easy 6. Which of the following is FALSE? a. In the long run, investment is one of the most important determinants of aggregate supply b. Aggregate supply depends on net investment c. Gross investment is a volatile part of aggregate demand D . Investment in human capital is not part of aggregate demand e. The flow of investment is fairly small compared to the existing capital stock Difficulty: Easy 14-2
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Chapter 14 - Investment Spending 7. The theory of investment contains aspects of dynamic behavior since a. The desired capital stock depends on a firm's estimate of current but not future output B . Firms generally close only a portion of the gap between their actual and desired capital
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This note was uploaded on 12/05/2011 for the course ECON 201 taught by Professor Dr.matin during the Spring '09 term at Charleston.

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Chap014 - Chapter 14 - Investment Spending Chapter 14...

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