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30-61
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
D i f f i c u l t y :
02 Medium
Learning Objective: 30-03 Explain how changes in real interest rates affect
investment.
Test Bank: I
Topic:
The Interest-Rate-Investment Relationship
107. A decline in the real interest rate will
108. The immediate determinants of investment spending are the
109. The investment demand curve suggests that
30-62
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. there is a direct relationship between the real rate of interest and the level of investment
spending.
110. Assume there are no prospective investment projects (I) that will yield an expected rate of
return (r) of 25 percent or more, but there are $5 billion of investment opportunities with an
expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20
percent, and so on. The investment demand curve for this economy is shown in which table?
r
I
25%
$5
20
10
15
15
10
20
5
25
0
30
111. Assume there are no prospective investment projects (I) that will yield an expected rate of
return (r) of 25 percent or more, but there are $5 billion of investment opportunities with an
expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20
percent, and so on. If the real interest rate is 15 percent in this economy, the aggregate amount
of investment will be
112. If business taxes are reduced and the real interest rate increases,
30-64
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Acces s i bility:
Keyboard Navigation
Blooms: Remember
Di f f i c u lt y :
01 Easy
Learning Objective: 30-04 Identify and explain factors other than the real interest rate
that can affect investment.
Test Bank: I
Topi c :
Shifts of the Investment Demand Curve
113. Other things equal, a 10 percent decrease in corporate income taxes will
114. The investment demand curve will shift to the right as the result of
115.
Expected Rate of Return
(%)
Amount of Investment With This Rate of Return or Higher
($B)
30-65
12%
$10
10
20
8
30
6
40
4
50
2
60
The investment schedule in the given table indicates that if the real interest rate is 8 percent,
then
116. Other things equal, if the real interest rate falls and business taxes rise,
117. The investment demand curve will shift to the right as a result of
118. The investment demand curve will shift to the left as a result of
119. If the real interest rate in the economy is i and the expected rate of return from additional
investment is r, then more investment will be forthcoming when
30-67
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Test Bank: I
Topic:
The Interest-Rate-Investment Relationship
120. A rightward shift of the investment demand curve might be caused by
121. The real interest rate is
122. When we draw an investment demand curve, we hold constant all of the following except
30-68
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D i f f i c u l t y :
02 Medium
Learning Objective: 30-03 Explain how changes in real interest rates affect
investment.
Test Bank: I
Topic:
The Interest-Rate-Investment Relationship
123. If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation
rate is
124. If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest
rate is
125. A high rate of inflation is likely to cause a
30-69
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
C. low rate of growth of nominal GDP.
D. decrease in nominal wages.
126. If the real interest rate in the economy is i and the expected rate of return on additional
investment is r, then, other things equal,
127. If the real interest rate in the economy is i and the expected rate of return on additional
investment is r, then, other things equal,
30-70
128.
Refer to the diagram. Assume that for the entire business sector of a private closed economy
there is $0 worth of investment projects that will yield an expected rate of return of 25 percent
or more. But there are $15 worth of investments that will yield an expected rate of return of
20–25 percent; another $15 with an expected rate of return of 15–20 percent; and an additional
$15 of investment projects in each successive rate of return range down to and including the
0–5 percent range. Which of the lines on the diagram represents these data?
129. Assume that for the entire business sector of a private closed economy, there are $0 worth
of investment projects that will yield an expected rate of return of 25 percent or more. But there
are $15 worth of investments that will yield an expected rate of return of 20–25 percent,
another $15 with an expected rate of return of 15–20 percent, and an additional $15 of
30-71
investment projects in each successive rate of return range down to and including the 0–5
percent range. If the real interest rate is 15 percent, what amount of investment will be
undertaken?
130. Assume that for the entire business sector of a private closed economy, there are $0 worth
of investment projects that will yield an expected rate of return of 25 percent or more. But there
are $15 worth of investments that will yield an expected rate of return of 20–25 percent,
another $15 with an expected rate of return of 15–20 percent, and an additional $15 of
investment projects in each successive rate of return range down to and including the 0–5
percent range. If the real interest rate is 5 percent, what amount of investment will be
undertaken?
131. Assume that for the entire business sector of a private closed economy, there are $0 worth
of investment projects that will yield an expected rate of return of 25 percent or more. But there
are $15 worth of investments that will yield an expected rate of return of 20–25 percent,
another $15 with an expected rate of return of 15–20 percent, and an additional $15 of
investment projects in each successive rate of return range down to and including the 0–5
percent range. The expected rate of return curve
132.
Refer to the diagram. Which of the following would shift the investment demand curve from
ID1 to ID2?
133.
Refer to the diagram. Which of the following would shift the investment demand curve from
ID1 to ID3?
30-74
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topi c :
Shifts of the Investment Demand Curve
Type: Graph
134.
Refer to the diagram. Which of the following would increase investment while leaving an
existing investment demand curve, say, ID2, in place?
135. In annual percentage terms, investment spending in the United States is
30-75
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. more variable than real GDP.
136. Investment spending in the United States tends to be unstable because
137. Investment spending in the United States tends to be unstable because
30-76
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Test Bank: I
Topic:
Shifts of the Investment Demand Curve
138. The purchase of capital goods, like consumer goods, can be postponed; it tends to
contribute to in investment spending.
139. The multiplier effect means that
140. The multiplier is
30-77
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Acces s i bility:
Keyboard Navigation
Blooms: Understand
D i f f i c u l t y :
02 Medium
Learning Objective: 30-05 Illustrate how changes in investment or one of the other
components of total spending can increase or decrease real GDP by a multiple amount.
Test Bank: I
Topi c :
The Multiplier Effect
141. The multiplier is useful in determining the
142. The multiplier is defined as
143.
The figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the
highest marginal propensity to consume?
144.
The figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the
largest multiplier?
145. If 100 percent of any change in income is spent, the multiplier will be
30-80
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Ac cessibility:
Keyboard Navigation
Blooms: Understand
D i f f i c u l t y :
02 Medium
Learning Objective: 30-05 Illustrate how changes in investment or one of the other
components of total spending can increase or decrease real GDP by a multiple
amount.
Test Bank: I
Topic:
The Multiplier Effect
146. The multiplier can be calculated as
147. The size of the multiplier is equal to the
148. If the MPS is only half as large as the MPC, the multiplier is
