978-1259723223 Test Bank TBChap030 Part 4

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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

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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

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,

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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)

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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

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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

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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

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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,

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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

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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?

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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

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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

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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

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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

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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