978-1259723223 Test Bank TBChap030 Part 8

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D. $4 billion.

273. A firm invests in a new machine that costs $2,000 a year but which is expected to produce

an increase in total revenue of $2,200 a year. The current real rate of interest is 8 percent. The

firm should

274. A firm invests in a new machine that costs $5,000 a year but which is expected to produce

an increase in total revenue of $5,200 a year. The current real rate of interest is 7 percent. The

firm should

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275. The nominal rate of interest is 8.5 percent, and the real rate is 5 percent. The expected rate

of return on an investment is 8 percent. The firm should

276.

Expected Rate of Return

Cumulative Amount of Investment (in Billions)

22%

$110

20

150

16

180

10

210

5

295

2

380

According to the given cumulative investment table,

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A. $150 billion worth of investments have expected rates of return exactly equal to 20 percent.

B. $150 billion worth of investments have expected rates of return of 20 percent or lower.

C. $40 billion worth of investments have expected rates of return between 20 percent and 22

percent.

D. $260 billion worth of investments have expected rates of return higher than 20 percent.

277.

Expected Rate of Return

Cumulative Amount of Investment (in Billions)

22%

$110

20

150

16

180

10

210

5

295

2

380

According to the given cumulative investment table, if the real interest rate falls from 20

percent to 16 percent, then

278. The investment demand curve is drawn with the amount of investment on the

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A. vertical axis and disposable income on the horizontal axis.

B. horizontal axis and disposable income on the vertical axis.

C. horizontal axis and the expected rate of return and interest rate on the vertical axis.

D. vertical axis and the expected rate of return and interest rate on the horizontal axis.

279.

In the accompanying graph, which of the following would shift the investment demand curve

from ID2 to ID1?

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Type: Table

280.

In the accompanying graph, which of the following would shift the investment demand curve

from ID2 to ID3?

281.

In the accompanying graph, which of the following would shift the investment demand curve

from ID2 to ID1?

282.

In the accompanying graph, which of the following would shift the investment demand curve

from ID2 to ID3?

283. Which of the following factors would decrease investment demand?

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that can affect investment.

Test Bank: II

Topic:

Shifts of the Investment Demand Curve

284. If businesses feel more optimistic about the state of the economy, then this change is likely

to

285. The investment demand curve will shift to the left as the result of

286. Which of the following factors does not help explain the instability of investment?

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AACSB: Knowledge Application

Access i bility:

Keyboard Navigation

Blooms: Remember

Di f f i c u l t y :

01 Easy

Learning Objective: 30-04 Identify and explain factors other than the real interest rate

that can affect investment.

Test Bank: II

Topic:

Shifts of the Investment Demand Curve

287. The variability of business profits

288. Which factor explains the variability of investment?

289. During the Great Recession of 2007–2009, real interest rates

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B. declined to about zero, and investments also declined sharply.

C. increased sharply, and investments declined significantly.

D. increased sharply, and investments also rose significantly.

290. During the Great Recession of 2007–2009, the investment demand curve shifted

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Test Bank: II

Topic:

Shifts of the Investment Demand Curve

292. The multiplier effect relates

293. The multiplier can be calculated by dividing

294. Which of the following is not an assumption of the simple multiplier formula?

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AACSB: Knowledge Application

Acce ssib i l ity:

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: II

Topic:

The Multiplier Effect

295. Generally speaking, the greater the MPS, the

296. If the MPC is 0.75, the multiplier will be

297. In a closed private economy, income is $50 billion and consumption is $40 billion. When

income rises by 10 percent, consumption rises by 9 percent. The MPS over the relevant income

range is

298. If, in an economy, a $200 billion increase in consumption spending creates $200 billion of

new income in the first round of the multiplier process and $160 billion in the second round, the

marginal propensity to consume and the multiplier are, respectively,

299. Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20

billion, then real GDP will

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C. increase by $16 billion.

D. not change.

300. Assume that MPS is 0.4. If spending increases by $8 billion, then real GDP will increase

by

301.

Change in

Income

Change in

Consumption

Change in

Saving

Assumed Increase in

Investment

$5.00

$

$1.25

Second Round

$

$2.81

$

All Other Rounds

$

$8.44

$

Totals

$

$5.00

The table illustrates the multiplier process resulting from an autonomous increase in investment

by $5. The marginal propensity to consume is

302.

Change in

Income

Change in

Consumption

Change in

Saving

Assumed Increase in

Investment

$5.00

$

$1.25

Second Round

$

$2.81

$

All Other Rounds

$

$8.44

$

Totals

$

$5.00

The table illustrates the multiplier process resulting from an autonomous increase in investment

by $5. The change in income in round two will be