INVESTMENT
- Which of the following is classified as spending on investment?
I. new residential constructionIII. business spending on structures such as office buildings
II. business spending on new equipment IV. purchase of government bonds
a)II and III onlyc)I, II, and III only
b)II, III, and IV onlyd)I, II, III, and IV
2.Which of the following is classified as investment?
I. purchases of existing homesIII. purchase of corporate stock
II. business spending on new equipment IV. taking out a loan to build an office building
a)II onlyd)II, III, and IV only
b)II and IV onlyd)I, II, III, and IV
3.Which of the following is true regarding investment?
a)In the short run it increases aggregate supply but in the long run it increases aggregate demand.
b)In the short run it influences aggregate demand and in the long run it influences the rate at which the economy grows.
c)In the short run it influences aggregate demand but in the long run it reduces economic growth since it requires saving.
d)In the short run it reduces aggregate demand because it requires savings but in the long it promotes economic growth.
4.Gross private domestic investment, the official government measure of investment, includes all of the followingexcept
a)education.c) new residential investment.
b)new business structures.d) changes in business inventories.
5.Which of the following statements is true?
a)Investment subtracts from the natural resource base and depreciation adds to it.
b)Investment adds to the natural resource base and depreciation reduces it.
c)Investment and depreciation add to the capital stock.
d)Investment adds to capital stock and depreciation reduces it.
6.Net private investment equals
a)gross private investment plus depreciation.c) gross private investment minus depreciation.
b)gross private investment minus business taxes.d) gross private investment minus inventories.
7.If gross private domestic investment is less than depreciation, then
a)net private domestic investment is zero.c) the capital stock is declining.
b)net private domestic investment is negative.d) the capital stock is increasing.
8.The investment demand curve shows
a)the quantity of investment demanded at each interest rate, with all other determinants of investment unchanged.
b)the rate of return on investment at each interest rate, with all other determinants of investment unchanged.
c)the relationship between investment and saving.
d)the relationship between investment and gross domestic product.
9.Higher interest rates _____ the opportunity cost of using funds for investment, and they _____ investment.
a)lower; increasec) increase; reduce
b)increase; increased) lower; reduce
FIGURE 1
TABLE 2
Interest Rate(percent) / Amount of Investment
($ billion)
30 / 10
25 / 15
20 / 25
15 / 35
10 / 40
12.Refer to Table 2. If the interest rate falls from 20% to 15%, what is the change in the amount of investment?
a)less than $10 billionb) $10 billionc) $25 billiond) $35 billion
13.A decrease in the interest rate will cause a(n)
a)increase in the investment demand curve.c) movement up along the investment demand curve.
b)decrease in the investment demand curve.d) movement down along the investment demand curve.
14.Which of the following is not a determinant of investment demand?
a)producers’ expectations about the level of economic activityc) the utilization of capital stock
b)cost of capital goodsd) household wealth
15.Which of the following causes a movement along theinvestment demand curve?
a)a change in producers’ expectations about profitability
b)a change in the interest rate
c)a change in the general price level
d)a stock market crash that reduces household wealth
16.Which of the following will shift the investment demand curve to the right?
a)the imposition of government regulations that reduce the incentive to produce, for example, more stringent environmental regulation
b)an increase in the rate of new technological innovations.
c)an increase in the cost of new capital goods
d)a decrease in the market interest rate