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Quiz 10

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Question 1 (1.0 points)
Suppose there is an increase in the capital stock. This increase in the capital stock must cause:
  1. ambiguous effects on profit per unit of capital.
  2. a decrease in profit per unit of capital.
  3. no change in profit per unit of capital.
  4. an increase in profit per unit of capital.
  5. none of the above
Question 2 (1.0 points)
Which of the following people -- none of whom has any financial or housing wealth -- is most likely to be spending all of their current income?
  1. A low income person expecting continued low income throughout life.
  2. A high income person expecting continued high income throughout life.
  3. A low income person expecting a dramatic rise in income in the future.
  4. A high income person expecting to retire soon, and live for a long time afterward.
  5. A high income person expecting a dramatic drop in income in the future.
Question 3 (1.0 points)
The data shows that total profit in the U.S. economy:
  1. has decreased steadily over time.
  2. tends to decrease in recessions, increase in expansions.
  3. tends to increase in recessions, decrease in expansions.
  4. is not influenced by the business cycle.
  5. tends to increase in even years, and decrease in odd years, although no one can explain why.
Question 4 (1.0 points)
The "depreciation rate" tells us:
  1. the difference between current and expected profits.
  2. the interest rate that should be used in present discounted value calculations.
  3. the rate at which consumers deplete their total wealth in retirement.
  4. how much usefulness a machine loses from year to year.
  5. the difference between current and expected income.
Question 5 (1.0 points)
Which of the following events would likely cause the largest increase in current consumption?
  1. a one-time tax cut of $4000
  2. a one-time increase in income (e.g. a bonus) of $4000
  3. a permanent increase in annual salary of $2000
  4. both B and C
Question 6 (1.0 points)
Which of the following will cause a reduction in current consumption?
  1. a decrease in current disposable income
  2. a decrease in human wealth
  3. a decrease in financial wealth
  4. all of the above
  5. both B and C
Question 7 (1.0 points)
If a $10,000 reduction in real income is perceived as permanent, economic theory suggests that current consumption will:
  1. decrease or remain unchanged, depending on the value of the real interest rate.
  2. decrease by at most $50,000.
  3. decrease by more than $50,000.
  4. remain unchanged.
  5. decrease, remain unchanged, or increase, depending on the value of the real interest rate.
Question 8 (1.0 points)
Figures on "mean wealth" of the elderly (ages 65-69) show that most wealth consists of:
  1. social security benefits.
  2. personal savings.
  3. home equity.
  4. collectibles, like stamps, coins and art.
  5. stocks and bonds.
Question 9 (1.0 points)
An increase in the rate of depreciation will cause the discounted present value of expected profits to:
  1. increase.
  2. decrease.
  3. remain unchanged if the real interest rate increases by the same amount.
  4. none of the above
Question 10 (1.0 points)
Which of the following would cause an increase in human wealth?
  1. an increase in the value of one's house
  2. a permanent increase in salary
  3. an increase in the value of one's stock portfolio
  4. all of the above
  5. none of the above
Question 11 (1.0 points)
Which of the following will cause the rental cost/user cost of capital to increase?
  1. The real interest rate decreases.
  2. The expected profit from the machine decreases.
  3. The rate of depreciation increases.
  4. all of the above
  5. none of the above
Question 12 (1.0 points)
The "life cycle" and "permanent income" theories of consumption share which of the following features?
  1. Consumers look ahead to the future in making current spending decisions.
  2. Consumption spending depends on income, rather than wealth.
  3. Consumption spending should fluctuate widely from year to year.
  4. all of the above
  5. none of the above
Question 13 (1.0 points)
Which of the following represents human wealth?
  1. financial wealth minus housing wealth
  2. the present discounted value of expected future after-tax labor income
  3. total wealth minus housing wealth
  4. the sum of financial and housing wealth
  5. wealth that cannot be taken from a person, by law
Question 14 (1.0 points)
The data for the U.S. show that investment and profits:
  1. have a strong negative relationship.
  2. have a strong positive relationship.
  3. are positively related during expansions, and negatively related during recessions.
  4. move independently.
  5. are positively related during recessions, and negatively related during expansions.
Question 15 (1.0 points)
Which of the following is evidence that consumption depends on total wealth, and not just on current income?
  1. A drop in consumer confidence, with unchanged current income, often causes total consumption spending to fall.
  2. People save very little for their retirement.
  3. The pre-announced phased-in tax cuts of 1981-83 caused little change in consumption in 1981.
  4. all of the above
  5. none of the above
Question 16 (1.0 points)
Suppose that, when the price of steel drops, steel companies tend to cut back on investment in their non-steel activities more than other firms in these same non-steel activities. This would support the idea that:
  1. business firms do not use discounting.
  2. business firms do not care about profit.
  3. business firms do not care about interest rates.
  4. cash flow does not matter for investment.
  5. cash flow matters for investment.
Question 17 (1.0 points)
An increase in real estate prices would affect which of the following?
  1. housing wealth
  2. human wealth
  3. financial wealth
  4. none of the above
Question 18 (1.0 points)
A reduction in which of the following variables will cause an increase in the user cost of capital?
  1. pt
  2. rt
  3. pet
  4. all of the above
  5. none of the above
Question 19 (1.0 points)
A painting is currently worth $100,000, and is expected to maintain its real value for three years. The real interest rate is expected to remain constant at 10%. What is the present value of the painting's expected price at the end of the third year?
  1. $75,131
  2. $100,000
  3. $70,000
  4. $88,899
  5. $96,153
Question 20 (1.0 points)
Which of the following will cause the rental cost/user cost of capital to decrease?
  1. The real interest rate rises.
  2. The rate of depreciation falls.
  3. The expected profit from the machine decreases.
  4. all of the above
  5. none of the above
Question 21 (1.0 points)
Assume that consumption decisions are made according to the permanent income theory. Which of the following would lead to the largest increase in current consumption?
  1. inheriting $10,000 from a relative
  2. getting a one-time $10,000 bonus from your employer
  3. winning $10,000 in the lottery
  4. taking a new job with a salary that is $10,000 higher than your current salary
  5. obtaining $10,000 by winning a lawsuit
Question 22 (1.0 points)
Which of the following individuals is responsible for developing the life cycle theory of consumption?
  1. Modigliani
  2. Lucas
  3. Friedman
  4. Keynes
Question 23 (1.0 points)
Suppose there is a reduction in the capital stock. This reduction in the capital stock will cause:
  1. no change in profit per unit of capital.
  2. ambiguous effects on profit per unit of capital.
  3. a decrease in profit per unit of capital.
  4. an increase in profit per unit of capital.
  5. none of the above
Question 24 (1.0 points)
The user cost of capital is represented by which of the following variables?
  1. r t
  2. r t + δ
  3. π t
  4. π t /( r t + δ)
  5. none of the above
Question 25 (1.0 points)
Which of the following is a reason that consumption depends on current income, and not just on total wealth?
  1. Low income people may prefer to postpone some consumption until later years, when their incomes are higher.
  2. The anticipation of future financial distress makes some people reluctant to borrow.
  3. Banks will not always lend money to those who want to consume more than their income.
  4. all of the above
  5. none of the above
Copyright 2008, by the Contributing Authors. Cite/attribute Resource . admin. (2009, January 27). Quiz 10. Retrieved January 07, 2011, from Free Online Course Materials — USU OpenCourseWare Web site: http://ocw.usu.edu/economics/macroeconomics-for-managers/quiz10.htm. This work is licensed under a Creative Commons License Creative Commons License