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A decrease in the interest rate will cause a(n)


A) increase in the investment demand curve.
B) decrease in the investment demand curve.
C) movement up along the investment demand curve.
D) movement down along the investment demand curve.

E) B) and C)
F) A) and D)

Correct Answer

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Use the following to answer questions. Exhibit: Aggregate Demand and Investment 1 Use the following to answer questions. Exhibit: Aggregate Demand and Investment 1 -(Exhibit: Aggregate Demand and Investment 1) Economic performance would be improved by stimulating investment demand which would shift the A) aggregate demand to the right to restore long-run equilibrium at b . B) short-run aggregate supply to the right to restore long-run equilibrium at c . C) aggregate demand curve and the short-run aggregate supply curve to the right to restore long-run equilibrium between b and c . The long-run aggregate supply curve does not shift. D) long-run aggregate supply to the left to restore long-run equilibrium at a . -(Exhibit: Aggregate Demand and Investment 1) Economic performance would be improved by stimulating investment demand which would shift the


A) aggregate demand to the right to restore long-run equilibrium at "b".
B) short-run aggregate supply to the right to restore long-run equilibrium at "c".
C) aggregate demand curve and the short-run aggregate supply curve to the right to restore long-run equilibrium between "b" and "c". The long-run aggregate supply curve does not shift.
D) long-run aggregate supply to the left to restore long-run equilibrium at "a".

E) None of the above
F) All of the above

Correct Answer

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A decrease in the interest rate will


A) affect the amount of investment undertaken by businesses.
B) decrease the amount of investment undertaken by businesses.
C) shift the investment demand curve to the right.
D) shift the investment demand curve to the left.

E) B) and C)
F) A) and D)

Correct Answer

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Which of the following is not a determinant of investment demand?


A) Expectations about future profitability
B) Changing consumers' tastes and preferences
C) The cost of labor, an alternative factor of production
D) Changes in the rate of corporate profit tax

E) None of the above
F) All of the above

Correct Answer

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In the United States, during part of the Great Depression, between 1931 and 1936


A) gross private domestic investment was negative.
B) gross private domestic investment was positive.
C) net private domestic investment was positive.
D) net private domestic investment was negative.

E) A) and D)
F) None of the above

Correct Answer

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If the Fed wishes to stimulate aggregate demand, it will conduct an open market


A) sale which will lower bond prices, lower interest rates, and stimulate investment.
B) purchase which will lower bond prices, lower interest rates, and discourage investment.
C) sale which will lower bond prices, raise interest rates, and discourage investment.
D) purchase which will raise bond prices, lower interest rates, and stimulate investment.

E) A) and D)
F) B) and C)

Correct Answer

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We would expect that nations that devote a larger share of GDP to gross private domestic investment


A) to be highly industrialized nations.
B) to have a higher savings rate.
C) to have higher growth rate in potential real GDP.
D) to have less volatile fluctuations in economic activity.

E) A) and B)
F) A) and C)

Correct Answer

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All other things unchanged, rapid advances in technology and the introduction of new products tends to


A) have no effect on the level of investment.
B) shift the investment demand curve to the left.
C) have no effect on the investment demand curve.
D) shift the investment demand curve to the right.

E) A) and B)
F) B) and C)

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Use the following to answer questions . Exhibit: Investment Projects Use the following to answer questions . Exhibit: Investment Projects -(Exhibit: Investment Projects) If the market interest rate falls from 15% to 11%, what happens to the quantity of investment demanded? A) It decreases by $2,200 because investment is now less profitable. B) It decreases by $1,000 because investment is now less profitable. C) It increases by $200 because investment is now more profitable. D) It increases by $2,200 because investment is now more profitable. -(Exhibit: Investment Projects) If the market interest rate falls from 15% to 11%, what happens to the quantity of investment demanded?


A) It decreases by $2,200 because investment is now less profitable.
B) It decreases by $1,000 because investment is now less profitable.
C) It increases by $200 because investment is now more profitable.
D) It increases by $2,200 because investment is now more profitable.

E) B) and C)
F) C) and D)

Correct Answer

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Use the following to answer questions . Exhibit: Investment Demand and Aggregate Demand Figure 14-3 Panel (a) Panel (b) Use the following to answer questions . Exhibit: Investment Demand and Aggregate Demand Figure 14-3 Panel (a) Panel (b) -(Exhibit: Investment Demand and Aggregate Demand) Suppose the interest rate falls from 6% to 4.8%. The quantity of investment demanded rises by (I<sub>a</sub> - I<sub>b</sub>) as shown in Panel (a) . At a given price level, P<sub>1</sub>, this causes the aggregate demand curve to shift from C to D as shown in Panel (b) . What is the size of this shift? A) The distance CD is equal to (I<sub>a</sub> - I<sub>b</sub>) . B) The distance CD is equal to [MPC *(I<sub>a</sub> - I<sub>b</sub>) ] where MPC = marginal propensity to consume. C) The distance CD is equal to [MPI*(I<sub>a</sub> - I<sub>b</sub>) ] where MPI = marginal propensity to invest. D) The distance CD is equal to [Im *(I<sub>a</sub> - I<sub>b</sub>) ] where Im = investment spending multiplier. Use the following to answer questions . Exhibit: Investment Demand and Aggregate Demand Figure 14-3 Panel (a) Panel (b) -(Exhibit: Investment Demand and Aggregate Demand) Suppose the interest rate falls from 6% to 4.8%. The quantity of investment demanded rises by (I<sub>a</sub> - I<sub>b</sub>) as shown in Panel (a) . At a given price level, P<sub>1</sub>, this causes the aggregate demand curve to shift from C to D as shown in Panel (b) . What is the size of this shift? A) The distance CD is equal to (I<sub>a</sub> - I<sub>b</sub>) . B) The distance CD is equal to [MPC *(I<sub>a</sub> - I<sub>b</sub>) ] where MPC = marginal propensity to consume. C) The distance CD is equal to [MPI*(I<sub>a</sub> - I<sub>b</sub>) ] where MPI = marginal propensity to invest. D) The distance CD is equal to [Im *(I<sub>a</sub> - I<sub>b</sub>) ] where Im = investment spending multiplier. -(Exhibit: Investment Demand and Aggregate Demand) Suppose the interest rate falls from 6% to 4.8%. The quantity of investment demanded rises by (Ia - Ib) as shown in Panel (a) . At a given price level, P1, this causes the aggregate demand curve to shift from C to D as shown in Panel (b) . What is the size of this shift?


A) The distance CD is equal to (Ia - Ib) .
B) The distance CD is equal to [MPC *(Ia - Ib) ] where MPC = marginal propensity to consume.
C) The distance CD is equal to [MPI*(Ia - Ib) ] where MPI = marginal propensity to invest.
D) The distance CD is equal to [Im *(Ia - Ib) ] where Im = investment spending multiplier.

E) B) and C)
F) C) and D)

Correct Answer

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Higher interest rates encourage investment.

A) True
B) False

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Use the following to answer questions . Exhibit: Investment Projects Use the following to answer questions . Exhibit: Investment Projects -(Exhibit: Investment Projects) If the market interest rate is 13%, what is the amount of planned investment expenditure? A) $3,500 B) $2,000 C) $2,200 D) $200 -(Exhibit: Investment Projects) If the market interest rate is 13%, what is the amount of planned investment expenditure?


A) $3,500
B) $2,000
C) $2,200
D) $200

E) A) and B)
F) A) and C)

Correct Answer

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All other things unchanged, an increase in taxes on profits earned by firms tends to


A) cause a movement down along the investment demand curve.
B) cause a movement up along the investment demand curve.
C) shift the investment demand curve to the right.
D) shift the investment demand curve to the left.

E) None of the above
F) A) and C)

Correct Answer

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Which of the following is not a determinant of investment demand?


A) Producers' expectations about the level of economic activity
B) A decline in consumers' confidence in the economic outlook
C) The quantity of capital stock
D) Household wealth

E) A) and D)
F) A) and C)

Correct Answer

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An increase in the interest rate will


A) shift the investment demand curve to the right.
B) shift the investment demand curve to the left.
C) not shift the investment demand curve.
D) increase the amount of investment undertaken by businesses.

E) B) and D)
F) None of the above

Correct Answer

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The purchase of a bond is


A) not considered capital.
B) equivalent to adding capital to a firm's capital stock.
C) equivalent to undertaking investment.
D) a more attractive form of investment (compared to capital) when interest rates are high.

E) C) and D)
F) B) and C)

Correct Answer

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In 2004, Congress, supported by the Bush administration, passed a law called the American Jobs Creation Act that gave businesses a one-year special tax break on any profits accumulating overseas that were transferred to the United States. What was the intent of this law?


A) To raise revenue for the government to fund its massive defense spending and to create jobs in the defense industry
B) To discourage U.S. firms from investing in foreign countries
C) To create jobs and spur investment in the U.S.
D) To free up much needed funding for domestic firms in the face of an impending financial crisis

E) A) and B)
F) None of the above

Correct Answer

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Which of the following will not a shift the investment demand curve?


A) Expectations about future profitability
B) The capacity utilization rate of capital
C) The current stock of capital
D) Changes in monetary policy that affect interest rates

E) C) and D)
F) None of the above

Correct Answer

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