Chapter 12 Flashcards

1
Q

The interest rates quoted in the market are

A

d. nominal interest rates.

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2
Q

Firms are likely to ________ investment spending when they believe that
growth in real GDP will _________.

A

decrease, decrease
increase, increase
accelerator theory

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3
Q

The model in which a downturn in real GDP leads to a sharp fall in
investment, which further reduces GDP through the multiplier, is known
as the ________ model.

A

multiplier-accelerator

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4
Q

Compared to a 30-year U.S. Treasury, the interest rate on a 30-year
fixed mortgage will be ______ because it is a loan with _______.

A

c. higher, more risk

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5
Q

Table 11.2 - Returns on Investment
Investment Cost Returns
A $100 $104
B 300 324
C 200 212
D 50 51
E 400 440
14. Referring to Table 11.2, if the nominal interest rate is 9% and there is
no inflation, which investments will be undertaken?

A

E
Only E because the return from simply saving the money is 0.09£400
= $36 which is less than your $40 dollar return. The other projects yield a
lower return. What if in°ation was 5%, which investments should you choose?

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6
Q

Table 11.2 - Returns on Investment
Investment Cost Returns
A $100 $104
B 300 324
C 200 212
D 50 51
E 400 440
Referring to Table 11.2, if the nominal interest rate is 3% and there is
no inflation, which investments will be undertaken?

A

E, B, C, and A

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7
Q

Table 11.3 - Returns on Investment
Investment Cost Returns
A $200 $218
B 500 515
C 100 111
D 400 420
E 300 321
16. If Table 11.3 represents all the investments available to the economy,
the nominal interest rate is 10% and there is no inflation, what will be
the level of investment in the economy?

A

a. $100

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8
Q

As the real interest rate _______, the real investment spending
__________.

A

c. increases, decreases

d. decreases, increases

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9
Q

The neoclassical theory of investment:

A

emphasizes the role of real interest rates and taxes.

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10
Q

The Q-theory of investment:

A

links investment spending to stock prices.

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11
Q

Financial intermediaries reduce risk by:

A

investing in a large number of projects with independent returns.

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