Test 2-B Flashcards
A mathematical expression relating the amount of output produced to quantities of capital and labor utilized is the _______.
production function
At the national level, an increase in current output raises both desired consumption and desired national savings. T/F?
True
At the national level, an increase in expected future income raises desired consumption. T/F?
True
At the national level, an increase in wealth causes desired saving to rise. T/F?
False
Overall, the empirical evidence from many studies suggest that an increase in the real interest rate reduces desired national savings and increases desired consumption, but not by very much. T/F?
False
At the national level, the Ricardian equivalence proposition says that a cut in taxes will boost consumption expenditure in the economy. T/F?
False
The user cost of capital is the sum of the depreciation cost and the interest cost. T/F?
True
If the expected future marginal product of capital is unchanged when there is an increase in the user cost of capital, then there will be a reduction in the amount of capital that businesses desire to use in their operations. T/F?
True
If the expected future marginal product of capital is unchanged when there is a reduction in the taxation of capital, as measured by the effective tax rate, then there will be an increase in the amount of capital that business desire to use in their operations. T/F?
True
Gross investment mine depreciation equals net investment, or the change in the capital stock. T/F?
True
An increase in the effective tax rate lowers the user cost of capital. T/F?
False
Gross investment equals net investment plus depreciation. T/F?
True
In a closed economy, national saving is equal to the total income of the economy minus spending to satisfy current needs. T/F?
True
According to Okun’s law, a 1% point increase in the unemployment rate in the U.S. is associated with a 4% drop in the U.S. output of goods and services. T/F?
False
Structural unemployment occurs because some workers don’t have the skills needed to obtain long-term employment. T/F?
True
The marginal propensity to consume (MPC) is the amount by which consumption rises when current income rises by one unit. T/F?
True
The real rate of interest is equal to the nominal rate of interest plus the rate of inflation. T/F?
False
A small increase in the real interest rate will most likely
increase desired saving, but the effect will be relatively small
The labor supply curve will shift outward to the right when there is an:
increase in the working-age population
According to the Ricardian equivalence proposition, a temporary government budge deficit created by cutting taxes
will cause future taxes to increase but will have no real economic effects.
The desired level of the capital stock will increase if the
expected future marginal product of capital increases
DVD player cost $500, depreciate @ 25%/yr, borrow @ 10% or receive 6% for deposit, inflation @ 5%. Find user cost of capital for 1st year.
$130.
Calculate the user cost of capital of a machine that costs $10,000 and depreciates at a 10% rate, when the nominal interest rate is 6% and the expected inflation rate is 3%
$1,300
If a firm’s expected marginal product of capital exceeds its tax-adjusted user cost of capital, the firm will
not change its investment spending on capital goods
