Econ 102 hw 3

Given an annual interest rate of 2%, the present value of a future payment of $1,500 to be paid in one year is:

A) $1,500.00 B) $1,530.00 C) $1,250.55 D) $1,470.59

If the interest rate is 4%, what is the approximate future value of $15,000 in 10 years?

A) $15,900 B) $17,949 C) $22,204 D) $10,133

An advanced computer system for a multinational corporation costs $500,000 and is expected to depreciate by 4% at the end of next year. The real interest rate is 4%. What is the user cost of the computer system for one year?

A) $20,000 B) $540,000 C) $40,000 D) $50,000

You've graduated from college and are now working in an investment firm where you advise clients on investment decisions. Here is the information on the proposed project. Up-front cost: $250,000 Next years's revenue: $25,000 Real interest rate: 4% Depreciation rate: 6% What is the present value of the stream of payments from this project?

A) $250,000 B) 0 C) $625,000 D) $275,000

In a simple, closed economy (no government or foreign sector), if income increases by $1,000, and consumption increases by $600, the marginal propensity to consume is:

A) $600 B) 1.67 C) $400 D) 0.60

In a simple, closed economy (no government or foreign sector), income increases from $2,000 to $3,000. If consumption increases from $1,500 to $2,100, the marginal propensity to consume is:

A) 0.60 B) 0.71 C) 0.50 D) $600

If income increases by $5 billion, and consumption increases by $4 billion, the marginal propensity to consume equals:

A) 1.25 B) 20 C) 0.8 D) 9

In a simple, closed economy (no government or foreign sector), if income increases by $100, and $30 is saved, _____ will go to consumption.

A) 7 B) 30 C) 100 D) 170

Which of the following graphs shows what would happen to the investment line if technological advance makes capital more productive? Figure A: Consumption Curve Shifts to right Figure B: Shift downward along the consumption curve Figure C: Shift upward along the consumption curve Figure D: Consumption Curve Shifts to left

A) Figure C B) Figure D C) Figure A D) Figure B

Suppose the federal minimum wage decreases in the United States. Which of the following graphs shows the correct effect on the consumption function? Figure A: Consumption curve shifts up Figure B: Shift up along the Consumption curve Figure C: Shift down along the Consumption curve Figure D: Consumption curve shifts down

A) Figure D B) Figure B C) Figure C D) Figure A

Suppose the Canadian job markets report is very strong and consumers begin to expect more economic growth and rising incomes. Which of the following graphs shows the correct effect on the consumption function in Canada? Figure A: Consumption curve shifts up Figure B: Shift up along the Consumption curve Figure C: Shift down along the Consumption curve Figure D: Consumption curve shifts down

A) Figure D B) Figure C C) Figure A D) Figure B

Why does a temporary change in income lead to only a small change in consumption for a consumption smoother?

A) The MPC always tends to be low. B) The consumer prefers to focus on current consumption rather than future consumption. C) Temporary increases in income are heavily taxed. D) The consumer tends to spread a temporary spike in income over the lifetime of the consumer.

You've graduated from college and are now working in an investment firm where you advise clients on investment decisions. Here is the information on the proposed project. Up-front cost: $250,000 Next years' revenues: $25,000 Real interest rate: 4% Depreciation rate: 6% How much profit does the project yield, and should your client invest in the project?

A) Yes, the client should invest because the project yields a $25,000 profit. B) The client is indifferent because the project does not yield any profit above the up-front cost. C) No, the client should not invest because the project yields a $25,000 loss. D) Yes, the client should invest because the project yields a $50,000 profit.

An upward shift of the consumption function can be caused by:

A) a stock market crash. B) a reduction in the wealth of households. C) expectations of higher incomes. D) expectations of less income.

Precautionary savings are:

A) bequests. B) borrowing from credit cards. C) savings for emergency situations. D) loans from banks.

Present value is the:

A) compounded future value. B) compounded real interest rate. C) discounted real interest rate. D) discounted future value.

Physical capital is purchased through investment spending, which in turn is MOSTLY financed by:

A) consumption expenditure. B) Correct! savings. C) taxes. D) import tariffs.

A factor that does NOT affect consumption is:

A) current income. B) past income. C) expected income. D) wealth.

A decrease in the demand for loanable funds would MOST likely be caused by a(n):

A) decrease in corporate income tax rates. B) Decrease in perceived business opportunities. C) increase in perceived business opportunities. D) decrease in the market interest rate.

The permanent income hypothesis implies that retired consumers with savings but no income will fund excess permanent consumption by:

A) dissaving. B) saving. C) borrowing. D) not paying taxes.

Price in the loanable funds market is the:

A) long-term real interest rate. B) rate of return on an investment spending project. C) consumer price index. D) price level.

The rational rule of consumption is to consume more today if the:

A) marginal benefit of a dollar of consumption today is less than the marginal benefit of spending a dollar plus interest in the future. B) real interest rate in the future is expected to be higher than the real interest rate today. C) price of consumption today exceeds the dollar-plus-interest in the future. D) marginal benefit of a dollar of consumption today is greater than (or equal to) the marginal benefit of spending a dollar plus interest in the future.

Assuming a positive interest rate, the dollar amount of a future payment is _____ its present value.

A) more than B) less than C) exactly the same as D) approximately the same as

If you expect to get a substantial raise six months from now, and you are like most people, it will _____.

A) not affect your current consumption. B) affect your current consumption. C) not affect your future consumption. D) only impact your future consumption.

The permanent income hypothesis implies that consumers whose incomes exceed their permanent consumption will engage in:

A) not paying taxes. B) dissaving. C) saving. D) borrowing.

Someone who must decide whether to receive $100 now or $100 one year from now will probably choose _____, since there is a(n) _____ in waiting to use the money.

A) now; benefit B) one year from now; opportunity cost C) one year from now; benefit D) now; opportunity cost

In macroeconomics, the difference between saving and investment is that:

A) saving does not depend on income, but investment depends on profitability. B) saving is the money left over after paying for spending, and investment is the purchase of stocks and bonds. C) saving is created by the government, and investment is specific to firms. D) saving is the money left over after paying for spending, and investment is the purchase of new capital.

What is the permanent income hypothesis?

A) the idea that consumption is based on current income rather than permanent income B) the idea that consumption is based on permanent income rather than current income C) the idea that the marginal propensity to consume does not change over time D) the idea that temporary changes in income lead to the largest changes in total consumption

The crowding-out effect is _____.

A) the positive effect of government budget deficits on private investment spending B) the negative effect of government budget deficits on private investment spending C) the positive effect of government budget deficits on private saving D) what happens when a company employs too many workers

The loanable funds market is the market for:

A) wholesale goods and services. B) funds used to buy, rent, or build capital. C) retail goods and services. D) machines.