Investment

*The marginal cost of investment for the firm is equal to*

1.

*A temporary increase in government spending that leads to only a small decline in lifetime wealth likely shifts the output demand curve to the*

right by more than the rightward shift in output supply.

*In the real intertemporal model, an adverse sectoral shock acts to*

reduce real output and increase the real interest rate.

*A decrease in credit market frictions does not*

reduce the real interest rate.

*If the interest rate goes up, what happens to the investment demand curve?*

It stays put.

*Any increase in the present value of taxes for the consumer implies*

a decrease in lifetime wealth and an increase in current labor supply.

*Any increase in the present value of taxes implies*

a decrease in lifetime wealth and an increase in the current labor supply.

*The equilibrium effects of a prospective future increase in total factor productivity include*

a decrease in the real wage and an increase in the real interest rate.

*The demand for current consumption, as plotted against the interest rate, shifts to the right due to all of the following except*

a increase in future taxes.

*The response of output following a natural disaster includes*

an increase in output demand and a decrease in output supply.

*The equilibrium effects of a temporary increase in total factor productivity include*

an increase in the real wage and a decrease in the real interest rate.

*A decrease in future total factor productivity and a decrease in current total factor productivity*

both increase current output.

*In the real intertemporal model with investment*

consumers make choices over current consumption and leisure, and future consumption and leisure.

*The condition, MRSC,C' = 1 + r, describes the representative consumer's*

consumption - savings decision.

*In the real intertemporal model with investment, there is intertemporal substitution with respect to*

consumption and leisure.

*When drawn against the real interest rate, the output demand curve unambiguously shifts to the right if*

current capital decreases.

*When drawn against the real interest rate, the optimal investment schedule shifts to the right if the*

current capital stock K decreases.

*When drawn against the real interest rate, the output supply curve unambiguously shifts to the right if*

current or future taxes increase.

*The condition, MRS1,C = w, describes the representative consumer's*

current period work - leisure decision.

*When drawn against the current wage, the current labor supply shifts to the right if*

current taxes increase.

*When drawn against the real interest rate, output supply increases if*

current total factor productivity increases.

*An increase in lifetime wealth*

decrease current labor supply and increase current consumption demand.

*When drawn against the current real wage, the labor demand curve is*

downward sloping because the marginal product of labor declines with the quantity of labor employed.

*In determining the benefit of additional investment to the representative firm, we consider the marginal product of*

future capital

*The demand for goods, given the real interest rate*

increases one-for-one with an increase in government spending.

*When drawn against the real interest rate, the output supply curve is upward sloping because labor supply is*

increasing in the real interest rate and labor demand is independent of the real interest rate.

*If future total factor productivity increases*

investment demand increases.

*The marginal propensity to consume out of income*

is smaller than one.

*Firms discount future profits at the interest rate r because*

it is the same rate as for households.

*Output supply is increasing in the interest rate because*

labor supply is increasing in the interest rate.

*Next period's capital is equal to current-period investment*

plus the amount of current capital left over after depreciation.

*When drawn against current income, the slope of the Cd (r) + Id (r) + G curve is equal to the marginal*

propensity to consume.

*The intertemporal substitution of leisure effect is used to justify the assumption that current labor supply increases when the*

real interest rate increases.

*The assumption that current-period labor supply is positively related to the current-period real wage is justified as long as the*

substitution effect dominates the income effect in the short run.

*In general equilibrium*

supply equals demand for all goods in all periods.

*At the end of the future period, in the real intertemporal model with investment*

the firm can convert capital one-for-one into consumption goods.

*A consumer may increase her saving by*

working more hours and consuming fewer goods in the present period.