1) When a person gets an increase in current income, what is likely to happen to consumption and saving? A) Consumption increases and saving increases. B) Consumption increases and saving decreases. C) Consumption decreases and saving increases. D) Consumption decreases and saving decreases. Answer: A 2) When a person expects an increase in wealth, what is likely to happen to consumption and saving? A) Consumption increases and saving increases. B) Consumption increases and saving decreases. C) Consumption decreases and saving increases. D) Consumption decreases and saving decreases. Answer: B 3) You are trying to gure out how much capacity to add to your factory. You will increase capacity as long as A) the expected marginal product of capital is positive. B) the expected marginal product of capital is greater than or equal to the marginal product of capital. C) the expected marginal product of capital is greater than or equal to the expected marginal product of labor. D) the expected marginal product of capital is greater than or equal to the user cost of capital. Answer: D 4) At the start of the year, your rm's capital stock equaled $10 million, and at the end of the year it equaled $15 million. The average depreciation rate on your capital stock is 20%. Net investment during the year equaled A) $3 million. B) $4 million. C) $5 million. D) $7 million. Answer: C 5) Calculate the user cost of capital of a machine that costs $100,000 and depreciates at a rate of 25%, when the nominal interest rate is 4% and the expected inflation rate is 1%. A) $3000 B) $25,000 C) $28,000 D) $29,000 Answer: C1) If a U.S. firm buys tulips from a Dutch firm and the Dutch firm uses the dollars it gets to buy U.S. stocks, the U.S. trade balance and the U.S. financial account A) rises; rises B) rises; falls C) falls; falls D) falls; rises Answer: D 2) A financial account surplus necessarily implies A) a balance of payments surplus. B) a current account surplus. C) a current account deficit. D) an increase in the nation's official reserve assets. Answer: C 3) Suppose output is $35 billion, government purchases are $10 billion, desired consumption is $15 billion, and net exports are $4 billion. Then desired investment equals A) $2 billion. B) $4 billion. C) $6 billion. D) $8 billion. Answer: C5) Calculate the user cost of capital of a machine that costs $100,000 and depreciates at a rate of 25%, when the nominal interest rate is 4% and the expected inflation rate is 1%. A) $3000 B) $25,000 C) $28,000 D) $29,000 Answer: C