. The increase in real output produced by using one more unit of capital in production is called:

1 point

A) The rental cost of capital

B) The marginal product of capital

C) The value of capital

D) The increase in productivity

E) Capital consumption allowances

2. In equilibrium, the value of the marginal product of capital is equal to:

1 point

A) The market interest rate minus the rate of depreciation

B) The value of the marginal product of labour

C) The rate of depreciation minus the real interest rate

D) The rental cost of capital

E) Total output divided by the capital stock

3. The rental cost of capital is given by:

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A) The real rate of interest minus depreciation

B) The nominal rate of interest minus depreciation

C) The nominal rate of interest plus depreciation

D) The nominal rate of interest plus expected inflation minus depreciation

E) None of the above

4. You are given the following information: the nominal interest rate is i = 10%, the real interest rate is r = 7% and the rate of depreciation is d = 6%. What is the rental cost of capital?

1 point

A) 16%

B) 13%

C) 11%

D) 4%

E) 1%

5. From the accelerator model we learn that:

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A) The level of investment is proportional to the level of output

B) The change in investment is proportional to the change in output

C) The change in investment increases as the level of output increases

D) The level of investment increases as the change in output increases

E) The level of investment decreases if the desired capital stock is greater than the actual capital stock

6. If an economy has achieved its desired capital stock and wishes merely to maintain it, should any investment occur? If not, why not? If so, how much?

1 point

Your answer

7. If a firm invests out of retained profits rather than borrowed funds, will its investment decisions still be affected by changes in the interest rate? Explain.

2 points

Your answer

8. Give at least two reasons why higher profits may increase the rate of investment?

2 points

Your answer

9. Explain why lenders may ration the quantity of credit rather than merely charging higher interest rates to more risk borrowers.

1 point

Your answer