A firm invests in a new machine that costs $5,000 a year but is expected to produce an increase in total revenue of $5,200 a year. The current real rate of interest is 7%. The firm should
A. undertake the investment, because the expected rate of return of 10% is greater than the real rate of interest.
B. not undertake the investment, because the expected rate of return of 4% is less than the real rate of interest.
C. not undertake the investment, because the expected rate of return of 6% is less than the real rate of interest.
D. undertake the investment, because the expected rate of return of 8% is greater than the real rate of interest.
Answer: B
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A period of time in which the quantity of all factors of production used by a firm can be varied is called the
A) market period. B) variable run. C) short run. D) long run.
The proponents of rational expectations believe that:
a. there will be a substantial time lag before people anticipate the eventual effects of a shift to a more expansionary macro-policy. b. macro-policies that stimulate demand and place upward pressure on the general level if prices will temporarily increase output and employment. c. the inflationary side effects of expansionary policies will be anticipated quickly, and therefore, even their short-run effects on real output and employment will be minimal. d. discretionary changes in macro-policy can be made in a manner that will reduce the economic ups and downs of a market economy.
The rational expectations theory indicates that expansionary policy will:
A. stimulate real output in the long run but not in the short run. B. expand real output and employment if the public quickly anticipates the effects of the expansionary policy. C. equalize real and nominal interest rates during lengthy periods of inflation. D. fail to increase employment because individuals will anticipate it and take actions that will offset its impact.
Suppose the annual growth rate of GDP in Belize is 3.5 percent. In 20 years, GDP in Belize will double:
A. 1 time. B. 1.5 times. C. 3.5 times. D. 7 times.