If the interest rate is 25%, but cash flows change such that the investment renders a cash flow of $500 in year 1 and $800 in year 2 instead of year 3, would the investment take place?
a. Yes since NPV>0
b. No since NPV<0
c. Yes since the present value of the cash flows is greater than zero
d. No since the present value of the cash flows is lesser than zero
b
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Refer to Figure 16-1. Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued. Using the static AD-AS model in the figure above, this would be depicted as a movement from
A) C to B. B) A to E. C) D to C. D) C to D. E) E to A.
Cyclical unemployment results from: a. a mismatch of skills
b. being in the wrong geographical location. c. monetary cost and the time it takes to find the best job. d. seasonal decreases in demand for labor. e. prolonged declines in business activity.
The Great Recession of 2007–2009 and the financial crisis of 2008 increased the budget deficit because of: a. an increase in the tax rates for high-income households
b. a sudden increase in terrorist attacks and anthrax scares in the economy. c. low interest rates that crowded out private investment. d. discretionary tax cuts and greater outlays on unemployment benefits. e. greater outlays on national defense spending.
The effect of a compensated price change is known as:
A. the price effect of a price change. B. the income effect of a price change. C. the substitution effect of a price change. D. the replacement effect of a price change.