Use Tobin's q theory and the neoclassical theory of investment to explain why investment rises so rapidly once the economy has passed the trough of a business cycle
What will be an ideal response?
As an economy enters the recovery phase of the business cycle, investment is encouraged by a low real interest rate, relatively low real price of capital, relatively low inventories, and improving expectations of future output that raise the desired level of the capital stock. The increased expected marginal product of capital raises the market value of firms, which inspires more investment and boosts the expected price of capital, lowering the user cost. So long as new capital is seen as augmenting the value of the firm, investment is self-propelling.
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The U.S. dollar is called
A) frail money because wear and tear ruins paper bills. B) convertible money because the government stands ready to convert it into gold or silver. C) fiat money because the law decrees it is money. D) faith money. E) commodity money, because it is convertible into gold.
Why is limited liability so important when firms try to raise large amounts of financial capital? How is this advantage of a corporation tied to a disadvantage of a corporation?
What will be an ideal response?
Your roommate Hansen argues that American producers cannot compete with foreign producers because wages are lower in foreign countries than in the United States. Hansen
A) is incorrect. Free trade raises living standards by increasing economic efficiency. B) is right in asserting the need to protect high wages if the United States wishes to maintain its high standard of living. C) is correct in arguing that the high wages of U.S. workers make it impossible to compete with workers in low-wage countries. D) is advancing the anti-dumping argument for protectionism.
What are three primary reasons for the growth of international trade over the past 50 years?
What will be an ideal response?