What is meant by the statement that investment projects are irreversible? How does the idea that investment projects are irreversible affect the volatility of investment in capital goods?
What will be an ideal response?
By stating that investment projects are irreversible, this means that once an investment project is finished, it is hard for the firm to use the investment for another activity. Firms will therefore often take time to acquire useful information about the profitability of the project. This creates a trade-off between the benefit of committing to an investment project and receiving the profits from the project sooner and the benefit of waiting to acquire more information to be better able to pursue an investment project that may be better suited to the economic environment. The fact that investment projects are irreversible and can be delayed makes the growth rate of investment expenditures volatile.
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Economists use the term normal good to refer to goods that
a. you consume on a daily basis. b. you consume more of when your income falls. c. you consume more of when your income rises. d. consumers choose the same quantities of regardless of income.
In the long run, the real interest rate is 3 percent, real GDP grows at 4 percent, velocity is constant, and the quantity of money grows at 8 percent. The nominal interest rate is
A) 7 percent. B) 12 percent. C) 10 percent. D) 8 percent. E) 6 percent.
Which of the following is the best example of "depreciation"?
A) An individual worker becoming tired at the end of an eight-hour work day. B) The notion that individuals obtain less utility from paying taxes than giving to charities. C) A truck used by a pizzeria to make deliveries is worth less at the end of one year. D) A rise in prices depreciating the value of consumers' real incomes.
Which of the following best describes the concept of laissez-faire?
a. Government should not intervene in the economy b. Government should actively intervene in the economy whenever it judges the action to be beneficial. c. Government should intervene in the economy only to promote short-term economic stability. d. Government should intervene in the economy only to maximize long-term growth rates. e. Government should intervene in the economy only when the economy is not at full employment or there is substantial inflation.