Consider two projects. The first project pays benefits of $90 today and nothing else. The second project pays nothing today, nothing one year from now, but $100 two years from now. Which project would be preferred if the discount rate were 0%? What if the rate increased to 10%?
What will be an ideal response?
For a discount rate of 0%, the present value calculations would be $90 for project one and
$100 for project two; therefore, project two is preferred. At a rate of 10%, the PV of project one
is still $90. For project two, the PV is now 82.6; therefore, project one is preferred.
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Countries with the
A) biggest deflations and output contractions are countries which were never on the gold standard until 1936. B) biggest inflations and output contractions are countries which were on the gold standard until 1936. C) lowest deflations and output contractions are countries which were on the gold standard until 1936. D) biggest deflations and output increases are countries which were on the gold standard until 1936. E) biggest deflations and output contractions are countries which stayed on the gold standard until 1936.
In the Solow growth model, an increase in the savings rate
A) raises steady state per capita output. B) raises the growth rate in aggregate output. C) must reduce per capita consumption. D) must reduce the standard of living.
Suppose the supply curve and the demand curve both have unitary elasticity at all prices. The price increase to consumers resulting from a specific tax of $1 imposed on sellers will be
A) $1. B) 50 cents. C) zero. D) Impossible to calculate without knowing the slope of the supply curve.
Other things constant, an increase in consumer income will
a. shift the demand curve for automobiles to the left. b. shift the demand curve for automobiles to the right. c. cause a movement along the demand curve for automobiles, but it will not shift the demand curve. d. lead to a reduction in the supply of automobiles.