Suppose the auto industry has several investment projects with an expected rate of return of 15 percent, the aluminum industry has projects with an expected return of over 20 percent,
the publishing industry projects with an expected return of 10 percent, the steel industry has projects with an expected return of 7 percent and the rubber industry projects with an expected return of 5 percent. The current market rate of interest is 7 percent. A reduction in the supply of funds causes interest rates to rise to 11 percent. The effect is to
A) cause the firms in the steel and publishing industries to cancel their projects, which would have been funded at the old interest rate.
B) cause the firms in the steel and the rubber industries to go ahead with their projects.
C) force the firms in the automobile industry and the publishing industry to rely on funding their projects through other means.
D) make the projects of the aluminum industry and the steel industry unprofitable; the firms in these industries will not borrow the funds or make the investments.
A
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If the price elasticity is supply coefficient is greater than one, then supply is:
a. elastic. b. inelastic. c. perfectly elastic. d. perfectly inelastic.
In which of the following cases would the consumer surplus most likely be greatest for an umbrella?
a. at a ski resort experiencing a snowstorm during the slow part of the season b. on a dry, cloudy day in a region that rarely receives measurable rainfall c. in a major city on a rainy day that was predicted well in advance d. when a downpour approaches a large, unprepared crowd in an open area
An increase in the required reserve ratio by the Federal Reserve would:
a. cause M1 to contract. b. cause M1 to expand. c. have no effect on M1 or M2. d. affect only M2, not M1.
When the marginal revenue product of an input is less than its price, the
A. producer should expand the use of that input. B. price of the input will automatically rise in a free market. C. producer should reduce the use of that input. D. marginal physical product of that input must be below its average physical product.