State four factors that explain why investment spending tends to be unstable.
What will be an ideal response?
Investment spending is based to a large extent on expectations about future profitability and this can vary significantly from period to period. Technological changes affect investment spending and these changes are not predictable in their timing. Investment goods tend to be long lasting and “lumpy” in nature; that is, once a capital good is purchased it lasts a long time and the expenditure will not be repeated on a frequent, regular basis. Furthermore, this type of expenditure is usually large, so any changes tend to be substantial on a firm-by-firm basis. Expectations and profits are both highly variable. Actual profits may not meet expectations and this can affect expectations in the future. Expectations are also based on many different external factors.
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At most museums, you can either buy a year-long membership that gives you free access to the museum any time, or you can pay a daily fee every time you visit. (Assume for purposes of this exercise that everyone can in principle afford the year-long membership.)
A. Those who choose to pay the daily fees all place the same value on their marginal museum visit. B. We cannot tell how much value anyone places on the marginal museum visit because we cannot compare utility across individuals. C. If someone is indifferent between the two options, she will go to the museum at least as much if she chooses the year-long membership than if she does not. D. Both (a) and (c) are true. E. Both (b) and (c) are true.
How do open market operations work?
What will be an ideal response?
The stock of money people hold to take advantage of expected future changes in the price of bonds, stocks, or other nonmoney financial assets is the:
a. unit-of-account motive for holding money. b. precautionary motive for holding money. c. speculative motive for holding money. d. transactions motive for holding money.
An economy using money is more efficient that a barter economy because the use of money reduces the time spent searching for trading partners with a coincidence of wants and therefore more time can be spent producing goods and services
a. True b. False Indicate whether the statement is true or false