First, briefly explain what the user cost or rental cost of capital represents. Second, explain what factors would cause an increase in the user cost or rental cost of capital
What will be an ideal response?
The user cost of capital is the sum of the real rate and rate of depreciation. If a rental agency rented capital, it would have to charge enough to cover any depreciation that occurs plus an amount equal to what it could get if it simply bought bonds (the real rate). Therefore, either an increase in the real interest rate or an increase in depreciation will cause an increase in the user cost of capital.
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Most economists see the business cycle
A) as a regular pattern of recessions and expansions of the same length and intensity. B) occurring as a result of anticipated macroeconomic changes in the marketplace. C) as randomly occurring, resulting from unpredictable long-run changes in the macroeconomy. D) as resulting from the response of households and firms to macroeconomic shocks.
Which of the following statements is correct?
a. Neither economic theory nor evidence from the U.S. economy suggests that there is a close link between productivity and real wages. b. Economic theory suggests that there is a close link between productivity and real wages, but evidence from the U.S. economy fails to confirm that link. c. Evidence from the U.S. economy suggests a close link between productivity and real wages, but economic theory provides no basis for such a link. d. Both economic theory and evidence from the U.S. economy suggest that there is a close link between productivity and real wages.
The substitution effect indicates that:
A) a decline in money income will cause the consumer to buy more inferior goods and fewer superior goods. B) consumer equilibrium can only be achieved when the consumer is buying substitute goods. C) when the price of a product falls, the lower price will induce the consumer to buy more of that product at the expense of other products. D) when the price of a product falls, a consumer will be able to buy more of it with a specific money income.
If an artisan sells handmade jewelry at a craft fair
A. and does not report the income earned to the Internal Revenue Service, GDP is understated. B. and does not report the income earned to the Internal Revenue Service, GDP is overstated. C. and reports the income earned to the Internal Revenue Service, GDP is understated. D. and reports the income earned to the Internal Revenue Service, GDP is overstated.