ECON 2000 Chapter Notes - Chapter 17: Real Interest Rate, Fixed Investment, Marginal Product

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chocolatewolf465

18 Mar 2014

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Business fixed investment includes the machinery, equipment, and structures that businesses buy to use in production. Residential investment includes the new housing that people buy to live in and that landlords buy to rent out. Inventory investment includes those goods that business put aside in storage, including materials and supplies, work in process, and finished goods. Includes everything from fax machines to factories, computers to company cars. The standard model of business fixed investment is called the neoclassical model of investment. This model examines the benefits and costs to firms of owning capital goods. To develop the model, imagine that there are two kinds of firms in the economy. Production firms produce goods and services using capital that they rent. Rental firms make all the investments in the economy; they buy capital and rent it out to the production firms. This is not usually the case in the real world, however it simplifies our analysis.

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Consider a small, open economy (Honduras) with perfectly mobile capital and a fixed exchange rate. The newly-elected government hopes to improve Honduran economic performance by stimulating business investment spending there. The government's adding tax incentives for businesses and easing various rules and regulations, in fact, allowing businesses to buy more equipment and build more factories and warehouses.

Describe what happens to each of the following and explain why:

a) Honduran exchange rate

b) imports to Honduras

c) exports from Honduras

d) Honduran money supply

e) Honduran capital account (KA)

f) consumption

g) investment

ambergoose526

14. The factor market can best be described as, where __________. a. Families buy goods and services. b. Firms buy goods and services. c. Firms buy the services of labor, land and capital. d. The government sells goods and services.

15.Investment in the US is financed through __________. a. Private savings, surpluses in the government budget, and borrowing from the rest of the world. b. Private savings, deficits in the government budget, and borrowing from the rest of the world. c. Private lending, deficits in the government budget, and lending to the rest of the world. d. Private savings and borrowing from the rest of the world.

16. In the Circular Flow Model, goods and services produced by business firms are sold on __________. a.. The goods market b. In the factor market c. In the labor market d. In the financial market

17. If we import more than we export from the rest of the world, we __________. a.. We must borrow an equal amount from the rest of the world. b. We can lend an equal amount to the rest of the world. c. We have a surplus. d. We are helping to finance the investment of the rest of the world.

18. The Circular Flow Model shows that the family sector earns its income __________. a. Selling factors of production. b. Buying factors of production. c. Selling goods and services. d. Selling financial assets

An improvement in technology causes the production possibilities frontier (PPF) to

	shift to the right.
	pivot upward.
	shift to the left.
	pivot downward.

(7)

Which of the following is not shown by the circular flow model?

	The flow of resources in one direction and money in the other
	The equality of aggregate spending and aggregate income
	The interaction of households, firms, and the government
	The total amount of goods and services the economy can produce

(8)

Gross domestic product (GDP) is defined as

	the market value of all final goods and services produced in an economy in a given period of time.
	the market value of all consumption goods and services produced in an economy in a given period of time.
	the market value of all investment goods and services produced in an economy in a given period of time.
	the real value of all investment goods and services produced in an economy in a given period of time.

(9)

Real GDP

	includes all domestic and foreign transactions.
	includes the dollar value of domestic transactions only.
	tries to isolate the effect of changing output, holding prices constant.
	measures GDP in terms of prices of goods and services produced.

(10)

When economists talk about economic growth, they are usually referring to

	the percentage change in nominal GDP.
	the percentage change in real GDP.
	the percentage change in nominal investment.
	the percentage change in real investment.

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ECON 2000 Chapter Notes - Chapter 17: Real Interest Rate, Fixed Investment, Marginal Product

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