### Macroeconomics Practice Test - 14: Theories of Investment

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1. In the rigid version of the accelerator theory of investment, net investment in successive periodds is as follows when the capital-output ratio is 2 and the expected increase in output is $15,$20, $20 and$15

1. $30 each period 2.$15, $20,$20 and $15 in successive periods 3.$30, $40,$40, and $30 in successive periods 4.$7.50, $10,$10, and $7.50 in successive periods 2. Which of the following statements is true? 1. Gross investment is more stable than net investment when replacement investment is constant over time 2. Net investment is more stable than gross investment when replacement is constant over time 3. Replacement investment equals $$\upsilon \Delta Y$$ 4. Net investment is greatet than $$\upsilon \Delta Y$$ when the capital-output ratio decreases 3. The user cost of capital is 1. The real rate of interest 2. The nominal rate of interest 3. The real rate of interest plus the rate of depreciation 4. The nominal rate of interest plus the rate of depreciation 4. Which of the following economic policies will not lower the user cost of capital? 1. A 5% increase in the nominal money supply, which causes a 5% increase in the expected rate of inflation 2. The introduction of an investment tax credit 3. An increase in the rate at which firms are allowed to depreciate machinery for tax purposes 4. A reduction in the corporate income tax rate 5. The marginal cost benefit from capital is the 1. Incremental output associated with an addition to the stock of capital 2. Cost saving associated with employing less labor inputs and additional capital inputs to produce a fixed level of output 3. Incremental cost of capital associated with the addition of a unit of capital 4. Incremental profit associated with the addition of a unit of capital 6. A decrease in the user cost of capital will result in the production process becoming 1. More capital-intensive and the capital-output ratio decreasing 2. More capital-intensive and the capital-output ratio increasing 3. Less capital-intensive and the capital-output ratio decreasing 4. Less capital-intensive and the capital-output ratio increasing 7. A distributed lag for net investment may be due to 1. A decrease in the capital-output ratio 2. An increase in the capital-output ratio 3. Limited, short-run production capabilities in the capital goods industry 4. A decrease in the expected level of output 8. Tobin's q-theory of investment indicates that firms add to their stock of capital when 1. The replacement value of their real assets exceeds the market value of their financial assets 2. The market value of their financial assets exceeds the replacement value of their real assets 3. The market value of their real assets exceeds the book value of their financial assets 4. The market value of their real assets exceeds the book value of their real assets 9. When the inventory-sales ratio is 0.25, a 1. 25% increase in expected sales results in a 100% increase in inventory 2.$25 increase in expected sales results in a $100 increase in inventory 3. 100% increase in expected sales results in a 25% increase in inventory 4.$100 increase in expected sales results in a \$25 increase in inventory

10. Which of the following results in an increase in the inventory-sales ratio?

1. A decrease in the cost of holding inventory, ceteris paribus

2. An increase in the probability of delivery delays for materials, ceteris paribus

3. An increase in expected sales, ceteris paribus

4. An increase in the uncertainty of expected sales, ceteris paribus