Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 19, Problem 5QQ
To determine
The marginal product of capital and the cost of capital in a recession.
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Assume that a national restaurant chain called BBQ builds 20 new restaurants at a cost of $1 million per restaurant. It outfits each
restaurant with an additional $200,000 of equipment and furnishings. To help partially defray the cost of this expansion, BBQ issues
and sells 400,000 shares of stock at $30 per share.
Instructions: Enter your answers rounded to 1 decimal place.
a. What is the amount of economic investment that has resulted from BBQ's actions?
million
b. How much purely financial investment took place?
$
million
%24
%24
1. If the MRPK is less than the cost of capital, a firm should
increase its investment in physical capital.
decrease its investment in physical capital.
exit the industry.
keep its investment in physical capital the same.
The national saving schedule (S) is usually drawn with a positive slope because:
a. the value of the marginal product of capital is high when the real interest rate is high
b. the demand for investment schedule shifts to the right when the real interest rate increases
c. the private sector has a greater incentive to save when the real interest rate is high
d. firm’s demand for investment is high when the real interest rate is high
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- Potential GDP is the value of real GDP when all the economy's factors of production - _____, _____, _____, and _____ - are fully _____. A. average costs; marginal costs; variable costs; fixed costs; minimized B. labor; capital; stocks; bonds; employed C. labor; capital; land; entrepreneurial ability; employed D. wages; rent; interest; profits; optimizedarrow_forwardb. Explain the difference between saving and investment as defined by a macroeconomist. c. Which of the following situations in c (i) & c (ii) represent investment? Saving? Explain(i) Your family takes out a mortgage and buys a new house. (ii) You use your paycheque to buy stock in Sagicor Financial Services.arrow_forwardWhich of the following is most likely to cause a rightward shift of the investment demand curve? a. An increase in the market rate of interest b. An increase in income O c. A decrease in the market interest rate d. An improvement in business expectations e. A decrease in incomearrow_forward
- What are the effects of an increase in government expenditure on infrastructure capital on the demand for labor, the real wage rate, the full-employment quantity of labor, and potential GDP? An increase in government expenditure on infrastructure capital _______ the demand for labor, which _______ the real wage rate. A. increases; decreases B. decreases; increases C. increases; increases D. decreases; decreasesarrow_forwardYou want to invest in a firm whose profits show large fluctuations throughout the business cycle. Which of the following would you invest in? A. A corporation that depends heavily on business fixed investment B. A corporation that depends heavily on consumer services C. A corporation that depends heavily on consumer nondurables O D. A corporation that depends heavily on government purchasesarrow_forwardIf the population of a country grows and increases both the labor force and the demand for consumption, the GDP of that country is likely to... A. Depends on other factors B. Fall C. Stay Constant D. Risearrow_forward
- Need only Answer Not explanation 17.In the IS curve, if Y falls for any given level of the real interest rate ________. saving increases output increases consumption decreases all of the above none of the above Q. The marginal product of labor (MPL) is given by the ________. labor share of income - average output per unit of labor labor share of income + average output per unit of labor labor share of income × average output per unit of labor labor share of income ÷ average output per unit of labor none of the abovearrow_forwardExplain the difference between saving and investment as defined by a macroeconomist. Which of the following situations represent investment and which represent saving? Explain.a. Your family takes out a mortgage and buys a new house.You use your $200 paycheck to buy stock in Africel.Your roommate earns $100 and deposits it in his account at a bank.You borrow $1,000 from a bank to buy a car to use in your pizza delivery business.The interest rate is 7 percent. Use the concept of present value to compare $200 to be received in 10 years and $300 to be received in 20 years.A company has an investment project that would cost $10 million today and yield a payoff of $15 million in 4 years.Should the firm undertake the project if the interest rate is 11 percent? 10 percent? 9 percent? 8 percent?Can you figure out the exact cutoff for the interest rate between profitability and nonprofitability?arrow_forwardThe following figure plots real interest rate against quantity of credit. Real interest rate (%) S, A B. S, D, D, Quantity of credit ($) Refer to the figure above. Assume that the loanable funds market initially is in equilibrium at point D. What has to be true for the new equilibrium to be at point A? O The inflation rate must increase. Companies' or individuals' savings must decrease. O Companies' or individuals' investments must decrease. O The demand of credit must not shift.arrow_forward
- economic Suppose that an economy’s production function is Cobb–Douglas with parameter a=0.3. a. What fractions of income do capital and labor receive? b. Suppose that immigration increases the labor force by 10 percent.What happens to total output (in percent)? The rental price of capital? The real wage? c. Suppose that a gift of capital from abroad raises the capital stock by 10 percent.What happens to total output (in percent)? The rental price of capital? The real wage? d. Suppose that a technological advance raises the value of the parameter A by 10 percent. What happens to total output (in percent)? The rental price of capital? The real wage?arrow_forwardSuppose that GDP is $8 billion, taxes are $1.5 billion, private saving is $0.5 billion, and public saving is 0.2 billion. Assuming the economy is closed, calculate the size of:(i) Consumption (ii) Investment (iii) Government Spending (iv) National Savings b. Explain the difference between saving and investment as defined by a macroeconomist. c. Which of the following situations in c (i) & c (ii) represent investment? Saving? Explain(i) Your family takes out a mortgage and buys a new house. (ii) You use your paycheque to buy stock in Sagicor Financial Services.arrow_forwardThe supply of loanable funds has a slope because the grea the quantity of loanable funds supplied. Onegative; lesser; greater Opositive; lesser, lesser Opositive; greater; greater Opositive; greater; lesserarrow_forward
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