SOLVED

5) Suppose that a machine costs $10,000 in constant dollars and the real rate of interest is 12 percent. If the machine is expected to increase in price by 2 percent and the rate of depreciation is 5 percent, then the user cost of capital for that machine over one year is equal to ________. A) $150. B) $1500. C) $10,000. D) $102,500. 6) A machine cost $15,000 to install, and has a resale value one year later of $12,000. If the real interest rate is 10%, then the user cost of capital is ________. A) $4,500 B) $1,500 C) $3,000 D) $1,200 7) The user cost of capital is negatively related to ________. A) the real rate of interest. B) the depreciation rate. C) the expected rate of change of the real price of capital. D) the tertiary log of the nominal price of capital. 8) The expected real cost of using a unit of capital over a given period of time is known as ________. A) the real rate of interest. B) the nominal rate of interest. C) depreciation. D) the user cost of capital. 9) Gross investment is equal to ________. A) net investment plus depreciation. B) net investment divided by depreciation. C) net investment minus depreciation. D) net investment times depreciation. 10) The fraction of capital that wears out every year is known as ________. A) gross investment. B) depreciation. C) net investment. D) devaluation. 11) Except during the Great Depression, net investment has always been ________. A) equal to depreciation. B) equal to zero. C) positive. D) negative. 12) An increase in the rate of depreciation is associated with ________. A) a decrease in the rate of productivity. B) a decrease in gross investment. C) a decrease in net investment. D) an increase in net investment. 13) A higher desired level of capital and investment will result from ________. A) a decrease in productivity. B) a fall in expected future output. C) a depressed economy. D) a booming economy. 14) A decline in the desired level of capital and investment will result from ________. A) a rise in the real price of capital. B) a decrease in the rate of depreciation. C) a decrease in the real interest rate. D) a decrease in the real price of capital. 15) A rise in the tax rate on businesses leads to ________. A) a decline the desired level of capital and an increase in investment. B) a decline in the desired level of capital and a decrease in investment. C) an increase in the desired level of capital and a decrease in investment. D) an increase in the desired level of capital and an increase in investment.