Question 11 pts Company X has $300 million in preferred stock, $5 billion in com

Question

Question 11 pts

Company X has $300 million in preferred stock, $5 billion in common stock and $2 billion in bonds. Controlling such a company typically takes:

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Question 21 pts

MPC and MPS always add to equal zero.

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Question 31 pts

In reality, business investment is less stable than consumption.

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Question 41 pts

The most important determinant of investment is

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Question 51 pts

Investment is treated as a constant in the traditional aggregate expenditures model.

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Question 61 pts

A low rate of investment could be explained by a

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Question 71 pts

How much is autonomous consumption when disposable income is $800 billion?

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Question 81 pts

Net investment tells us how much the economy has increased its capital stock.

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Question 91 pts

The most output produced by U.S. companies is made by:

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Question 101 pts

If consumers typically spend $40,000 when their income is $45,000 and the MPC is currently .8 then if their income rises $5000:

$1 billion in common stock. Disposable Income 0 $200 billion 400 billion 600 billion 800 billion Consumption $200 billion 300 billion 400 billion 500 billion 600 billion

Explanation / Answer

Q11. Correct Answer is $250 million in common stock. This stems out from the fact that practically it is 5 percent of the common stock which is required for control. 5% of common stock is here 5% of $5 billion which is $250 million

Q21 False. This is because both are derivatives and their sum is always equal to 1. This is true since MPC = 1 – MPS.

Q31 True. Consumption is the biggest component of GDP while Investment is the most volatile. Hence it fluctuates quite often

Q41 It is the interest rate. interest rate is typically negatively related to the investment and is the most significant factor that makes investment sensitive to the market.

Q51 True. This is because traditional models takes only autonomous investment which is exogenous to the model similar to government spending. Hence AE = Y has G and I fixed by nature

Q61 Low rate of saving and high rate of interest. Interest rate is inversely related so when it is high, investment is low. Saving is transformed into investment so when it is low, investment will be lower

Q71 It is 200 billion. Autonomous consumption is fixed and does not depend on the income level. Hence when income is zero, all consumption is autonomous and is stays the same for the entire modeling

Q81 True

Q91 Corporations

Q101 Given that MPC = 0.8 which means C/ Y = 0.8 or C/5000 = 0.8. This gives C = 5000*0.8 = 4000. Hence consumption rises by 4000. Hence, their spending will rise by $4000 and their savings will rise by $1000.

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