Question 1

In a booming economy, ________ and so inventories ________.

Accepted Answer

In a booming economy, production is rising to meet the increased demand, which means that inventories also rise to keep up with production levels. Option B is incorrect because if consumption is rising, inventories would actually need to rise as well to meet the higher demand. Option C is incorrect because in a booming economy, government expenditures may increase due to higher tax revenue, but this would not have a direct impact on inventories. Option D is incorrect because while inflation may rise in a booming economy, it does not necessarily have a direct impact on inventories. Option E is incorrect because while personal savings may rise in a booming economy, this also does not have a direct impact on inventories.

Question 2

The company that was one of the first adopters of supply-chain management was:

Accepted Answer

Walmart was one of the first companies to adopt supply-chain management practices, particularly with their use of electronic data interchange (EDI) to share information with suppliers and streamline processes. This helped them to become a leader in logistics and inventory management, and allowed them to reduce costs and improve efficiency.

Question 3

The financial asset arbitrage equation is given by  
.

Accepted Answer

The answer of The financial asset arbitrage equation is given...

Question 4

One reason we are interested in investment is its link to long-term economic growth.

Accepted Answer

Investment allows for the creation and expansion of businesses, the development of new technologies, and the improvement of infrastructure, all of which can contribute to long-term economic growth.

Question 5

If firms "production smooth," they:

Accepted Answer

The answer of If firms "production smooth," they:
...

Question 6

Refer to the following figure when answering the following questions.
Figure 17.3: Change in Private Inventories: 1980-2012  
-Consider Figure 17.3, which shows changes in private inventories. Of the following (approximate) dates, ________ is likely to be a period of expansion. Given your analysis, inventories are ________.

Accepted Answer

Inventories are procyclical, meaning they tend to increase during periods of economic expansion. The year 2009 marked the beginning of recovery from the Great Recession, indicating a period of expansion.

Question 7

When discussing arbitrage in the stock market, a financial investor can choose between putting money into a savings account or buying a stock.

Accepted Answer

Arbitrage in the stock market involves taking advantage of price discrepancies between different markets or assets to make a profit. It does not involve putting money into a savings account.

Question 8

In the equation  
is the real interest rate.

Accepted Answer

The equation provided does not contain any information related to interest rates, it is a random collection of alphanumeric characters.

Question 9

If the real interest rate is 4 percent, the depreciation rate is 10 percent, the tax rate is 0 percent, and capital gain is 1 percent, the user cost of capital is 13 percent.

Accepted Answer

The user cost of capital is calculated as follows:
User cost of capital = (Real interest rate + Depreciation rate - Capital gain) x (1 - Tax rate)
= (4% + 10% - 1%) x (1 - 0%)
= 13%

Question 10

For the profit-maximizing firm, if the real interest rate is less than the marginal product of capital, the firm should invest in more capital.

Accepted Answer

If the real interest rate is less than the marginal product of capital, it means that the rate at which the firm can borrow money is cheaper than the rate at which the capital will generate additional revenue. Therefore, it would be profitable for the firm to invest in more capital to increase its output and profits.

Question 11

According to data in the text, the country with the lowest corporate tax rate is Japan.

Accepted Answer

The text does not provide information about the country with the lowest corporate tax rate.

Question 12

In the mid to late 2000s, several housing markets in the United States had a bubble in residential investment. One cause was likely:

Accepted Answer

More lax down-payment requirements allowed more people to qualify for mortgages and buy homes, which increased demand and drove up housing prices. This led to a bubble in residential investment that eventually burst, causing the housing market crisis.

Question 13

A decline in the corporate income tax will raise the capital user cost and the firm will invest in less capital.

Accepted Answer

A decline in the corporate income tax will lower the capital user cost and encourage firms to invest in more capital.

Question 14

When John Maynard Keynes said, "An investment in knowledge always pays the best interest," he was referring to investing in government spending.

Accepted Answer

When Keynes made this statement, he was referring to investing in education and research, not specifically government spending.

Question 15

The payment the owner of a stock receives from a firm is called the return on assets, or ROA.

Accepted Answer

The payment the owner of a stock receives from a firm is called a dividend. The return on assets (ROA) is a financial ratio that measures a company's profitability by dividing its net income by its total assets.

Question 16

According to the financial asset arbitrage equation, a rise in the capital gain for a stock implies a rise in the real interest rate, all else equal.

Accepted Answer

The financial asset arbitrage equation states that the expected return on a stock is equal to the real interest rate plus the expected capital gain. Therefore, a rise in the capital gain for a stock implies a rise in the real interest rate, all else equal.

Question 17

Refer to the following figure when answering the following questions.
Figure 17.3: Change in Private Inventories: 1980-2012  
-Consider Figure 17.3, which shows changes in private inventories. Of the following (approximate) dates, ________ is likely to be a period of recession. Given your analysis, inventories are ________.

Accepted Answer

Inventories are typically procyclical, meaning they tend to increase during economic expansions and decrease during recessions. The year 2001 was a period of recession, and inventories would have been procyclical, decreasing during this time.

Question 18

Which of the following is a motive for holding inventories?
i. Pipeline theory
ii. Present value inventory control
iii. High cost of transportation

Accepted Answer

Pipeline theory is a motive for holding inventories as it accounts for goods in transit within the supply chain.

Question 19

The conclusion of a study by Steven Davis and James Kahn is that:

Accepted Answer

Improvements in inventory management have been shown to reduce macroeconomic volatility by smoothing production and reducing the amplitude of business cycles.

Question 20

The arbitrage condition for capital shows that returns to a bank account are equal to the user cost of capital.

Accepted Answer

The arbitrage condition for capital typically implies that the return on investing in capital (after adjusting for depreciation and taxes) should be equal to the cost of financing that investment, such as the interest rate on a loan, rather than equating directly to the returns to a bank account.

Quiz 17: Investment

In a booming economy, and so inventories .