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43

Macro Economics MCQ (GK Set-1) with Answers

43) Point A represents the endowments of Crusoe for today and tomorrow and the real interest rate is r . Crusoe’s wealth is equal to

OB

DB

OY1+OY2

The area of the rectangle OY1AY2

Answer is:

OB

Macro Economics MCQ (GK Set-1) with Answers

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Related Macro Economics MCQ (GK Set-1) with Answers

44) In a two-period world where firms can invest K in the present period in order to produce F(K) in the future period, if the real rate of interest is r, then the net return from investing K would be equal to:

F(K)/(1+r) minus K

F(K) minus K/(1+r)

F(K) minus K

K times (1+r)

Answer is:

F(K)/(1+r) minus K

45) The reason that it does not matter whether a firm uses debt (borrowing) or equity (own saved funds) to finance its investment plans is

that Ricardian equivalence fails.

that in a global world it is always possible for a nation to borrow abroad.

that a Ponzi-scheme is necessary so the firm is indifferent

that firms belong to their shareholders and the net return from investment raises their wealth

Answer is:

that firms belong to their shareholders and the net return from investment raises their wealth

46) Consider the current government budget, where: T1 is today’s net taxes. D1 is government debt at the start of today. G1 is today’s government spending. rG is the real interest rate paid on government debt. All variables are positive.

T1 - G1 - rGD1 > 0

D1 (1+ rG) > T1 - G1

rGD1 > T1 - G1

(G1+ D1) rG - T1 > 0

Answer is:

rGD1 > T1 - G1

47) Suppose the market interest rate is equal to 5%. The price of a bond that promises one payment of Rs.100 in one year would be equal to:

Rs.100.00 - Rs.5.00

Rs. 100.00

Rs.100.00 + Rs.5.00

Rs.100 Rs. 1.05

Answer is:

Rs.100 Rs. 1.05

Macro Economics MCQ (GK Set-1) with Answers

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