EBK PRINCIPLES OF MACROECONOMICS
12th Edition
ISBN: 9780134079592
Author: Oster
Publisher: YUZU
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Question
Chapter 15, Problem 2.1P
To determine
Role of expectations in investment demand.
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Students have asked these similar questions
Which of the following would not cause shift in the investment demand curve as the above graph shows?
Select one:
a. Business taxes
b. Expectations
c. Changes in real interest rates
d. Acquisition, maintenance, and operating costs
e. Technological change
If most people have rational expectations, how long will recession last ? Explain.
What other factors besides interest rates will cause the investment demand curve to shift?
Chapter 15 Solutions
EBK PRINCIPLES OF MACROECONOMICS
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- 1. A. Harold Hotelling forecast that someday the oil industry would come to an end. For the interim period, in between his time and the end of oil, what were Hotelling's expectations for (i) consumers, (ii) oil production investors, and (iii) oil prices? B. Marion King Hubbard forecast that the oil industry would continue to expand, and then shrink. What reasoning did Marion King Hubbert use to form his expectations? C. Contrary to the forecast of Harold Hotelling, today's global oil output is greater than ever. Nevertheless, what have top Middle East oil exporting nations do to apply Hotelling's expectations into their own national oil export policies? D. Also contrary to the beliefs of Marion King Hubbert, today's global oil output is greater than ever, rather than less. Even the USA's oil output is greater today than it was when Hubbert made his forecast. Nevertheless, what have the major oil exporters of the Arabian Gulf done in the past to apply Hubbert's forecasts into their…arrow_forwardHow does investment as defined by economists differ from investment as defifined by the general public? What would happen to the amount of investment made today if firms expected the future returns to such investment to be very low? What if firms expected future returns to be very high?arrow_forwardTom Tolkien, the CEO, is not happy with the quality of information being presented by his business manager. He asks the best economic consultancy firm in the country to provide an accurate macroeconomic forecast, which they guarantee would be 100% accurate. What is the most that Tolkien Transport should be willing to pay the research firm for this information (in other words what is the value of perfect information concerning the state of the economy)?arrow_forward
- What happens when firms and workers underestimate future prices in the economy? Explain the answer while focusing on what would happen to actual output as opposed to the expected potential output.arrow_forwardWhat is short-term momentum? What are long-term reversals?arrow_forwardExpectations of higher future prices cause firms to lower prices today to sell their product before prices rise? True or falsearrow_forward
- What are the advantages and disadvantages of aggregating demand from a forecasting view?arrow_forwardAssume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers increases, but producers are not affected. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point A after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point C after the change d The equilibrium will be at point E before the change in expectations and point C after the changearrow_forwardWhat happens when firms and workers underestimate future prices in the economy? Focus your answer on what would happen to actual output as opposed to the expected potential output. (Course is macroeconomics).arrow_forward
- Explain the term “Rational Expectations” as Thaler used in the first chapter of Misbehaving.arrow_forwardIf most people have rational expectations, how long will recessions lastarrow_forwardAssume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers decreases, but producers are not affected. Also in year 2, the cost of lumber used to build homes decreases. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point B after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point E after the change d The equilibrium will be at point E before the change in expectations and point A after the changearrow_forward
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