Author Question: Assume the following: (1 ) the real cost of a unit of capital is one; (2 ) the unit of capital is ... (Read 37 times)

jparksx · **on:** Jun 30, 2018

Assume the following: (1 ) the real cost of a unit of capital is one; (2 ) the unit of capital is expected to increase a firm's real profit by 10,000 each year, and depreciate by 8 each year ( = .08); and (3 ) The real interest rate is 2 (r = .02). What is the user cost or rental cost of this unit of capital?

A) .02
B) .06
C) .10
D) .08/.02 = 4
E) none of the above

Question 2

Suppose there is a simultaneous fiscal expansion and monetary expansion. We know with certainty that

A) output will increase.
B) output will decrease.
C) the interest rate will increase.
D) the interest rate will decrease.
E) both output and the interest rate will increase.