13/10/2021, 10:20 Graded Quiz 3

Dashboard / My courses /
[MACR-2003] [BA Economics 2020] /
Week 11: Expectations, Output and Policy /
Graded Quiz 3

Question 11

Not yet Suppose that an investor has a choice between buying a three-year bond with a face value of $60 and a
answered stock paying a constant dividend of $20 per year, which the investor plans to hold for three years. The
Marked out of real interest rate on the stock and the bond is the same, 5%. In addition, the risk premium on the stock is
0.50
constant at 10%; on the bond, the risk premium is 5%. Now, imagine that the risk premia on the stock
and the bond were to be equalized at 5%. What would your choices be now?

Select one:
a. stocks

b. still prefer bonds because the expected present discounted value for stocks is smaller than bonds

c. bonds

d. would be indifferent

Question 12

Not yet A high value for Tobin’s q indicates that the stock market believes that capital is overvalued, and thus
answered investment should be lower.

Marked out of
0.50

Select one:
a. q is the ratio of stock market value to its physical value which should be higher for greater
investment.

b. q is the ratio of its present discounted value to stock market value which should be higher for
greater investment.

c. q is the ratio of its physical value to stock market value which should be higher for greater
investment.

https://elearning.jgu.edu.in/moodle/mod/quiz/attempt.php?attempt=5244&cmid=7477&page=1 1/5
13/10/2021, 10:20 Graded Quiz 3

Question 13

Not yet Two friends, Lucy and Adam, start working at the same time, right after graduating from university. Lucy
answered works as a computer programmer for an annual salary of $70,000; Adam as a teacher for an annual
Marked out of salary of $45,000. Both friends expect their annual salary to increase by 2% in real terms each year for the
0.50
next 3 years. The real interest rate is 0% and the tax rate on labor income is 30% for both friends. Lucy
has no nonhuman wealth, while Adam was just bequeathed $50,000 worth of bonds from an old aunt
who passed away. What is the approximate human wealth and the total wealth of the two friends over
the next three years (assume there is uncertainty about the future beyond during these three years).

Select one:
a. 94500, 120000

b. 70000, 210000

c. 150000,145000

d. 210000, 147000

e. 147000, 96500

Question 14

Not yet Two friends, Lucy and Adam, start working at the same time, right after graduating from university. Lucy
answered works as a computer programmer for an annual salary of $70,000; Adam as a teacher for an annual
Marked out of salary of $45,000. Both friends expect their annual salary to increase by 2% in real terms each year for the
0.50
next 3 years. The real interest rate is 0% and the tax rate on labor income is 30% for both friends. Lucy
has no nonhuman wealth, while Adam was just bequeathed $50,000 worth of bonds from an old aunt
who passed away. If we assume that there is no uncertainty about the future and if both friends wanted
to maintain a constant consumption level over this period, what would that approximate consumption
level be?

Select one:
a. 50000 for Lucy and 49000 for Adam

b. 48000 for Lucy and 49000 for Adam

c. 48000 for Lucy and 45000 for Adam

d. 52000 for Lucy and 50000 for Adam

e. 49000 for Lucy and 49000 for Adam

https://elearning.jgu.edu.in/moodle/mod/quiz/attempt.php?attempt=5244&cmid=7477&page=1 2/5
13/10/2021, 10:20 Graded Quiz 3

Question 15

Not yet Two friends, Lucy and Adam, start working at the same time, right after graduating from university. Lucy
answered works as a computer programmer for an annual salary of $70,000; Adam as a teacher for an annual
Marked out of salary of $45,000. Both friends expect their annual salary to increase by 2% in real terms each year for the
0.50
next 3 years. The real interest rate is 0% and the tax rate on labor income is 30% for both friends. Lucy
has no nonhuman wealth, while Adam was just bequeathed $50,000 worth of bonds from an old aunt
who passed away. If we assume that there is no uncertainty about the future. How would an increase in
taxation (to, for instance, 40%) affect the relative wealth positions of Lucy and Adam? How would that
affect their permanent consumption levels?

Select one or more:

a. Adam consumes more than Lucy, even though Lucy earns more

b. Lucy still consumes more than Adam but pays more taxes.

c. Adam benefits since he does not have to pay taxes on wealth, but still ends up consuming less
than Lucy

d. Adam benefits since he does not have to pay taxes on wealth, but still ends up consuming less
than Lucy

e. Lucy consumes more than Adam since her PDV of lifetime income is still larger.

Question 16

Not yet Suppose that a private hospital is pondering its next investment --  the buying of costly medical
answered equipment for $1 million. The new equipment should bring in real net profits of $150,000 per year. The
Marked out of real interest rate is 8% this year and expected to be constant; the depreciation rate is 10% for this kind of
0.50
machinery. Should the hospital make the investment? 

Select one:
a. Yes because the cost of equipment is one time while the profits are for the entire life of the
machine

b. No because the PDV of future profits is less than the cost of buying the equipment

c. No because the profits will not cover depreciation of the machine

d. Yes because the PDV of the future profits is more than the cost of buying the equipment

https://elearning.jgu.edu.in/moodle/mod/quiz/attempt.php?attempt=5244&cmid=7477&page=1 3/5
13/10/2021, 10:20 Graded Quiz 3

Question 17

Not yet Suppose that a private hospital is pondering its next investment --  the buying of costly medical
answered equipment for $1 million. The new equipment should bring in real net profits of $150,000 per year. The
Marked out of real interest rate is 8% this year and expected to be constant; the depreciation rate is 10% for this kind of
0.50
machinery. Suppose that the rate of interest were to decrease permanently, due to an improvement of
the general conditions of the economy, to 5%. How would that affect the hospital’s investment decision?

Select one or more:

a. It does not affect the hospital's decision as they were buying the equipment even with the higher
interest

b. It does affect the hospital's decision as they weren't buying the equipment even with the higher
interest

c. It does not affect the hospital's decision as they weren't buying the equipment ever

d. It does affect the hospital's decision as they now can calculate the PDV at a lower interest rate.

Question 18

Not yet Suppose that every consumer is born with zero financial wealth and lives for three periods: youth, middle
answered age, and old age. Consumers work in the first two periods and retire in the last one. Their income is $5 in
Marked out of the first period, $25 in the second, and $0 in the last one. Inflation and expected inflation are equal to
0.50
zero, and so is the real interest rate. What is the present discounted value of labor income at the
beginning of the first period of life?

Select one:
a. 0

b. 25

c. 5

d. 30

e. 10

Question 19

Not yet Suppose that every consumer is born with zero financial wealth and lives for three periods: youth, middle
answered age, and old age. Consumers work in the first two periods and retire in the last one. Their income is $5 in
Marked out of the first period, $25 in the second, and $0 in the last one. Inflation and expected inflation are equal to
0.50
zero, and so is the real interest rate.

◄ week 10 What is the highest sustainable

Jump to... level of consumption such that consumption is equal in all three periods?

Select one:
a. 10

b. 25

c. 7.33

d. 5

e. 30

https://elearning.jgu.edu.in/moodle/mod/quiz/attempt.php?attempt=5244&cmid=7477&page=1 4/5
13/10/2021, 10:20 Graded Quiz 3

Question 20

Not yet Suppose that every consumer is born with zero financial wealth and lives for three periods: youth, middle
answered age, and old age. Consumers work in the first two periods and retire in the last one. Their income is $5 in
Marked out of the first period, $25 in the second, and $0 in the last one. Inflation and expected inflation are equal to
0.50
zero, and so is the real interest rate. Suppose there are  n  people born each period. What is total saving
in the economy?

Select one:
a. 30

b. 10

c. 0

d. 15

e. 25

https://elearning.jgu.edu.in/moodle/mod/quiz/attempt.php?attempt=5244&cmid=7477&page=1 5/5