Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
expand_more
expand_more
format_list_bulleted
Question
Chapter 17, Problem 1E
(a)
To determine
The use cost of capital without any changes.
(b)
To determine
The user cost of capital when the corporate tax rate raises to 35 percent.
(c)
To determine
The user cost of capital when the interest rate increases from 2 to 4 percent.
(d)
To determine
The user cost of capital when the corporate income tax is 35 percent and the interest rate is 4 percent.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
There are 4 types of capital: tangible private, intangible private, tangible social, and intangible social.
The author claims that two of the above four types of capital are damaged by an excessive focus on shareholder
value maximization. The author also claims that one of the other types of capital can help prevent this damage.
(The fourth type of capital is irrelevant.)
Designate which of the four types of capital is irrelevant to the author’s argument, which two are damaged, and
which one can help prevent this damage. You should write a short paragraph for each of the relevant ones
explaining how each one is relevant and what are the corresponding effects.
using the concept of user cost of capital
illustrate in which cases a corporation tax
will not affect firm investment decisions
What is capital recovery?
A.The income recognized from insurance proceeds received after a capital asset is lost due to a casualty such as theft or fire.
B. Matching the income you make from using capital assets with the expenses representing the use of the assets producing the income.
C.Using a capital asset that had been previously taken out of service, but is now in use again.
D. When the cost of capital assets exceed the gross revenue in the acquisition year.
Chapter 17 Solutions
Macroeconomics (Fourth Edition)
Knowledge Booster
Similar questions
- Imagine that you are a financial manager for a medium-sized company. Describe how you would use capital budgeting techniques to determine whether a business investment is a good idea. Give an example of a business investment venture and how you would use capital budgeting to ensure it is a good investment.arrow_forwardQ3. A) If the supply price of machine is Rs. 3000 and Marginal productivity of capital is 10% , the estimated return from the capital asset are Rs. 1100 and Rs. 2420 respectively in the first and second year. Prove that prospective income and supply price of an asset are equal. B) What is Marginal Efficiency of Capital? What are the determinants of Marginal Efficiency of capital?arrow_forwardWhich of the following statements is correct regarding weak sustainability? A. Weak sustainability requires that we maintain the physical service flows of the natural capital stock. B. Weak sustainability requires that we maintain the value of the natural capital stock. C. Weak sustainability requires that we maintain the total (natural plus physical) capital stock. D. Weak sustainability requires that we invest the resource rents (the Hartwick Rule) earned by depleting the natural capital stock so as to maintain the total (natural plus physical) capital stock. O E. Both statements (C) and (D) are correct.arrow_forward
- 1. A firm is extracting a non-renewable resource in a competitive market. The marginal cost of extraction for the firm in all periods is c=§ =$3. a. For each unit of the resource the firm extracts and sells they earn a scarcity rent. Explain in words what the scarcity rent represents. b. We observe that the real market price for the extracted resource in periodt is $4. What is the scarcity rent earned by the firm in period t? c. We also observe that the real market price for the extracted resource in period t +1 is $4.25. What is the scarcity rent earned by the firm in period t +1. d. Why has the real market price for this resource changed over time? e. If you were to invest in this firm, what is the maximum rate of return you would expect to receive?arrow_forwardA firm will invest in capital if... the present value of the capital is greater than the market rate of interest. the internal rate of return is less than the market rate of interest. the internal rate of return is greater than the market rate of interest. the present value of the capital is less than the market rate of interest.arrow_forwardAn analyst is evaluating the possibility of investing in China, Italy, Mexico, or Brazil. What are the equity and fixed-income investment opportunities in these countries based on the following events? 1. The Chinese government announced a spending plan of $1.2 trillion or 13 percent of GDP. In addition, the central bank of China eased monetary policy, resulting in a surge of lending.arrow_forward
- Answer the following questions. (a) Can production satisfy both constant returns to scale and diminishing (marginal) returns to capital? (b) Observing a downward trend in the prices of capital goods, some companies decide to decrease or postpone their purchases of such goods. All else equal, will the real interest rate increase or decrease?arrow_forwardWhich of the following illustrates a capital gain? An investor earns a 20 return from a savings deposit An investor earns a 20 resturn from abond held until maturity An investor purchase a stock for 30 and then later sell it for 25 an investor purchases a stock for 25 and then later sells it for 30arrow_forward1.2 Severe weather hit the North Island of New Zealand in late January 2023, followed by Cyclone Gabrielle in February 2023, which caused large-scale flooding and damage. These weather events destroyed a significant part of the capital stock at time t. Assume future labour supply is not affected by the disaster and there are no adjustment costs (i.e., additional costs required to convert goods into investments beyond the value of the investment). You are required to write an analytical note for the government on the economic impacts of these events (hint: your answers should be guided by formal economic concepts but you should take care to explain your reasoning to be accessible to a general public sector audience). Make sure your note addresses the following two questions. 1 1. What are the impacts on short-run interest rates and aggregate investment? 2. What are the long-term effects?arrow_forward
- if Age dependency ratio (% of working-age population) increase what will happen to fixed capital consumption?arrow_forwardAssume the information below to answer the following questions about the land of POGO. Assume a 2% interest rate on all interest-bearing Pogo assets (assets issued by Pogo), and a 3% interest rate on Foreign assets (issued by Foreign). All figures below are listed in ‘Pogo’ dollars. B = Billion. POGO CONSUMER EXPENDITURES, 2020: $290B POGO INVESTMENT EXPENDITURES, 2020: $125B POGO GOVERNMENT EXPENDITURES, 2020: $25B TAXES COLLECTED BY THE POGO GOVERNMENT: $18B MERCHANDISE EXPORTS, GOODS & SERVICES TO FOREIGN, 2020: $45B MERCHANDISE IMPORTS, GOODS & SERVICES FROM FOREIGN, 2020: $65B POGO LABOR INCOME FROM ABROAD, 2020: $5B INCOME PAID TO FOREIGNERS WORKING IN POGO, 2020: $12B FOREIGN ASSETS OWNED BY PRIVATE CITIZENS OF POGO, START of 2020: $100B POGO ASSETS OWNED BY PRIVATE CITIZENS IN FOREIGN AT THE START of 2020: $50B RESERVES OF FOREIGN NON-INTEREST BEARING ASSETS HELD BY THE CENTRAL BANK OF POGO AT THE START OF 2020: $298B RESERVES OF FOREIGN NON-INTEREST BEARING…arrow_forwardA bank charges one borrower (A) 8 percent interest per year and another borrower (B) 10 percent interest per year. Which of the following is a plausible reason for the higher interest rate for B? B has a better credit rating than A A is borrowing a larger amount than B. B is using the money for a less risky project than A A is borrowing the money for a longer period than Barrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Microeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506893Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage LearningEconomics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning