Question

QUESTION 42

1. If capital becomes more productive, then

   		demand for loanable funds rises – shifts to the right
   		demand for loanable funds falls – shifts to the left
   		supply of loanable funds increases - shifts to the right
   		supply of loanable funds decreases - shifts to the  left

QUESTION 41

1. When deciding upon the optimal amount of capital, a firm will decide to purchase capital if

   		the marginal benefit of capital is less than the marginal cost of the capital
   		the additional capital increases output
   		the marginal benefit of capital equals or exceeds the marginal cost of the capital
   		the additional capital can replace labor

QUESTION 40

1. 8. In economics, investment spending refers to all of the following EXCEPT

   		a household purchases a newly constructed house
   		a business purchases new manufacturing machinery
   		the purchase of stocks and bonds
   		a business purchases new computers

In the study of economic growth, institutions are

		the set of organizations that determine a country's regulations
		the accumulation of physical capital
		created by the World Bank and the International Monetary Fund
		the set of formal and informal rules that shape incentives

Answer 1

Q42. If capital becomes more productive which means the rate of return on capital increases. Increase in rate of return on capital will increase demand for Lonable funds.

Because the acquisition of new capital is generally financed in the loanable funds markets, change in capital affecs the demand for Lonable funds

And if capital becomes more productive, It will lead to increase in the demand for Lonable funds and will shift the curve right wards

Therefore,the Correct answer is Option A.

Option B is incorrect because It increases the Demand rather than decreasing.

Option C and D are incorrect because It affects the demand side instead of Supply side.

41. When deciding upon the optimal amount of capital, a firm will decide to purchase capital if Marginal benefit equals or exceeds the Marginal cost.

Therefore the correct answer is Option C

Option A is incorrect becyyif Marginal cost exceeds the Marginal Revenue, there will be no benefit in purchasing additional capital.

Option B and D is incorrect because in both the Options, information about the cost is not given.Thus, It may provide benefit but if it would become less than cost, there will be no benefit in purchasing additional capital

Q40. Investment spending means addition to physical capital.

Option A is incorrect because it is Residential investment which is a type of Investment Spending

Option B is incorrect because it is Business fixed Investment Which is also a type of Investment Spending.

Option C is Correct because It is Investment and not Investment Spending.

Investment spending includes purchases such as machinery, land, production inputs, etc.whereas, Investment spending should not be confused with investment, which refers to the purchase of financial instruments such as stocks, bonds, and derivatives.

Option D is incorrect because it is addition to Physical Capital which is called Investment spending.

Q. Institutions can be both formal and informal norms that shapes People's incentives and behaviour. Economic growth lies in institutions in which People's thinking finds expression and the play of opportunity on ideas and institutions.

Therefore, the correct answer is Option C ,that is, the set of formal and informal rules that shape incentives