Explain why a firm may rationally make an investment when its cash flow from the investment is not positive each year
What will be an ideal response?
A firm will examine the net present value of the investment to determine if the investment should be made. The net present value of the cash flow for an investment may be negative for some years, but when all the years of the investment are considered, if the net present value of the investment is positive, the investment should be made.
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An index constructed by Alberto Alesina and Lawrence Summers measuring central bank independence for a sample of industrialized countries during the late 1980s notes that the a. most countries have completely independent central banks. b. countries with less independent central banks had lower inflation rates. c. the most independent central banks were those of Switzerland and Germany,
followed by theU.S. Federal Reserve. d. there has been a trend away from central bank independence among countries e. both c and d
Recessions
a. almost never occur in the American economy. b. follow a regular and predictable cycle. c. are common features of the American economy. d. have been abolished by wise macroeconomic policy.