Question 1

Which of the following is FALSE about saving?
A) Income left after paying taxes can either be consumed or saved.
B) Saving is the source of funds used to finance investment.
C) Saving equals wealth minus consumption expenditures.
D) Saving adds to wealth.

Accepted Answer

Saving equals income minus consumption expenditures, not wealth minus consumption expenditures. Wealth is the total value of assets minus liabilities.

Question 2

At the beginning of the year, your wealth is $10,000. During the year, you have an income of
$80,000 and you spend $90,000 on consumption. You pay no taxes. Your wealth at the end of the year is
A) $90,000.00.
B) $100,000.00.
C) $0.
D) $20,000.00.

Accepted Answer

Your wealth at the end of the year is calculated by adding your initial wealth and income, then subtracting your consumption. $10,000 (initial wealth) + $80,000 (income) - $90,000 (consumption) = $0.

Question 3

At the beginning of the year, your wealth is $10,000. During the year, you have an income of
$90,000 and you spend $80,000 on consumption. You pay no taxes. Your wealth at the end of the year is
A) $100,000.00.
B) $0.
C) $20,000.00.
D) $90,000.00.

Accepted Answer

The change in wealth during the year can be calculated as follows:

Income - Consumption = Savings

$90,000 - $80,000 = $10,000

Therefore, the ending wealth is the beginning wealth plus savings:

$10,000 + $10,000 = $20,000

Thus, the correct answer is (C) $20,000.00.

Question 4

In January 2010, Timʹs Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2010, Tim spent $200,000 on new machines. During 2010, Timʹs net investment totalled
A) $200,000.
B) $100,000.
C) $300,000.
D) $1 million.

Accepted Answer

The initial value of the machines was $1 million, and a 30% decrease means a loss of $300,000 in value. Tim spent $200,000 on new machines, so the net investment is $200,000 (new investment) - $300,000 (depreciation) = -$100,000. However, since the question asks for net investment, which is the total amount spent on new machines, the correct answer is $100,000.

Question 5

In January, suppose that a share of stock in Meyer, Inc. had a price of $50 and that each share entitled its owner to $2 of Meyer, Inc.ʹs profit. During the year, the price of a share of Meyerʹs stock rose to $100. The interest rate paid on the share in January was percent.
A) 0.02
B) 2
C) 25
D) 4

Accepted Answer

The answer of In January, suppose that a share of...

Question 6

The term capital, as used in macroeconomics, refers to
A) physical capital.
B) the amount of money that someone can invest in a new venture.
C) the amount of money a firm can raise in the stock market.
D) All of the above answers are correct.

Accepted Answer

In macroeconomics, the term capital typically refers to physical capital, such as equipment, machinery, and buildings, that is used in the production of goods and services. While the ability to invest in a new venture or raise funds through the stock market can also be considered capital in certain contexts, these are not the primary meanings of the term in macroeconomics.

Question 7

If the economyʹs capital stock decreases over time,
A) depreciation exceeds gross investment.
B) net investment is positive.
C) gross investment equals net investment.
D) depreciation is less than zero.

Accepted Answer

When the economy's capital stock decreases over time, it means that the value of its existing capital goods is decreasing due to depreciation. If the depreciation of the capital stock exceeds gross investment (i.e. the economy's investment in new capital goods), then the net investment for the economy would be negative. This would indicate that the economy is not generating enough new capital to replace what is being depreciated, which is not sustainable in the long term. Therefore, choice A is the correct answer.

Question 8

The increase in the capital stock equals the amount of
A) private sector spending.
B) gross investment.
C) depreciation.
D) net investment.

Accepted Answer

The increase in the capital stock refers to the net investment, which is the gross investment minus the depreciation of existing capital. Therefore, the correct choice is D - net investment.

Question 9

The capital stock increases whenever
A) net investment is positive.
B) net investment exceeds gross investment.
C) gross investment is negative.
D) gross investment is exceeds net investment.

Accepted Answer

Capital stock increases when there is net investment, which means that the value of new investment added to the economy is greater than the value of capital that has been used up or retired. Therefore, whenever net investment is positive, there is an increase in the capital stock.

Question 10

The Acme Stereo Company had a capital stock of $24 million at the beginning of the year. At the end of the year, the firm had a capital stock of $20 million. Thus its
A) net investment was -$4 million for the year.
B) gross investment was zero.
C) net investment was $4 million for the year.
D) net investment was some amount but we need more information to determine the amount.

Accepted Answer

Net investment is calculated as the change in capital stock over a period. Since the capital stock decreased from $24 million to $20 million, the net investment is -$4 million.

Question 11

If the economyʹs capital stock increases over time,
A) depreciation exceeds gross investment.
B) net investment is positive.
C) depreciation is less than zero.
D) gross investment equals depreciation.

Accepted Answer

Net investment is gross investment minus depreciation. If the capital stock is increasing over time, it means that gross investment is greater than depreciation, resulting in a positive net investment.

Question 12

Net investment equals
A) capital stock minus depreciation.
B) gross investment/depreciation.
C) the total quantity of plant, equipment and buildings.
D) gross investment minus depreciation.

Accepted Answer

Net investment is the amount of new capital added to an economy's stock of capital each year. It can be calculated by subtracting depreciation from gross investment. Therefore, choice D (gross investment minus depreciation) is the correct answer.

Question 13

Gross investment
A) includes only replacement investment.
B) does not include additions to inventories.
C) is the purchase of new capital.
D) Both answers A and B are correct.

Accepted Answer

Gross investment refers to the purchase of new capital, not just replacement investment or additions to inventories.

Question 14

The total amount spent on new capital in a time period is equal to
A) net investment.
B) gross investment.
C) depreciation.
D) wealth.

Accepted Answer

Gross investment refers to the total amount spent on new capital in a time period, including both investment in new capital goods and replacement of depreciated capital goods. Net investment is gross investment minus depreciation, and wealth is a broader concept that includes all assets, not just capital. Therefore, the best choice is B - gross investment.

Question 15

In January 2010, Timʹs Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2010, Tim spent $200,000 on new machines. During 2010, Timʹs gross investment totalled
A) $200,000
B) $900,000.
C) $300,000.
D) $1 million.

Accepted Answer

Gross investment refers to the total amount spent on new capital, which in this case is the $200,000 spent on new machines. The decrease in market value of existing equipment does not affect the gross investment calculation.

Question 16

At the beginning of the year, Tomʹs Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tomʹs capital stock at the end of year equals
A) 3 machines.
B) 6 machines.
C) 1 machine.
D) 2 machines.

Accepted Answer

At the beginning of the year, Tom had 5 machines. He scrapped 2 and purchased 3 new ones, which means he now has 5 - 2 + 3 = 6 machines. Therefore, the answer is B) 6 machines.

Question 17

Which of the following items are considered physical capital?
i. shares of Ford stock traded on the New York Stock Exchange
ii. the Taco Bell store nearest you
iii. the rental cars owned by Hertz Rental-A-Car
iv. the salaries paid to Intel executives
A) ii and iii.
B) i, ii and iv.
C) i, ii and iii.
D) i and iv.

Accepted Answer

Physical capital refers to tangible assets used in the production process. Shares of stock and salaries paid to executives are not tangible assets. The Taco Bell store and rental cars owned by Hertz are examples of physical capital.

Question 18

The term ʺcapital,ʺ as used in macroeconomics, refers to
A) investment.
B) financial wealth.
C) the sum of investment and government purchases of goods.
D) the plant, equipment, buildings, and inventories of raw materials and semi-finished goods.

Accepted Answer

In macroeconomics, the term "capital" refers to the physical assets that are used in the production process, such as plant, equipment, buildings, and inventories of raw materials and semi-finished goods. This definition is captured in option D. Option A refers specifically to investment, which is only one component of capital. Option B refers to financial wealth, which can be used to purchase capital but is not the same thing as capital itself. Option C refers to the sum of investment and government purchases of goods, which is a part of total spending in the economy but not a complete definition of capital.

Question 19

At the beginning of the year, Tomʹs Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tomʹs net investment for the year totaled
A) 3 machines.
B) 2 machines.
C) 1 machine.
D) 6 machines.

Accepted Answer

The answer of At the beginning of the year, Tomʹs...

Question 20

At the beginning of the year, Tomʹs Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tomʹs gross investment for the year totaled
A) 6 machines.
B) 2 machines.
C) 1 machine.
D) 3 machines.

Accepted Answer

Tom scrapped 2 machines and purchased 3 new machines, so he ended up with a net increase of 1 machine (3 - 2 = 1). Therefore, his gross investment for the year was 3 machines.

Quiz 7: Finance, Saving, and Investment

Which of the following is FALSE about saving?

At the beginning of the year, your wealth is $10,000. During the year, you have an income of $80,000 and you spend $90,000 on consumption. You pay no taxes. Your wealth at the end of the year is

At the beginning of the year, your wealth is $10,000. During the year, you have an income of $90,000 and you spend $80,000 on consumption. You pay no taxes. Your wealth at the end of the year is

In January 2010, Timʹs Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2010, Tim spent $200,000 on new machines. During 2010, Timʹs net investment totalled

In January, suppose that a share of stock in Meyer, Inc. had a price of $50 and that each share entitled its owner to $2 of Meyer, Inc.ʹs profit. During the year, the price of a share of Meyerʹs stock rose to $100. The interest rate paid on the share in January was percent.

The term capital, as used in macroeconomics, refers to

If the economyʹs capital stock decreases over time,

The increase in the capital stock equals the amount of

The capital stock increases whenever

The Acme Stereo Company had a capital stock of $24 million at the beginning of the year. At the end of the year, the firm had a capital stock of $20 million. Thus its

If the economyʹs capital stock increases over time,

Net investment equals

Gross investment

The total amount spent on new capital in a time period is equal to

In January 2010, Timʹs Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2010, Tim spent $200,000 on new machines. During 2010, Timʹs gross investment totalled

At the beginning of the year, Tomʹs Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tomʹs capital stock at the end of year equals

Which of the following items are considered physical capital? i. shares of Ford stock traded on the New York Stock Exchange ii. the Taco Bell store nearest you iii. the rental cars owned by Hertz Rental-A-Car iv. the salaries paid to Intel executives

The term ʺcapital,ʺ as used in macroeconomics, refers to

At the beginning of the year, Tomʹs Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tomʹs net investment for the year totaled

At the beginning of the year, Tomʹs Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tomʹs gross investment for the year totaled