Question 1

Which of the following is FALSE about saving?

Accepted Answer

Saving is not equal to wealth minus consumption expenditure, but rather it is the portion of income that is not spent on current consumption. Therefore, option C is false.

Question 2

Gross investment

Accepted Answer

Gross investment is defined as the total amount spent on new capital, which includes both replacement investment and investment in additional capital.

Question 3

Net investment equals

Accepted Answer

Net investment is defined as gross investment minus depreciation. This calculates the amount of investment that is contributing to the growth of the economy, after accounting for the depreciation of existing capital.

Question 4

If the economy's capital increases over time,

Accepted Answer

If the economy's capital increases over time, it means that the investment in new capital assets is greater than the depreciation of existing capital assets. This implies that net investment is positive (i.e. gross investment minus depreciation is positive).

Question 5

Capital stock increases when

Accepted Answer

Capital stock increases when there is a positive net investment, meaning that the amount invested in new capital goods exceeds the amount of capital goods that have depreciated or been retired.

Question 6

The increase in the value of capital is

Accepted Answer

The increase in the value of capital is referred to as net investment, as it represents the amount of investment that results in an increase in the stock of capital after accounting for depreciation. Gross investment is the total amount of investment, including replacement of worn-out capital, while depreciation represents the decrease in the value of existing capital due to usage and wear and tear. Private sector spending and wealth are broader concepts that may include other forms of spending and assets beyond just capital investment.

Question 7

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

Accepted Answer

Tom scrapped 2 machines, so the net loss of machines is 2. To compensate for this loss, he purchased 3 new machines. Therefore, the net increase in machines is 1. So, the gross investment for the year is the purchase of the 3 new machines, which is equal to 3. Therefore, the best choice is C) 3 machines.

Question 8

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

Accepted Answer

The decrease in capital stock from $24 million to $20 million indicates that there was a net divestment of $4 million ($20 million - $24 million = -$4 million). Therefore, the net investment was -$4 million, as stated in option D. Option A is incorrect because we can determine the amount of net investment from the information given. Option B is incorrect because the net investment was negative, not positive. Option C is incorrect because even though the net investment was negative, the gross investment (the total amount of investment) could still have been positive. Option E is incorrect because depreciation is not relevant to this question - it refers to the decrease in value of the firm's assets, rather than the change in its capital stock.

Question 9

If the economy's capital decreases over time,

Accepted Answer

If the economy's capital decreases over time, it means that the amount of capital being depreciated is greater than the amount of new capital being invested (gross investment). Therefore, depreciation exceeds gross investment. Net investment (gross investment - depreciation) will therefore be negative.

Question 10

At the beginning of the year,Tom's Tubes had capital of 5 tube-inflating machines.During the year,Tom scrapped 2 old machines and purchased 3 new machines.Tom's capital at the end of year was

Accepted Answer

At the beginning of the year, Tom had 5 tube-inflating machines.

After scraping 2 old machines, he had 5 - 2 = 3 machines left.

When he purchased 3 new machines, he had 3 + 3 = 6 machines.

Therefore, Tom's capital at the end of the year was 6 machines, which corresponds to choice D.

Question 11

The funds used to buy physical capital are

Accepted Answer

The answer of The funds used to buy physical capital...

Question 12

In January 2011,Tim's Gyms,Inc.owned machines valued at $1 million.During the year,the market value of the machines fell by 10 percent.During 2011,Tim spent $200,000 on new machines.During 2011,Tim's net investment was

Accepted Answer

The net investment of Tim's Gyms, Inc. during 2011 is calculated as follows:

Beginning value of machines = $1 million
Market value decrease by 10% = -$100,000
New machines purchased = +$200,000

Net investment = Beginning value + Market value decrease + New machines purchased
Net investment = $1 million - $100,000 + $200,000
Net investment = $1,100,000

Therefore, the net investment during 2011 was $100,000.

Question 13

This year Pizza Hut spent $1.3 billion on new capital in its stores.Depreciation during the year was $300 million.Pizza Hut's gross investment was ________ and its net investment was ________.

Accepted Answer

Gross investment = $1.3 billion (as given)
Net investment = Gross investment - Depreciation
Net investment = $1.3 billion - $0.3 billion
Net investment = $1.0 billion

Question 14

In 2011,Tim's Gyms needs to finance the building of a new gym.Suppose Tim secures this financing from a bank,and the bank receives ownership if Tim fails to make payments.This type of funding is

Accepted Answer

This is describing a mortgage loan in which the bank holds the ownership of the property (the gym) as collateral until the loan is paid off. This is a common type of financing for real estate projects, and is typically obtained in the loan market. Bonds and stocks are types of securities that are issued by companies to raise capital, but they do not involve ownership of property as collateral.

Question 15

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 goods and services.You pay no taxes.Your wealth at the end of the year is

Accepted Answer

Since the total consumption expenditure exceeded the income, the wealth at the end of the year is less than the initial wealth. Therefore, the correct answer is $0.

Question 16

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

Accepted Answer

The answer of At the beginning of the year,Tom's Tubes...

Question 17

In January 2011,Tim's Gyms,Inc.owned machines valued at $1 million.During the year,the market value of the machines fell by 30 percent.During 2011,Tim spent $200,000 on new machines.During 2011,Tim's gross investment was

Accepted Answer

The answer of In January 2011,Tim's Gyms,Inc.owned machines valued at...

Question 18

The total amount spent on new capital is

Accepted Answer

Gross investment refers to the total amount spent on new capital, including both replacement of depreciated capital and additions to existing capital.

Question 19

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 goods and services.You pay no taxes.Your wealth at the end of the year is

Accepted Answer

The answer of At the beginning of the year,your wealth...

Question 20

Capital is

Accepted Answer

Capital refers to physical tools, machinery, buildings, and other tangible items that have been produced in the past and that are used today to produce goods and services. This distinguishes it from financial wealth or investment, which are related but different concepts.

Quiz 23: Finance,saving,and Investment