Question 1

Jay owns a classic car he purchased for $50,000. At a car rally a knowledgeable classic car enthusiast offers him $75,000 for the car. Based on this information:
A)Jay's saving this year has increased by $25,000.
B)Jay's saving this year has decreased by $25,000.
C)Jay has experienced a $25,000 capital gain.
D)Jay's wealth is unchanged.

Accepted Answer

The market value of Jay's car has risen to $75,000. He purchased the car for $50,000 so he realized a capital gain of $25,000.

Question 2

Capital losses are:
A)decreases in the flow of investment.
B)decreases in the flow of saving.
C)the destruction of plant and equipment.
D)decreases in the value of existing assets.

Accepted Answer

Capital losses are the decreases in the value of existing assets.

Question 3

Mo's current income is $100 more per month than his current consumption needs. He decides to use the $100 to reduce his credit card debt. As a result, his:
A)liabilities will decrease and his wealth will increase.
B)liabilities and his wealth will decrease.
C)assets will decrease and his wealth will increase.
D)assets and his wealth will increase.

Accepted Answer

By reducing credit card debt, Mo is reducing his liabilities. This increases his wealth.

Question 4

Saving $100 will:
A)increase wealth by $100.
B)increase wealth by $100 only if the $100 is used to purchase an asset.
C)increase wealth by $100 only if the $100 is used to repay a debt.
D)decrease wealth by $100.

Accepted Answer

Savings increases wealth because savings either adds to assets or reduces liabilities. Wealth is defined as assets minus liabilities. Therefore, increasing assets when liabilities are unchanged, or decreasing liabilities when assets are unchanged, will increase wealth.

Question 5

If Dylan saves $50 per week, then Dylan's ________ will increase by $50 per week.
A)investment
B)consumption
C)taxes
D)wealth

Accepted Answer

Savings directly increases wealth if there is no other change.

Question 6

Steve uses $300 from his paycheck to pay off his credit card balance. Based on this information:
A)Steve's saving has increased by $300.
B)Steve's saving has decreased by $300.
C)Steve's wealth is unchanged.
D)Steve has a capital loss of $300.

Accepted Answer

Paying off credit card balances reduces liabilities, which increases wealth. Thus, paying off credit card balances is a form of savings.

Question 7

Saving is a(n)________ and wealth is a(n)________.
A)stock; flow
B)flow; stock
C)asset; liability
D)liability; asset

Accepted Answer

Savings is measured over time, so it is a flow. Wealth is measured at a particular moment, so it is a stock.

Question 8

A measure defined at a point in time is called a(n)________ variable.
A)stock
B)nominal
C)aggregate
D)flow

Accepted Answer

A measure defined at a point in time is called a stock.

Question 9

The stock of wealth increases more rapidly the faster the flow of ________.
A)income
B)saving
C)money
D)assets

Accepted Answer

Saving is income minus consumption. If income is not consumed, it is saved, and savings adds to the stock of wealth.

Question 10

Capital gains are:
A)increases in the flow of investment.
B)increases in the flow of saving.
C)additions to plant and equipment.
D)increases in the value of existing assets.

Accepted Answer

Capital gains are the increases in the value of existing assets.

Question 11

Elaine owns a beautiful diamond ring she purchased for $2,500. When she has it appraised she learns that it is now worth $3,000. Based on this information:
A)Elaine's saving this year has increased by $500.
B)Elaine's saving this year has decreased by $500.
C)Elaine has experienced a $500 capital gain.
D)Elaine's wealth is unchanged.

Accepted Answer

Elaine has an existing asset that increased in value. Thus, she has realized a capital gain.

Question 12

A flow is a measure defined:
A)per unit of time.
B)at a point in time.
C)in real terms.
D)in nominal terms.

Accepted Answer

A flow is a measure defined per unit of time.

Question 13

A stock is a measure defined:
A)per unit of time.
B)at a point in time.
C)in real terms.
D)in nominal terms.

Accepted Answer

A stock is a measure defined at a point in time.

Question 14

Jordan has the following assets and liabilities: $$\begin{array} { l | r } 
\hline \text { Tuo cars } & \$ 10,000 \
\text { House } & \$ 200,000 \
\text { Mortgage } & \$ 100,000 \
\hline \text { Cash } & \$ 1,000 \
\text { Car loars } & \$ 3,000 \
\hline \text { Checkire accourtbalarce } & \$ 2,000 \
\text { Credit card balarce } & \$ 1,000
\end{array}$$  
Suppose that Jordan wins $100,000 in the lottery. If he uses that money to pay off his mortgage, his wealth would ________; if he puts that money in his checking account, his wealth would ________;
A)increase to $209,000; not change
B)not change; increase to $207,000
C)increase to $209,000; increase to $209,000
D)increase to $207,000; not change

Accepted Answer

Wealth is calculated as assets minus liabilities. Initially, Jordan's assets total $213,000 (cars + house + cash + checking account balance) and liabilities total $104,000 (mortgage + car loans + credit card balance), making his initial wealth $109,000. Paying off the mortgage or adding to the checking account both effectively increase his assets by $100,000 (either by reducing liabilities or increasing assets directly), making his new wealth $209,000 in either scenario.

Question 15

If Gerry saves $500 per month, then Gerry's ________ will increase by ________.
A)wealth; $500 only if he has no debt
B)income; $500 only if he buys additional assets
C)wealth; $500
D)wealth; $500 only if he buys additional assets

Accepted Answer

Savings directly increases wealth if there is no other change. Note that increasing assets and decreasing liabilities have the same effect on wealth.

Question 16

Which of the following is a flow?
A)Saving
B)Wealth
C)Assets
D)Money

Accepted Answer

Savings is a flow variable because it is measured over time. For example, "she saves $100 every week."

Question 17

Joan purchases a beautiful rug for $25,000. After several years of wear and tear, Joan has the rug appraised and finds that it is now worth only $20,000. Based on this information:
A)Joan's saving this year has increased by $5,000.
B)Joan has a $5,000 capital gain.
C)Joan has a $5,000 capital loss.
D)Joan's wealth is unchanged.

Accepted Answer

Joan has an existing asset that decreased in value. Thus, she has realized a capital loss.

Question 18

The Cub Scouts have so far sold 100 tickets for their upcoming raffle, but they sell a constant additional 12 tickets every day. After three more days of selling tickets, the stock of tickets sold will be ________, and the flow of tickets sold will be ________.
A)136; 12
B)36; 12
C)100; 36
D)136; 36

Accepted Answer

In three days, 100 + 36 = 136 will be the stock of tickets sold. The flow of tickets sold will be 36 because that is measured over the next three days.

Question 19

Which of the following is a stock?
A)Saving
B)Income
C)Consumption
D)Wealth

Accepted Answer

Wealth is a stock variable because it is measured at a specific time, such as today or on the first day of the year.

Question 20

The Cub Scouts have so far sold 100 tickets for their upcoming raffle, but they sell an additional 12 tickets every day. The ________ is a stock variable, and the ________ is a flow variable.
A)number of tickets sold each day; number of tickets sold so far
B)number of tickets sold so far; total number of tickets sold by the time of the raffle
C)number of tickets sold each day; total number of tickets available
D)total number of tickets sold by the time of the raffle; number of tickets sold each day

Accepted Answer

"Total tickets sold by the time of the raffle" is a stock variable because it is measured at a moment in time. "The number of tickets sold each day" is a flow variable because it is measured over time.

Quiz 21: Saving and Capital Formation

Jay owns a classic car he purchased for $50,000. At a car rally a knowledgeable classic car enthusiast offers him $75,000 for the car. Based on this information:

Capital losses are:

Mo's current income is $100 more per month than his current consumption needs. He decides to use the $100 to reduce his credit card debt. As a result, his:

Saving $100 will:

If Dylan saves $50 per week, then Dylan's ________ will increase by $50 per week.

Steve uses $300 from his paycheck to pay off his credit card balance. Based on this information:

Saving is a(n) and wealth is a(n) .

A measure defined at a point in time is called a(n) ________ variable.

The stock of wealth increases more rapidly the faster the flow of ________.

Capital gains are:

Elaine owns a beautiful diamond ring she purchased for $2,500. When she has it appraised she learns that it is now worth $3,000. Based on this information:

A flow is a measure defined:

A stock is a measure defined:

If Gerry saves $500 per month, then Gerry's will increase by .

Which of the following is a flow?

Joan purchases a beautiful rug for $25,000. After several years of wear and tear, Joan has the rug appraised and finds that it is now worth only $20,000. Based on this information:

The Cub Scouts have so far sold 100 tickets for their upcoming raffle, but they sell a constant additional 12 tickets every day. After three more days of selling tickets, the stock of tickets sold will be , and the flow of tickets sold will be .

Which of the following is a stock?

The Cub Scouts have so far sold 100 tickets for their upcoming raffle, but they sell an additional 12 tickets every day. The is a stock variable, and the is a flow variable.