Question 1

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

Accepted Answer

Gross investment refers to the purchase of new capital goods, such as buildings, machinery, and equipment. It does not include replacement investment, which is typically recorded in net investment. Additionally, gross investment does include additions to inventories, which are considered a form of investment in the business. Therefore, only answer A is correct.

Question 2

In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's gross investment totaled
A) $1 million.
B) $300,000.
C) $200,000
D) $900,000.

Accepted Answer

C

Question 3

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

Accepted Answer

In macroeconomics, the term capital typically refers to physical capital, such as machines, equipment, and buildings, that is used in the production of goods and services. While the other options may involve financial capital, they do not fully encompass the concept of capital in macroeconomics.

Question 4

In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's net investment totaled
A) $1 million.
B) -$300,000.
C) $200,000.
D) -$100,000.

Accepted Answer

At the beginning of 2015, Tim's Gyms owned equipment worth $1 million. By the end of the year, the market value of the equipment fell by 30%, which means the current value of the equipment is $1 million - ($1 million x 0.30) = $700,000.
During the year, Tim purchased new equipment worth $200,000.
Net investment = Purchases - Sale Proceeds 
Net investment = $200,000 - ($1 million - $700,000) 
Net investment = $200,000 - $300,000 
Net investment = -$100,000 
Therefore, Tim's net investment during 2015 was -$100,000.

Question 5

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 and IV
C) I, II and III
D) I, II and IV

Accepted Answer

Physical capital refers to tangible assets used in the production of goods and services. The Taco Bell store (II) and the rental cars owned by Hertz Rental-A-Car (III) are examples of physical capital because they are tangible assets that contribute to the production process. Shares of Ford stock (I) and salaries paid to Intel executives (IV) are not considered physical capital because they are financial assets and compensation for labor, respectively, rather than tangible assets used in production.

Question 6

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

Accepted Answer

In macroeconomics, "capital" refers to physical capital, which includes the plant, equipment, buildings, and inventories of raw materials and semi-finished goods that are used in the production of goods and services. Financial wealth (B) refers to money and other financial assets, which are typically not considered capital in macroeconomic terms. C and D are also not accurate as they are not comprehensive definitions of capital in economics.

Question 7

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

Accepted Answer

The capital stock is the total amount of physical capital, such as machinery, buildings and equipment, that is available to a country. Net investment is the amount by which the capital stock increases. Therefore, when net investment is positive, it means that there is an increase in the stock of physical capital available, leading to an increase in the capital stock.

Question 8

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
A) 1 machine.
B) 2 machines.
C) 3 machines.
D) 6 machines.

Accepted Answer

Tom started the year with 5 inflating machines. He scrapped 2 old machines, which brings the total down to 3. Then, he purchased 3 new machines. So his gross investment for the year is the 3 new machines that he bought, which is equivalent to choice C).

Question 9

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
A) 1 machine.
B) 2 machines.
C) 3 machines.
D) 6 machines.

Accepted Answer

Net investment is calculated by subtracting the number of machines scrapped from the number of new machines purchased. Tom scrapped 2 machines and purchased 3 new ones, so the net investment is 3 - 2 = 1 machine.

Question 10

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 capital stock at the end of year equals
A) 1 machine.
B) 2 machines.
C) 3 machines.
D) 6 machines.

Accepted Answer

Tom's Tubes had 5 machines at the beginning of the year.
Tom scrapped 2 old machines, so 5 - 2 = 3 machines are left.
Tom purchased 3 new machines, so 3 + 3 = 6 machines are in capital stock at the end of the year. Therefore, the correct answer is D) 6 machines.

Question 11

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

Accepted Answer

Depreciation is the decrease in the value of a capital asset over time due to wear and tear, obsolescence, or other factors. If the economy's capital stock decreases over time, it means that the value of the capital assets is decreasing, which indicates that the depreciation exceeds gross investment (the amount invested to maintain or increase the capital stock). Thus, choice C is the correct answer.

Question 12

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) $20,000.00.
B) $0.
C) $90,000.00.
D) $100,000.00.

Accepted Answer

Your wealth at the end of the year is calculated by adding your initial wealth to your income and then subtracting your consumption. So, it's $10,000 + $90,000 - $80,000 = $20,000.

Question 13

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

Accepted Answer

The total amount spent on new capital in a time period is known as gross investment, which includes purchases of new machinery, equipment, and buildings. Wealth refers to the total assets owned by an individual or a nation. Depreciation refers to the decrease in the value of assets over time due to wear and tear, while net investment is the total amount of investment after taking depreciation into account.

Question 14

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 some amount but we need more information to determine the amount.
B) net investment was $4 million for the year.
C) gross investment was zero.
D) net investment was -$4 million for the year.

Accepted Answer

Net investment is calculated as the change in capital stock over a given period. In this case, the change in capital stock is a decrease of $4 million, so the net investment is -$4 million.

Question 15

An increase in the ________ is an example of a capital gain.
A) value of a share of stock
B) wage rate of a federal employee
C) amount of income not spent on consumption or taxes
D) after-tax wage rate as a result of a decrease in income tax rates

Accepted Answer

A capital gain refers to an increase in the value of an asset or investment, such as a share of stock. The other choices do not directly relate to an increase in the value of an asset or investment.

Question 16

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

Accepted Answer

Net investment is the amount spent on new capital assets minus the amount spent to replace existing capital assets that have been depreciated or become obsolete. Therefore, net investment equals gross investment minus depreciation.

Question 17

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

Accepted Answer

Net investment is the increase in the capital stock after accounting for depreciated capital. Gross investment is the total amount of investment, and depreciation is the amount of capital that has been used up or worn out. Private sector spending is not specific enough to capture the increase in the capital stock.

Question 18

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

Accepted Answer

Saving is not equal to wealth minus consumption expenditures. Instead, saving adds to wealth by allowing individuals to accumulate assets over time.

Question 19

Facebook sold shares of stock for the first time in an IPO on May 18, 2012. The stock originally sold for $38 per share. As of October 19, 2012, a share of Facebook stock was valued at $19 per share. The decrease in the value of a share of Facebook purchased in May and still owned in October is called
A) a capital gain.
B) a capital loss.
C) gross investment.
D) net investment.

Accepted Answer

The decrease in value from $38 to $19 represents a loss in investment, therefore the correct answer is B, a capital loss.

Question 20

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

Accepted Answer

If the economy's capital stock is increasing over time, that means that gross investment (the amount of investment into new capital goods) exceeds depreciation (the decrease in value of existing capital goods). Therefore, net investment (the increase in the economy's capital stock) is positive.

Quiz 7: Finance, Saving, and Investment

Gross investment

In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's gross investment totaled

The term capital, as used in macroeconomics, refers to

In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's net investment totaled

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 "capital," as used in macroeconomics, refers to

The capital stock increases whenever

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

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

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 capital stock at the end of year equals

If the economy's capital stock decreases over time

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

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

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

An increase in the ________ is an example of a capital gain.

Net investment equals

The increase in the capital stock equals the amount of

Which of the following is FALSE about saving?

If the economy's capital stock increases over time