Deck 6: The Business Investment Sector

Question 1

Which statement is false?

A)Only a very small percentage of corporations actually sell stock.
B)Nearly all large companies are corporations.
C)Nearly all corporations are small companies.
D)None of these statements is false.

Answer 1

D

Question 2

The only time to invest is when the expected rate of profit is __________ the interest rate.

A)greater than
B)equal to
C)less than

Answer 2

A

Question 3

Between 2006 and 2009 gross private investment.

A)increased only slightly.
B)decreased by about 2/3.
C)stayed about the same
D)decreased by 20 percent

Answer 3

B

Question 4

Each of the following could be considered a determinant of the level of investment except

A)stock prices.
B)the capacity utilization rate.
C)the interest rate.
D)the expected profit rate.
E)the sales outlook.

Question 5

Which statement is false?

A)Most corporations are small firms.
B)Most firms in the United States are proprietorships.
C)Preferred stockholders rarely have a voice in running corporations.
D)None of these statements is false.

Question 6

Investment may be the production of

A)capital goods,but not consumer goods.
B)consumer goods,but not capital goods.
C)both capital goods and consumer goods.
D)neither capital goods nor consumer goods.

Question 7

A corporation is owned by its

A)board of directors
B)officers
C)stockholders
D)bondholders

Question 8

Which one of these would not constitute investment?

A)Someone buys 100 shares of Exxon-Mobil
B)Exxon-Mobil purchases 20 new oil rigs
C)General Motors builds a new assembly plant
D)Macy's remodels its stores

Question 9

A business firm with limited liability would be a

A)proprietorship.
B)partnership.
C)corporation.

Question 10

Which statement is true?

A)Stockholders and bondholders are both owners of a corporation.
B)Neither stockholders nor bondholders are owners of a corporation.
C)Only stockholders are owners of a corporation.
D)Only bondholders are owners of a corporation.

Question 11

Investment will tend to be low when the

A)capacity utilization rate is high and the interest rate is high.
B)capacity utilization rate is high and the interest rate is low.
C)capacity utilization rate is low and the interest rate is low.
D)capacity utilization rate is low and the interest rate is high.

Question 12

The expected rate of profit is found by

A)multiplying expected profits by money invested.
B)dividing expected profits by money invested.
C)dividing money invested by expected profits.
D)none of these.

Question 13

The largest sector of gross investment is

A)plant and equipment.
B)inventory.
C)residential housing.
D)stocks and bonds.

Question 14

Which statement is false?

A)Residential home building fluctuates considerably from year to year.
B)Investment is the most volatile sector in our economy.
C)Gross investment is larger than net investment.
D)Inventory investment can be negative.
E)None is false

Question 15

Most business firms in the United States are

A)proprietorships.
B)partnerships.
C)corporations.

Question 16

To build up our capital we need to

A)save more and consume more.
B)save more and consume less.
C)save less and consume less.
D)save less and consume more.

Question 17

A firm with three owners

A)must be a partnership.
B)may be a partnership.
C)cannot be a partnership.

Question 18

The "reserve army of the unemployed" was a term coined by

A)Adam Smith
B)John Maynard Keynes
C)Thorstein Veblen
D)Karl Marx
E)Milton Friedman

Question 19

Very small corporations pay _______ % of their income in corporation income taxes.

A)0
B)under 35
C)35
D)over 35

Question 20

Since 1980,inventory investment has

A)always been positive.
B)always been negative.
C)been both positive and negative.

Question 21

Which statement is true?

A)Our capacity utilization rate is rarely over 75 percent.
B)Gross investment is generally negative.
C)The most important determinant of the level of investment is the expected profit rate.
D)None is true.

Question 22

A sole proprietorship

A)is subject only to limited liability.
B)experiences little difficulty in accumulating and acquiring financial capital.
C)is simply an individual in business for himself or herself.
D)is very similar to a corporation in its legal status.
E)has infinite life unless it goes bankrupt or is merged.

Question 23

Which of the following is not a characteristic of sole proprietorship?

A)Ease of organization ion
B)Simplicity of control
C)Limited availability of capital
D)Relatively free from regulation
E)Limited liability

Question 24

Which of the following is NOT included in the GDP accounts as a component of investment?

A)The purchase by a corporation of a computer for word processing purposes
B)The purchase of 50 shares of AT&T stock by an employee of AT&T
C)The construction of a new Toyota factory in New Jersey
D)The construction of a new house
E)The buildup in a car dealer's inventory because it ordered more cars than it could sell

Question 25

Which statement is false?

A)Savings may be invested directly in a corporation,or it may be invested indirectly through a bank or other financial intermediary.
B)Large bank loans are often made,not by individual banks,but by loan syndicates of dozens of banks.
C)Corporations raise a substantial portion of their investment funds internally.
D)Some partnerships raise funds by selling stock.

Question 26

The marginal efficiency of capital is another term for

A)the expected profit rate.
B)the expected interest rate.
C)the expected efficiency of plant and equipment.
D)the expected return on government investment projects.

Question 27

As the interest rate rises a business firm would

A)become less inclined to invest.
B)become more inclined to invest.
C)continue to invest at the same level.

Question 28

Investment includes

A)an increase in corporate stock volumes during the year.
B)the purchase of medical supplies by the National Guard.
C)an increase in government spending.
D)an increase in business inventories.

Question 29

Which statement is false?

A)Some companies seem to fall into the cracks between partnerships and corporations.
B)There are limited partnerships,which not only avoid paying corporate income taxes,but also minimize legal risk to their investors.
C)The Internal Revenue Service has disallowed the formation of limited liability companies,which have the legal insulation of a corporation and the preferred tax treatment of a limited partnership.
D)You can form a limited liability company to protect your personal assets if your business is sueD.

Question 30

Investment may be thought of in each of these terms except

A)resources.
B)money spent.
C)percent of GDP.
D)imports vs.exports.

Question 31

The marginal efficiency of capital is a term that was coined by

A)Karl Marx.
B)John Maynard Keynes.
C)Ambrose Bierce.
D)Milton Friedman.
E)John Stuart Mill.

Question 32

Investment,as the term is used in economics,does NOT include

A)General Motors' purchase of a new IBM mainframe computer.
B)an annual increase in the inventory of canned peas at Brown's Corner Grocery.
C)the purchase of a parcel of land in order to realize future financial gains when the land is sold.
D)the purchase of two new Boeing jetliners by Delta Airlines.
E)the construction of condominiums in Fort LauderdalE.

Question 33

If a business person had the opportunity to borrow $100,000 at an interest rate of 10%,and expected to invest this money and receive a profit of $25,000,she would

A)definitely do it.
B)possibly do it.
C)probably not do it.
D)definitely not do it.

Question 34

"Benedict Arnold Corporations" are loyal to

A)their customers.
B)America.
C)their employees.
D)the profits of their stockholders.

Question 35

Which one of these is an investment as counted in GDP?

A)The purchase of Rockefeller Center by Mitsubishi.
B)An increase in Intel's inventory.
C)American Airline's purchase of Trans World Airline.
D)Individual's purchase of General Motors stock through a broker.

Question 36

Which one is not an investment?

A)Mr.Retchnick buys a new home.
B)Mrs.Kanaddle hopper purchases 500 shares of Dupont.
C)Mr.Klopman adds a new wing to his factory.
D)The Blattzspiel Brewery purchases 100 new vats.

Question 37

Investment,as the term is used in economics,includes

A)the purchase of an acre of land for speculative purposes.
B)the funding of an individual retirement account.
C)an annual increase in the inventory of unsold packages of Doritos at Joe's Convenience Store.
D)your purchase of 100 shares of stock in Apple Computer Company.
E)the purchase of one's own apartment when the building converts to condominiums.

Question 38

A business person would most likely invest if the expected profit rate were ______ and the interest rate were _____ percent.

A)20;14
B)14;20
C)6;6
D)5;4
E)3;20

Question 39

Which statement is false?

A)Investment in plant and equipment fell over 70 percent between 1929 and 1933.
B)Our economy would grow faster if we shifted resources from capital goods production into consumer goods production.
C)Because Americans save so little,its rate of capital formation has been lagging.
D)None is false.

Question 40

What is the largest component of gross private domestic investment in the United States?

A)Purchases of producer plant and durable equipment
B)Changes in business inventories
C)Residential construction
D)Purchases of intermediate goods
E)Nonresidential construction

Question 41

Given: Very probable sales: $400,000.$300,000 could be borrowed at 8 percent interest for one year to purchase inventory.Total selling costs: $17,000.This investment project

A)probably would be carried out.
B)probably would not be carried out.
C)would be carried out only if the interest rate were higher.

Question 42

In the United States most business firms are

A)corporations.
B)proprietorships.
C)partnerships.
D)cooperatives.

Question 43

Which statement is true?

A)As income rises,higher levels of investment are induced.
B)Most of the investment in the United States is done by foreigners.
C)Although there is a surplus of savings in this country,very little of the savings pool is actually invested in plant and equipment.
D)None is true.

Question 44

Suppose you could invest $100,000 in inventory,which you expect to be able to sell at $140,000.If you expect your total selling costs to be $20,000,your expected profit rate would be ______ percent.

A)10
B)20
C)40
D)100
E)140

Question 45

Which of the following is not a part of gross private domestic investment?

A)Residential construction.
B)Shopping centers.
C)Changes in business inventories.
D)Corporate stock purchased from a broker.
E)Factories.

Question 46

Most businesses would probably not undertake investment projects for which the expected rate of profit were

A)greater than the going interest rate.
B)one percent more than the going interest rate.
C)equal to the going interest rate.
D)less than the going interest rate.

Question 47

Which one of these is an investment? The purchase of

A)treasury bond
B)corporate stock
C)a new computer system
D)a five-year-old building

Question 48

An investment project has an expected profit rate of 12 percent.The going rate of interest is 12 percent.Firm X would need to borrow money to carry out this project;firm Y would use its own funds.Which statement is true?

A)Both firms would undertake this project.
B)Neither firm would undertake this project.
C)Firm X would undertake the project;firm Y would not.
D)Firm Y would undertake the project;firm X would not.

Question 49

Comparing the recession of 2000-2001 with the great recession of 2006-2009,the decline in private domestic investment was:

A)about the same.
B)twice as great.
C)three times as great.
D)five times as great.

Question 50

Last year,the XYZ manufacturing corporation issued $10 million in new common stock,and used $8 million of the proceeds to build a new factory.The other $2 million was used to repay bank loans,and replenish XYZ's deposits at its banks.As a result,GDP went up by

A)the $8 million spent for the factory.
B)the $10 million in a new common stock.
C)$12 million.
D)$18 million.
E)$20 million.

Question 51

Which statement is true?

A)A firm that uses its own funds,rather than borrow money,does not need to take the going rate of interest into account.
B)The only consideration that a firm undertaking an investment project needs to consider is the interest rate.
C)The concept of opportunity cost may be applied to a firm that is considering using its own funds for an investment project.
D)None is true.

Question 52

Suppose you could invest $1 million in inventory,which you expect to be able to sell at $1,500,000.If you expect your total selling costs to be $200,000,your expected profit rate would be _______ percent.

A)10
B)20
C)30
D)40
E)50

Question 53

Which statement is true?

A)The expected rate of profit is very high during depressions.
B)The best environment for most investment projects is a high rate of interest and a low marginal efficiency of capital.
C)The higher the marginal efficiency of capital,the more likely an investment project will be carried out.
D)None is true.

Question 54

Whenever the level of depreciation exceeds the gross private domestic investment for the economy

A)net investment is negative.
B)net foreign investment is negative.
C)real gross national product is falling.
D)no conclusion can be made about any of these sectors of the economy.
E)none of the abovE.

Question 55

Which statement is false?

A)The influx of foreign investment funds has kept interest rates down.
B)Foreigners invested in the United States in the 1980s because of our relatively high interest rates.
C)Although foreigners have made some very visible investments in the United States,the influx of foreign investment funds has had a negligible effect on our economy.
D)None is false.

Question 56

Given: Very probable sales: $500,000.$400,000 could be borrowed at 18 percent interest for one year to purchase inventory.Total selling costs: $38,000.This investment project

A)definitely would be carried out.
B)probably would be carried out.
C)probably would not be carried out.
D)definitely would not be carried out.

Question 57

If the going rate of interest were 8 percent and the expected profit rate were 14 percent,then the opportunity cost of a firm carrying out a $100,000 project for one year with its own funds would be

A)0.
B)$6,000.
C)$8,000.
D)$14,000.

Question 58

If a corporation goes bankrupt,its stockholders will lose

A)only the value of their stock.
B)the value of their stock plus any other business assets which they may own.
C)the value of their stock plus any other personal assets which they may own.
D)the value of their stock plus any other business and personal assets which they may own.

Question 59

If the going rate of interest were 10 percent and the expected profit rate were 18 percent,then the opportunity cost of a firm carrying out a $100,000 project for one year with its own funds would be

A)0.
B)$8,000.
C)$10,000.
D)$18,000.

Question 60

If depreciation exceeds gross investment,we can say that

A)the economy's stock of capital may be either growing or shrinking.
B)the economy's stock of capital is shrinking.
C)the economy's stock of capital is growing.
D)net investment is zero.
E)net investment is positivE.

Question 61

If gross investment is greater than depreciation,then net investment is _____________ and the economy is __________________.

A)positive,expanding
B)positive,shrinking
C)negative,expanding
D)negative,shrinking

Question 62

An economy is enlarging its stock of capital goods

A)when net investment exceeds gross investment.
B)when gross investment exceeds depreciation.
C)only when added investment exceeds depreciation.
D)when depreciation exceeds gross investment.

Question 63

A low rate of investment could be explained by a

A)low rate of saving and low interest rates.
B)low rate of saving and high interest rates.
C)high rate of saving and low interest rates.
D)high rate of saving and high interest rates.

Question 64

Since the 1960s,net inventory investment has been positive

A)every year.
B)most years.
C)every few years.
D)never.

Question 65

The main reason foreigners have been so happy to make investments in the U.S.is that

A)it gives them control of the American economy.
B)our interest rates are relatively high.
C)our interest rates are relatively low.
D)they can take advantage of our huge pool of savings.

Question 66

Suppose you own $175,000 worth of personal property,$15,000 in U.S.government bonds;a $20,000 savings account,a $50,000 CD,and $5,000 of California Edison stock.If California Edison goes bankrupt,the most you could lose is

A)$5,000.
B)$75,000.
C)$90,000.
D)$265,000.

Question 67

A nation's stock of capital goods will decline when

A)gross investment exceeds net investment.
B)net investment is positive,but less than gross investment.
C)depreciation exceeds gross investment.
D)gross investment exceeds depreciation.
E)gross and net investment are equal.

Question 68

Net investment is greater than gross investment

A)every year.
B)most years.
C)some years.
D)never.

Question 69

Economists define investment to include

A)any increase in business inventories.
B)the addition of cash to a savings account.
C)the purchase of common or preferred stock.
D)the purchase of any durable good,e.g. ,an automobile or a refrigerator.

Question 70

Limited liability means that

A)creditors have no legal claim on the personal assets of a proprietor.
B)corporations cannot be sued.
C)creditors have no legal claims.
D)creditors have no legal claim on the personal assets of a corporate stockholder.
E)corporations have a legal life independent of their owners and managers.

Question 71

In a year when our gross investment is $3 trillion and our depreciation is $5 trillion our capital stock will

A)increase by $2 trillion.
B)increase by $3 trillion.
C)decrease by $2 trillion.
D)decrease by $3 trillion.

Question 72

A business begins a year with 4,500 office machines and finishes the year with 5,500 machines while writing off the value of 750 machines as depreciation.What is the amount of net investment that this firm has undertaken during this time period?

A)1,000 machines
B)750 machines
C)250 machines
D)1,750 machines
E)Impossible to calculate with the information given

Question 73

During a very bad depression

A)gross investment (but not net investment)can be negative.
B)net investment (but not gross investment)can be negative.
C)both net investment and gross investment can be negative.
D)neither gross investment nor net investment can be negative.

Question 74

Gross investment refers to

A)private investment plus public investment.
B)net investment plus replacement investment.
C)net investment after it has been "inflated" for changes in the price level.
D)net investment plus net exports.

Question 75

Gross investment will equal net investment when

A)depreciation is positive.
B)depreciation is negative.
C)depreciation is zero.

Question 76

In the year 2017,our gross investment will be $3.7 trillion and our net investment will be $2.9 trillion.In 2017 our capital stock will

A)increase by $0.8 trillion.
B)increase by $2.9 trillion.
C)increase by $3.7 trillion.
D)increase by a number between $2.9 trillion and $3.7 trillion.

Question 77

The level of investment will tend to rise if the capacity utilization rate is ____________ and the interest rate is ______________.

A)high,high
B)low,low
C)high,low
D)low,high

Question 78

During recessions the capacity utilization rate tends to

A)rise.
B)fall.
C)stay about the same.

Question 79

The expected rate of profit is calculated by

A)dividing money invested into expected profits.
B)dividing expected profits into money invested.
C)adding money invested and expected profits.
D)multiplying money invested times expected profits.

Question 80

Listed in descending order of numerical importance,the business population is comprised of

A)sole proprietorships,corporations,and partnerships.
B)sole proprietorships,partnerships,and corporations.
C)partnerships,corporations,and sole proprietorships.
D)corporations,partnerships,and sole proprietorships.