Question 1

Physical capital is
A)the tools, instruments, machines, buildings, and other items that have been produced in the past and that are used today to produce goods and services.
B)the sum of investment and government expenditure on goods.
C)greater than financial wealth.
D)net investment.
E)gross investment.

Accepted Answer

Physical capital refers to the tools, instruments, machines, buildings, and other items that have been produced in the past and that are used today to produce goods and services. This definition distinguishes physical capital from financial wealth, which refers to money and other financial assets. Net investment and gross investment are related to changes in the stock of physical capital over time and are not equivalent to physical capital itself.

Question 2

Net investment equals
A)gross investment minus depreciation.
B)wealth minus saving.
C)gross investment divided by depreciation.
D)gross investment plus depreciation.
E)capital minus depreciation.

Accepted Answer

Net investment is the increase in the stock of capital, which is calculated by subtracting depreciation (the decrease in the stock of capital due to wear and tear, obsolescence, etc.) from gross investment (the total amount invested in new capital). Therefore, net investment equals gross investment minus depreciation.

Question 3

In January 2017, Tim's Gyms, Inc.owned machines valued at $1 million.During the year, the market value of the machines fell by 30 percent.During 2017, Tim spent $200,000 on new machines.During 2017, Tim's gross investment was
A)$1 million.
B)$900,000.
C)$100,000.
D)$200,000
E)$300,000.

Accepted Answer

Gross investment refers to the total amount spent on new capital. In this case, Tim spent $200,000 on new machines, making his gross investment $200,000.

Question 4

At the beginning of the year, Tom's Tubes has capital of 5 tube- inflating machines.During the year, Tom scraps 2 old machines and purchases 3 new machines.Tom's gross investment for the year is
A)1 machine.
B)3 machines.
C)2 machines.
D)8 machines.
E)6 machines.

Accepted Answer

Gross investment refers to the total amount of new capital added to the capital stock, without accounting for depreciation. Since Tom purchased 3 new machines, his gross investment for the year is 3 machines, regardless of how many were scrapped.

Question 5

The change in the value of capital is
A)saving.
B)net investment.
C)depreciation.
D)wealth.
E)gross investment.

Accepted Answer

The change in the value of capital is called net investment, which is the difference between gross investment (the total amount spent on new capital) and depreciation (the decrease in the value of existing capital due to wear and tear or obsolescence). Option A (saving) refers to income not spent on consumption, option C (depreciation) is only one component of net investment, option D (wealth) is a broader concept that includes assets and liabilities beyond just capital, and option E (gross investment) does not account for depreciation.

Question 6

The funds used to buy physical capital are
A)net investment.
B)investment.
C)wealth.
D)financial capital.
E)saving.

Accepted Answer

Financial capital refers to the funds that are used to purchase physical capital, such as machinery, buildings, and equipment.

Question 7

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

Accepted Answer

If the economy's capital increases over time, it means that there is a positive net investment. Net investment is gross investment minus depreciation. If the capital stock is increasing, then gross investment must be greater than depreciation, resulting in a positive net investment.

Question 8

At the beginning of the year, Tom's Tubes has capital of 5 tube- inflating machines.During the year, Tom scraps 2 old machines and purchases 3 new machines.Tom's net investment for the year is
A)1 machine.
B)3 machines.
C)2 machines.
D)6 machines.
E)5 machines

Accepted Answer

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

Question 9

In January 2017, Tim's Gyms, Inc.owned machines valued at $1 million.During the year, the market value of the machines fell by 30 percent.During 2017, Tim spent $200,000 on new machines.During 2017, Tim's net investment was
A)$500,000.
B)$100,000.
C)- $100,000.
D)$200,000.
E)$300,000.

Accepted Answer

The market value of the original machines fell by 30% in 2017, reducing their value to $700,000. Adding the $200,000 spent on new machines, Tim's total investment in machines for 2017 was $900,000. Since the market value of the machines decreased by $300,000, Tim's net investment was -$100,000.

Question 10

The total amount spent on new capital is
A)depreciation.
B)net investment.
C)saving.
D)gross investment.
E)wealth.

Accepted Answer

Gross investment refers to the total amount spent on new capital, including investments in factories, machinery, and equipment. Therefore, D is the correct choice. A, B, C, and E are not synonymous with gross investment.

Question 11

In 2017, Tim's Gyms finances the building of a new gym.Tim secures this financing from a bank, and the bank receives ownership if Tim fails to make payments.This source of funds is
A)a bond issued in the bond market.
B)a stock issued in the bond market.
C)a mortgage obtained in the loan market.
D)a mortgage obtained in the stock market.
E)a stock issued in the loan market.

Accepted Answer

The financing that Tim's Gyms has taken from the bank in which the bank holds ownership in case of non-payment is a mortgage obtained in the loan market. A bond is a debt security issued by companies to raise capital by borrowing from the market. Stocks represent ownership in a company, and they are issued in the stock market. However, Tim's Gyms has taken a loan in which the bank holds the ownership of the gym in case of non-payment, which is a mortgage obtained in the loan market. Therefore, option 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 $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
A)$10,000.
B)$20,000.
C)$0.
D)$90,000.
E)$100,000.

Accepted Answer

Wealth is calculated as income minus consumption goods and services. In this case, the person's income is $80,000 and they spent $90,000 on consumption goods and services, resulting in a negative savings of -$10,000. Therefore, their wealth at the end of the year is $10,000 - $10,000 = $0.

Question 13

At the beginning of the year, Tom's Tubes has capital of 5 tube- inflating machines.During the year, Tom scraps 2 old machines and purchases 3 new machines.Tom's capital at the end of year is
A)8 machines.
B)6 machines.
C)2 machines.
D)1 machine.
E)3 machines.

Accepted Answer

At the beginning of the year, Tom has 5 tube-inflating machines. Then he scraps 2 old machines, so he is left with 3 machines. After that, he purchases 3 new machines. Therefore, the total number of machines he has at the end of the year is 3+3 = 6 machines.

Question 14

Which of the following statements is false?
A)Saving equals wealth minus consumption expenditure.
B)Saving is the source of funds used to finance investment.
C)Saving adds to wealth.
D)Income left after paying taxes can either be consumed or saved.
E)Saving supplies funds in loan markets, bond markets, and stock markets.

Accepted Answer

Saving is not equal to wealth minus consumption expenditure, rather it is the portion of income that is not consumed but instead kept for future use.

Question 15

Capital increases when
A)net investment exceeds gross investment.
B)net investment is positive.
C)net investment is zero.
D)gross investment exceeds net investment.
E)gross investment is negative.

Accepted Answer

Capital increases when net investment is positive, meaning that the amount of investment that increases the stock of capital (gross investment) is greater than the amount of investment that is offset by capital depreciation (depreciation).

Question 16

In January 2017, Tim's Gyms, Inc.owned machines valued at $1 million.During the year, the market value of the machines fell by 10 percent.During 2017, Tim spent $200,000 on new machines.During 2017, Tim's net investment was
A)$1.1 million.
B)$300,000.
C)$1 million.
D)$200,000.
E)$100,000.

Accepted Answer

Net investment is calculated by subtracting the depreciation (or decrease in value) of the existing assets from the amount spent on new assets. The machines originally valued at $1 million decreased by 10%, which is a $100,000 decrease. Tim spent $200,000 on new machines. Therefore, his net investment is $200,000 (new investment) - $100,000 (decrease in value) = $100,000.

Question 17

The Acme Stereo Company has capital of $24 million at the beginning of the year.At the end of the year, the firm has capital of $20 million.Its
A)net investment is $4 million.
B)net investment is unknown.
C)gross investment is zero.
D)depreciation is $4 million.
E)net investment is - $4 million.

Accepted Answer

Net Investment = Ending Capital - Beginning Capital = $20 million - $24 million = -$4 million. The negative sign indicates that there was a net decrease in the firm's capital, which is equivalent to a disinvestment or a divestment.

Question 18

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

Accepted Answer

Capital decreases when depreciation (the amount of value lost from equipment and infrastructure) exceeds gross investment (the amount of money spent on new equipment and infrastructure). This means that the economy is not investing enough to maintain or grow its capital stock.

Question 19

Gross investment
A)equals real GDP minus consumption expenditure.
B)equals wealth minus saving.
C)is the total amount spent on new capital.
D)decreases when depreciation increases.
E)is the change in the value of capital

Accepted Answer

Gross investment is the total amount spent on new capital goods, such as machinery, buildings, and equipment. It does not include replacement or maintenance of existing capital goods (which is accounted for through depreciation).

Question 20

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
A)$90,000.
B)$10,000.
C)$20,000.
D)$0.
E)$100,000.

Accepted Answer

Wealth at the end of the year = Beginning wealth + Income - Consumption
= $10,000 + $90,000 - $80,000
= $20,000

Quiz 7: Finance, Saving, and Investment

Physical capital is

Net investment equals

In January 2017, Tim's Gyms, Inc.owned machines valued at $1 million.During the year, the market value of the machines fell by 30 percent.During 2017, Tim spent $200,000 on new machines.During 2017, Tim's gross investment was

At the beginning of the year, Tom's Tubes has capital of 5 tube- inflating machines.During the year, Tom scraps 2 old machines and purchases 3 new machines.Tom's gross investment for the year is

The change in the value of capital is

The funds used to buy physical capital are

If the economy's capital increases over time,

At the beginning of the year, Tom's Tubes has capital of 5 tube- inflating machines.During the year, Tom scraps 2 old machines and purchases 3 new machines.Tom's net investment for the year is

In January 2017, Tim's Gyms, Inc.owned machines valued at $1 million.During the year, the market value of the machines fell by 30 percent.During 2017, Tim spent $200,000 on new machines.During 2017, Tim's net investment was

The total amount spent on new capital is

In 2017, Tim's Gyms finances the building of a new gym.Tim secures this financing from a bank, and the bank receives ownership if Tim fails to make payments.This source of funds is

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

At the beginning of the year, Tom's Tubes has capital of 5 tube- inflating machines.During the year, Tom scraps 2 old machines and purchases 3 new machines.Tom's capital at the end of year is

Which of the following statements is false?

Capital increases when

In January 2017, Tim's Gyms, Inc.owned machines valued at $1 million.During the year, the market value of the machines fell by 10 percent.During 2017, Tim spent $200,000 on new machines.During 2017, Tim's net investment was

The Acme Stereo Company has capital of $24 million at the beginning of the year.At the end of the year, the firm has capital of $20 million.Its

If the economy's capital decreases over time,

Gross investment

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