Question 1

A certificate of ownership and claim to part of a firm's profits is called
A) physical capital.
B) a bond.
C) depreciation.
D) a stock.
E) a certificate of deposit.

Accepted Answer

A stock represents a share in the ownership of a company and entitles the holder to a claim on part of the firm's profits, which may be distributed as dividends.

Question 2

A household increases its wealth by
A) decreasing its depreciation.
B) saving.
C) spending more on consumption goods.
D) making sure that its net investment exceeds its gross investment.
E) increasing its capital consumption.

Accepted Answer

Saving increases a household's wealth by allowing the accumulation of assets or reduction of liabilities, thereby increasing net worth over time.

Question 3

Net investment equals
A) new capital plus old capital.
B) gross investment plus depreciation.
C) the amount of national wealth.
D) capital plus depreciation.
E) gross investment minus depreciation.

Accepted Answer

Net investment is calculated by subtracting depreciation (the decrease in value of assets over time) from gross investment (total amount spent on new capital). This measures the actual increase in capital stock.

Question 4

Bill's Lawn Service starts the year with 20 lawn mowers. During the year, 3 mowers break and are not worth fixing. Bill also expands his business and buys 10 more mowers. Bill's capital at the end of the year is ________ mowers.
A) 30
B) 33
C) 27
D) 10
E) 20

Accepted Answer

Bill starts with 20 mowers, loses 3, and then buys 10 more. So, 20 - 3 + 10 = 27 mowers.

Question 5

Which of the following is correct?
A) Gross investment is the total spent on capital.
B) Net investment is the total spent on capital.
C) Gross investment equals net investment minus depreciation.
D) The change in the nation's capital stock over a year equals the amount of gross investment.
E) Net investment is the same as capital consumption.

Accepted Answer

The answer of Which of the following is correct?
A) Gross...

Question 6

The funds firms use to buy and operate physical capital are referred to as
A) physical capital.
B) financial capital.
C) human capital.
D) government capital.
E) business capital.

Accepted Answer

Financial capital refers to the funds that firms use to acquire and manage physical capital, such as machinery, buildings, and equipment, necessary for producing goods and services.

Question 7

A document that promises to pay specified sums of money on specified dates and is a debt to the issuer is called
A) net investment.
B) depreciation.
C) gross investment.
D) a stock.
E) a bond.

Accepted Answer

A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date.

Question 8

On 1 January, Rick's Photo owned $50,000 of equipment. During the year, the value of the equipment fell by $10,000, plus Rick bought $25,000 in new equipment. Rick's company experienced ________ because ________.
A) net investment of $15,000; net investment equals gross investment minus depreciation
B) depreciation of $15,000; depreciation equals investment in new products minus loss in values
C) gross investment of $15,000; gross investment equals net investment minus depreciation
D) net investment of $15,000; net investment equals beginning-year financial capital minus depreciations and investment
E) gross investment of $40,000; gross investment equals net investment plus depreciation

Accepted Answer

Net investment is calculated by subtracting depreciation from gross investment. In this case, Rick bought $25,000 in new equipment (gross investment) and the value of the equipment fell by $10,000 (depreciation), so the net investment is $15,000 ($25,000 - $10,000).

Question 9

A distinction between stocks and bonds is that
A) bonds must be held for a fixed number of years whereas stocks can be bought and sold at any time.
B) stocks represent ownership claims to the company and bonds do not.
C) although the return on a bond is determined by the forces of supply and demand, the return on a stock is set by the stock exchange.
D) bonds cannot be sold to anyone other than the company that issued it while stocks can be resold to anyone.
E) bonds can be traded many times in the bond market, while stocks are non-transferable.

Accepted Answer

Stocks represent ownership in a company, giving shareholders voting rights and a claim on company profits through dividends. Bonds, on the other hand, are a form of debt where the investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period at a variable or fixed interest rate.

Question 10

The Allied Mining Company begins this year with capital equal to $250,000. During the year the firm depreciates $150,000 worth of its capital and ends the year with capital equal to $250,000. Which statement correctly summarises Allied Mining Company's investment?
A) Allied Moving Company made net investment of $150,000 during the year.
B) Allied Moving Company made no net investment during the year.
C) Allied Moving Company made no capital investment during the year.
D) Allied Moving Company made no gross investment during the year.
E) Allied Moving Company made gross investment of $250,000 during the year.

Accepted Answer

Allied Mining Company's capital remained the same at $250,000, indicating no net investment during the year.

Question 11

Which of the following are typically financed in the loan market?
i. A mortgage for a house
iii. Credit card balances
iii. The purchase of shares in a corporation
A) i and ii
B) i, ii and iii
C) i only
D) i and iii
E) ii and iii

Accepted Answer

A mortgage for a house and credit card balances are typically financed in the loan market, whereas the purchase of shares in a corporation is typically financed in the equity market.

Question 12

Lulu purchased a security that promises to pay $50 twice a year from January 15, 2015 to January 15, 2020 and then pay $1,000 on January 15, 2020. The security is a debt to the company that issued it. The security is a
A) net investment to the company that issued it.
B) bond.
C) physical capital.
D) share of stock.
E) depreciating asset.

Accepted Answer

The security described is a bond, which is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). It promises to pay periodic interest payments and to return the principal, or face value, on a specified date, known as the maturity date. In this case, the $50 payments are the interest payments, and the $1,000 payment at the end is the return of the principal.

Question 13

________ decreases a firm's capital stock, and ________ increases its capital stock.
A) Saving; depreciation
B) Depreciation; investment
C) Time; depreciation
D) Saving; investment
E) Investment; saving

Accepted Answer

Depreciation refers to the reduction in the value of a firm's capital stock due to wear and tear or obsolescence, while investment refers to the purchase of new capital goods to increase a firm's capital stock.

Question 14

Wealth is to ________ as capital stock is to ________.
A) income; net investment
B) saving; depreciation
C) investment; saving
D) income; earnings
E) saving; investment

Accepted Answer

The answer of Wealth is to ________ as capital stock...

Question 15

At the beginning of the year, AAA-1 Towing owns trucks and buildings of a total value of $1 million. During the year, it invests $250,000 to replace towing trucks worth $230,000 destroyed in a flood and to cover $50,000 worth of depreciation. AAA-1 Towing's capital stock at the end of the year was
A) $1,020,000.
B) $1,250,000.
C) $1,280,000.
D) $950,000.
E) $970,000.

Accepted Answer

The answer of At the beginning of the year, AAA-1...

Question 16

During the year a country's income was $6.0 trillion and its consumption was $5.5 trillion. At the start of the year its wealth was $30.0 trillion. The country's wealth at the end of the year is
A) $36.0 trillion.
B) $30.0 trillion.
C) $35.5 trillion.
D) $30.5 trillion.
E) $6.0 trillion.

Accepted Answer

The country's wealth at the end of the year is calculated by adding the income to the initial wealth and then subtracting the consumption: $30.0 trillion + $6.0 trillion - $5.5 trillion = $30.5 trillion.

Question 17

The distinction between physical and financial capital is that
A) financial capital is used to purchase and operate physical capital.
B) physical capital is equal to financial capital plus depreciation.
C) physical capital is equal to financial capital minus depreciation.
D) the value of financial capital depends on the amount of available physical capital.
E) financial capital depreciates and physical capital does not.

Accepted Answer

Financial capital refers to the funds that businesses use to buy physical capital, such as machinery, buildings, and equipment, which are essential for producing goods and services.

Question 18

If an economy's depreciation is greater than its gross investment, then
A) net investment is negative and saving is negative.
B) net investment is positive and saving is negative.
C) net investment must equal saving.
D) net investment is positive and saving is positive.
E) the economy's capital stock decreases.

Accepted Answer

When depreciation exceeds gross investment, net investment is negative, indicating that the economy's capital stock is decreasing.

Question 19

During the year, suppose a country's total purchases of newly produced capital goods are $2,000 million, it issues $1,600 million of stock certificates, and has $500 million in depreciation. Gross investment in this country equals
A) $2,500 million.
B) $2,000 million.
C) $3,600 million.
D) $4,100 million.
E) $2,100 million.

Accepted Answer

Gross investment is calculated as the total purchases of newly produced capital goods without deducting depreciation. Therefore, the gross investment in this country is $2,000 million, which is the total purchases of newly produced capital goods. The issuance of stock certificates and depreciation are not included in the calculation of gross investment.

Question 20

During this year, Barbara earned $60,000 as a financial analyst, paid taxes of $5,000 and consumed $53,000. If Barbara's wealth was $4,000 at the beginning of the year, at the end of the year Barbara's wealth is
A) $2,000.
B) $5,000.
C) $4,000.
D) $60,000.
E) $6,000.

Accepted Answer

Barbara's savings for the year are her earnings minus taxes and consumption, which is $60,000 - $5,000 - $53,000 = $2,000. Adding this to her initial wealth of $4,000 gives her an end-of-year wealth of $6,000.

Quiz 9: Finance, Saving and Investment

A certificate of ownership and claim to part of a firm's profits is called

A household increases its wealth by

Net investment equals

Bill's Lawn Service starts the year with 20 lawn mowers. During the year, 3 mowers break and are not worth fixing. Bill also expands his business and buys 10 more mowers. Bill's capital at the end of the year is ________ mowers.

Which of the following is correct?

The funds firms use to buy and operate physical capital are referred to as

A document that promises to pay specified sums of money on specified dates and is a debt to the issuer is called

On 1 January, Rick's Photo owned $50,000 of equipment. During the year, the value of the equipment fell by $10,000, plus Rick bought $25,000 in new equipment. Rick's company experienced because .

A distinction between stocks and bonds is that

The Allied Mining Company begins this year with capital equal to $250,000. During the year the firm depreciates $150,000 worth of its capital and ends the year with capital equal to $250,000. Which statement correctly summarises Allied Mining Company's investment?

Which of the following are typically financed in the loan market? i. A mortgage for a house iii. Credit card balances iii. The purchase of shares in a corporation

Lulu purchased a security that promises to pay $50 twice a year from January 15, 2015 to January 15, 2020 and then pay $1,000 on January 15, 2020. The security is a debt to the company that issued it. The security is a

decreases a firm's capital stock, and increases its capital stock.

Wealth is to as capital stock is to .

At the beginning of the year, AAA-1 Towing owns trucks and buildings of a total value of $1 million. During the year, it invests $250,000 to replace towing trucks worth $230,000 destroyed in a flood and to cover $50,000 worth of depreciation. AAA-1 Towing's capital stock at the end of the year was

During the year a country's income was $6.0 trillion and its consumption was $5.5 trillion. At the start of the year its wealth was $30.0 trillion. The country's wealth at the end of the year is

The distinction between physical and financial capital is that

If an economy's depreciation is greater than its gross investment, then

During the year, suppose a country's total purchases of newly produced capital goods are $2,000 million, it issues $1,600 million of stock certificates, and has $500 million in depreciation. Gross investment in this country equals

During this year, Barbara earned $60,000 as a financial analyst, paid taxes of $5,000 and consumed $53,000. If Barbara's wealth was $4,000 at the beginning of the year, at the end of the year Barbara's wealth is