Question 1

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

Accepted Answer

Gross investment is the total amount invested in the economy, whereas depreciation is the amount of capital that has been used up or destroyed. Therefore, if gross investment is greater than depreciation (positive net investment), then the economy is expanding as there is an increase in the total capital stock.

Question 2

An economy is enlarging its stock of capital goods

Accepted Answer

The economy can enlarge its stock of capital goods only when the gross investment exceeds depreciation. Gross investment refers to the total investment made by an economy while depreciation is the decrease in the value of capital goods due to wear and tear. Therefore, if gross investment exceeds depreciation, the economy is adding to its existing stock of capital goods, which helps in increasing production and economic growth.

Question 3

A low rate of investment could be explained by a

Accepted Answer

A low rate of investment can be explained by a low rate of saving because there are fewer funds available for investment. High interest rates can also discourage investment because the cost of borrowing funds for investment purposes becomes more expensive.

Question 4

Since the 1960s,net inventory investment has been positive

Accepted Answer

Net inventory investment has been positive most years since the 1960s, indicating that firms have been producing more than they are selling in anticipation of future demand.

Question 5

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

Accepted Answer

The main reason foreigners have been attracted to invest in the U.S. is because of relatively high interest rates, which offer better returns on investments compared to lower interest rates in other countries.

Question 6

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

Accepted Answer

The question specifically asks about how much could be lost if California Edison goes bankrupt. Therefore, the only relevant asset in this scenario is the $5,000 of California Edison stock. None of the other assets would be affected by the bankruptcy. So the most that could be lost is $5,000.

Question 7

A nation's stock of capital goods will decline when

Accepted Answer

Net investment is the difference between gross investment and depreciation. If depreciation (the wear and tear of existing capital goods) exceeds gross investment (the amount of new capital goods produced), then the overall stock of capital goods in the economy will decline.

Question 8

Net investment is greater than gross investment

Accepted Answer

Net investment is the amount of investment spending that adds to the stock of capital, while gross investment includes both the addition to the capital stock and the amount spent on replacing depreciated capital. Therefore, net investment can never be greater than gross investment because gross investment includes net investment plus depreciation.

Question 9

Economists define investment to include

Accepted Answer

Investment, in economic terms, includes any increase in business inventories, as this represents goods produced but not yet sold, indicating a commitment of resources for future sales. Choices B, C, and D are not considered investments in the economic sense; adding cash to savings is saving, not investing, purchasing stocks is a financial investment but not in the economic sense of producing goods or services, and buying durable goods is consumption.

Question 10

Limited liability means that

Accepted Answer

Limited liability means that creditors have no legal claim on the personal assets of a corporate stockholder. This only applies to corporations and not to sole proprietors or partnerships. It allows individuals to invest in a company without risking their personal assets in case the company goes bankrupt or faces financial difficulties.

Question 11

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

Accepted Answer

The answer of In a year when our gross investment...

Question 12

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?

Accepted Answer

The net investment is calculated by adding the beginning machines and subtracting the depreciated machines, which gives: 4,500 - 750 = 3,750. Then, you subtract the ending machines from this result: 5,500 - 3,750 = 1,750. Therefore, the net investment is 250 machines (C).

Question 13

During a very bad depression

Accepted Answer

During a very bad depression, net investment can be negative as businesses and individuals may refrain from investing in new projects or equipment, resulting in a decrease in the overall level of investment. Gross investment, which includes replacement investment or investment to maintain existing capital stock, may not necessarily be negative.

Question 14

Gross investment refers to

Accepted Answer

Gross investment is the total amount of investment in an economy, which includes net investment (increase in capital stock) and replacement investment (replacement of depreciated capital). Therefore, option B, which includes both net investment and replacement investment in its definition, is the correct choice. Option A is incorrect because public investment is not included in the definition of gross investment. Option C is incorrect because gross investment is not adjusted for changes in the price level. Option D is incorrect because net exports are not a component of gross investment.

Question 15

Gross investment will equal net investment when

Accepted Answer

Gross investment refers to the total amount of investment made by a business, including both replacement investment and additional investment. Net investment, on the other hand, refers only to additional investment, excluding any replacement investment needed to maintain the existing capital stock. 
Therefore, depreciation needs to be zero for gross investment to equal net investment as there will be no need for replacement investment.

Question 16

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

Accepted Answer

The answer of In the year 2017,our gross investment will...

Question 17

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

Accepted Answer

When the capacity utilization rate is high, it indicates that the company's production capacity is being fully utilized, which means that there is a demand for more production. Therefore, it is likely for the level of investment to rise. On the other hand, when the interest rate is low, it makes it cheaper for companies to borrow funds and invest in expanding their production. Thus, high capacity utilization rates and low interest rates are favorable conditions for firms to increase investment.

Question 18

During recessions the capacity utilization rate tends to

Accepted Answer

During recessions, consumer spending decreases which leads to a decrease in demand for goods and services causing firms to produce less. This leads to a fall in capacity utilization rate as firms are not operating at full capacity.

Question 19

The expected rate of profit is calculated by

Accepted Answer

The answer of The expected rate of profit is calculated...

Question 20

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

Accepted Answer

The answer of Listed in descending order of numerical importance,the...

Quiz 6: The Business Investment Sector

If gross investment is greater than depreciation,then net investment is _ and the economy is ______.