Deck 9: Finance,saving and Investment

Question 1

The Zonamo company produces waste disposal machines to sell all over the world.The company started last year with $10 million of capital on hand and invested $15 million in new capital throughout the year.At the end of the year,the company's capital stock was $17 million.Hence,for the year,depreciation equalled ________ and net investment equalled ________.

A)$5 million;$5 million
B)$8 million;$15 million
C)$7 million;$8 million
D)$25 million;$5 million
E)$8 million;$7 million

Answer 1

E

Question 2

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

A)$10,000 of depreciation.
B)an increase in net investment of $35,000.
C)an increase in new capital of $10,000.
D)$40,000 of depreciation.
E)a change in total financial capital of $15,000.

Answer 2

A

Question 3

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.

Answer 3

B

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

Question 5

Which of the following statements is correct?

A)Net investment plus depreciation equals gross investment.
B)Net investment is greater than gross investment.
C)Gross investment minus financial capital equals net investment.
D)Net investment plus corporate profits equals gross investment.
E)Net investment minus depreciation equals gross investment.

Question 6

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 net investment was

A)$200,000.
B)$280,000.
C)$20,000.
D)$250,000.
E)-$30,000.

Question 7

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 gross investment is ________ mowers.

A)10
B)27
C)30
D)13
E)7

Question 8

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.

Question 9

The total amount spent on new capital goods is called

A)gross investment.
B)net investment.
C)depreciation.
D)financial capital.
E)wealth.

Question 10

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.

Question 11

________ increases the quantity of capital,and ________ decreases the quantity of capital.

A)Investment;depreciation
B)Gross investment;net investment
C)Investment;saving
D)Net investment;gross investment
E)Depreciation;net investment

Question 12

Financial capital is used to help finance

A)people's savings.
B)consumption expenditure by households.
C)the purchase of physical capital by firms.
D)net investment but not gross investment.
E)gross investment but not net investment.

Question 13

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.

Question 14

Economists use the word 'capital' to mean

A)the funds that firms use to buy and operate their businesses.
B)purchases in the market for stocks and bonds.
C)the workers that firms employ to produce goods and services.
D)the tools,instruments and other produced goods used to produce goods and services.
E)people's skills and talents.

Question 15

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.

Question 16

________ 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

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.

Question 18

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.

Question 19

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.

Question 20

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 net investment is ________ mowers.

A)7
B)13
C)20
D)10
E)27

Question 21

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.

Question 22

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.

Question 23

A share of stock is a

A)certificate of ownership and claim to the profits made by a firm.
B)form of investment in physical capital.
C)collection of funds that travels the world looking for the highest return.
D)set of demanders and suppliers for the savings of households.
E)promise to pay specified sums of money on specified dates.

Question 24

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.

Question 25

Which of the following are typically financed in a "stock market"?
I)Shares sold by a firm to finance its international growth plans
Ii)New mortgages for home buyers
Iii)Credit card balances

A)ii and iii
B)ii only
C)i,ii and iii
D)i and iii
E)i only

Question 26

The change in the quantity of capital from one period to the next is equal to

A)net investment.
B)gross investment.
C)wealth.
D)financial investment.
E)depreciation.

Question 27

Which of the following are typically financed in a "bond market"?
I)A mortgage for a house
Ii)State government borrowing for a new road project
Iii)Your purchase of 4,000 shares in Westpac Bank

A)ii only
B)i only
C)ii and iii
D)i and iii
E)i and ii

Question 28

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

Question 29

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.

Question 30

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.

Question 31

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

Question 32

If capital gains equal zero,then the Ng family's wealth at the end of the year equals their wealth at the beginning of the year

A)minus consumption.
B)minus personal income taxes.
C)plus consumption minus income.
D)plus saving.
E)plus income.

Question 33

When Westpac Bank finances your purchase of a new car,you are

A)borrowing in the bond market.
B)borrowing in the loan market.
C)lending in the bond market.
D)borrowing in the stock market.
E)lending in the capital market.

Question 34

Assuming there are no capital gains,a nation's wealth at the start of a year is equal to the wealth at the start of the previous year plus

A)income minus saving during the year.
B)nothing because wealth does not change from one year to the next.
C)income.
D)saving minus depreciation during the year.
E)saving during the year.

Question 35

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.

Question 36

Wealth is

A)another name for income.
B)defined as the money in your savings account.
C)the value of all the things that a person owns.
D)equivalent to saving.
E)the same as investment in financial capital.

Question 37

Wealth is to ________ as capital stock is to ________.

A)income;net investment
B)saving;depreciation
C)investment;saving
D)income;earnings
E)saving;investment

Question 38

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.

Question 39

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

A)an increase in financial capital of $65,000.
B)a decrease in financial capital of $15,000.
C)depreciation of $15,000.
D)gross investment of $50,000.
E)net investment of $15,000.

Question 40

To acquire financial capital,a firm can i.obtain a loan from a bank.
Ii)issue stock.
Iii)issue bonds.

A)i only
B)ii only
C)iii only
D)i and iii
E)i,ii and iii

Question 41

If the market value of what it has lent is less than the market value of what it has borrowed,a financial institution's net worth is ________ and it is ________.

A)negative;illiquid and insolvent
B)negative;insolvent but not necessarily illiquid
C)positive;illiquid and insolvent
D)positive;insolvent but not necessarily illiquid
E)negative;illiquid but not necessarily insolvent

Question 42

Which of the following is NOT a key financial institution in Australia?

A)Insurance companies
B)Superannuation funds
C)Credit unions
D)The Federal Treasury
E)Banks

Question 43

A financial institution's net worth is

A)the market value of net borrowing capacity.
B)the market value of what it has lent minus the market value of what it has borrowed.
C)its investments in other financial institutions and governments.
D)the market value of net borrowing less depreciation.
E)None of the above.

Question 44

Economists use the term "financial markets" to mean the markets in which

A)households supply their labour services.
B)the government borrows to fund any budget surplus.
C)firms get the funds that they use to buy physical capital.
D)firms purchase their physical capital.
E)firms supply their goods and services.

Question 45

Which of the following are financial assets?
I)Stocks and bonds
Ii)Government transfers
Iii)Short-term securities and loans

A)ii and iii
B)i only
C)ii only
D)i and iii
E)i,ii and iii

Question 46

________ reflects a use of loanable funds,while ________ reflects a supply of loanable funds.

A)The government budget deficit;private saving
B)International investment;business investment
C)Business investment;the government budget deficit
D)A government budget surplus;a government budget deficit
E)International borrowing;a government budget deficit

Question 47

A financial institution is insolvent if

A)net worth is positive.
B)net investment is positive.
C)net investment is negative.
D)net worth is negative.
E)None of the above.

Question 48

A financial institution

A)is a firm that lends only to governments.
B)is a firm that issues shares in companies.
C)is a firm that borrows from governments
D)is a firm that borrows in one market and lends in another.
E)None of the above

Question 49

If a government bond is $1,000 and entitles the owner to receive $40 per year,then the interest rate on the bond is

A)2 per cent.
B)4 per cent.
C)40 per cent.
D)3 per cent.
E)5 per cent.

Question 50

A bond's price is $80 and the bond pays $8 in interest every year.The bond's interest rate is ________.

A)80 per cent
B)4 per cent
C)8 per cent
D)10 per cent
E)None of the above is correct.

Question 51

If the price of a bond increases the interest rate on the bond will

A)fall.
B)stay the same.
C)rise.
D)It is not relevant as the interest on bonds is pre-determined.
E)None of the above.

Question 52

The opportunity cost of the financial resources used to finance the purchase of capital is

A)the quantity of investment demanded.
B)the supply of investment.
C)the real interest rate.
D)the price of the capital goods purchased.
E)capital investment.

Question 53

A Wesfarmers bond is $100 and entitles the owner to receive $2 per year,giving an interest rate of 2 per cent.If the price of the bond falls to $50 what happens to the interest rate?

A)It rises to 8 per cent.
B)It falls to 1 per cent.
C)It falls to 0.4 per cent.
D)It stays the same.
E)It rises to 4 per cent.

Question 54

In the loanable funds market,which of the following is an example of investment demand?

A)Brian,owner of Bryan Games,purchasing computers to enhance the production of games.
B)Scott purchasing rare jazz recordings.
C)George purchasing government bonds to fund his son's education.
D)Mark buying rare gold coins.
E)Mary buying shares for her retirement portfolio.

Question 55

Which of the following are key financial institutions in Australia?
I)Banks and building societies
Ii)Mortgage unions
Iii)Insurance companies

A)ii only
B)i,ii and iii
C)ii and iii
D)i only
E)i and iii

Question 56

Suppose the real interest rate increases from 4 per cent to 6 per cent.As a result,

A)firms increase their demand for loanable funds.
B)governments decrease their demand for loanable funds.
C)firms decrease the quantity demanded of loanable funds.
D)governments decrease the quantity supplied of loanable funds.
E)governments increase the supply of loanable funds.

Question 57

If a firm wants to borrow $10 million and the real interest rate increases from 5 per cent to 6 per cent,then the cost of the investment has increased by

A)$6 million per year.
B)$600,000 per year.
C)$100,000 per year.
D)$1 million per year.
E)nothing because the real interest rate is the return the firm will earn on its investment.

Question 58

A financial institution is solvent if

A)net worth is negative.
B)net worth is positive.
C)net investment is positive.
D)net investment is negative.
E)None of the above.

Question 59

The demand for loanable funds includes demand for i.loans.
Ii)stocks.
Iii)bonds.

A)i and ii
B)i only
C)i,ii and iii
D)ii and iii
E)iii only

Question 60

Other things remaining the same,as the real interest rate increases,

A)firms will borrow less funds.
B)the demand for loanable funds curve shifts leftward.
C)firms will borrow more funds.
D)firms will purchase new capital with its own funds instead of taking a loan.
E)firms' demand for funds will not change.

Question 61

The demand for loanable funds curve illustrates

A)how the quantity of loanable funds demanded changes when people's expectations about their future income changes.
B)the quantity of loanable funds supplied to the loanable funds market at any given level of disposable income.
C)how the quantity of loanable funds demanded changes when wealth changes.
D)the quantity of loanable funds demanded at any given level of disposable income.
E)the quantity of loanable funds demanded at any given level of the real interest rate.

Question 62

Tech Corp is considering purchasing a new technology that will increase productivity by twenty per cent.If Tech Corp decides to make this investment at the going real interest rate,then

A)the demand for loanable funds increases.
B)the supply of loanable funds increases.
C)the quantity of loanable funds demanded increases.
D)saving increases.
E)Tech Corp's profits will decline.

Question 63

The demand for loanable funds

A)decreases in an expansion and increases in a recession.
B)increases in an expansion and decreases in a recession.
C)increases if wealth increases.
D)increases if population growth declines.
E)increases if the expected rate of profit decreases.

Question 64

When the expected profit ________,investment demand ________ and the demand for loanable funds curve shifts ________.

A)rises;increases;leftward
B)falls;decreases;rightward
C)rises;decreases;rightward
D)falls;decreases;leftward
E)falls;increases;rightward

Question 65

In a business cycle recession,which of the following occurs?

A)The quantity of investment demanded increases and there is a movement down along the demand for loanable funds curve but no shift in the curve.
B)The quantity of investment demanded decreases and there is a rightward shift of the demand for loanable funds curve.
C)The quantity of investment demanded decreases and there is a movement up along the demand for loanable funds curve but no shift in the curve.
D)Investment demand increases and the demand for loanable funds curve shifts rightward.
E)Investment demand decreases and the demand for loanable funds curve shifts leftward.

Question 66

The demand for loanable funds curve shows the relationship between the quantity of loanable funds demanded and

A)depreciation.
B)the capital stock.
C)the real interest rate.
D)the expected rate of profit.
E)the price level.

Question 67

If the real interest rate falls,there is

A)an upward movement along the demand for loanable funds curve.
B)a rightward shift of the demand for loanable funds curve.
C)a downward movement along the demand for loanable funds curve.
D)a leftward shift of the demand for loanable funds curve.
E)a leftward shift of the supply of loanable funds curve.

Question 68

In the figure above,the rightward shift from the demand for loanable funds curve DLF₁ to the demand for loanable funds curve DLF₂,could be the result of

A)a rise in the interest rate.
B)a fall in the interest rate.
C)a decrease in expected profit.
D)an increase in expected profit.
E)an increase in wealth.

Question 69

The demand for loanable funds curve slopes downward because the

A)expected rate of profit is related positively to the real interest rate.
B)higher the real interest rate,the lower the cost of investment.
C)expected rate of profit is factor that "rewards" firms for their investment.
D)real interest rate is the opportunity cost of investment.
E)price of bonds and stocks is not related to the real interest rate.

Question 70

If firms became more optimistic about the future of the economy,which of the following occurs?

A)Saving decreases,and the supply of loanable funds curve shifts leftward.
B)Investment demand decreases,and the demand for loanable funds curve shifts leftward.
C)Investment demand increases,and the demand for loanable funds curve shifts rightward.
D)The quantity of investment demanded decreases,and there is a movement up along the demand for loanable funds curve.
E)The quantity of investment demanded increases,and there is a movement down along the demand for loanable funds curve.

Question 71

The demand for loanable funds curve shifts in response to changes in

A)the amount of household savings.
B)wealth.
C)expected future disposable income.
D)the real interest rate.
E)expected profits.

Question 72

The supply of loanable funds is from

A)households and firms.
B)households and the government if it has a budget surplus.
C)households and the government if it has a budget deficit.
D)firms and the government if it has a budget surplus.
E)firms and the government if it has a budget deficit.

Question 73

Which of the following decreases the demand for loanable funds and shifts the demand for loanable funds curve leftward?

A)The real interest rate rises.
B)An economy experiences a rapid increase in population.
C)Technology that increases productivity is introduced.
D)Wealth decreases.
E)The economy experiences a recession.

Question 74

If the real interest rate rises,

A)the demand for loanable funds curve shifts rightward.
B)the quantity of loanable funds demanded decreases.
C)the demand for loanable funds curve shifts leftward.
D)the quantity of loanable funds demanded increases.
E)there is movement down along the demand for loanable funds curve.

Question 75

As the economy enters a strong expansion,then firms' demand for loanable funds

A)increases because the real interest rate rises.
B)increases because the nominal interest rate rises.
C)increases because expected profit increases.
D)decreases because the nominal interest rate falls.
E)decreases because expected profit decreases.

Question 76

The quantity of loanable funds demanded increases if the real interest rate falls,all other things remaining the same,because the real interest rate

A)affects the supply of saving which,in turn,determines the quantity of investment.
B)affects the quantity of saving supplied.
C)is not related to the price of bonds and stocks.
D)is the opportunity cost of investment.
E)determines the cost of living.

Question 77

In the figure above,the leftward shift from the demand for loanable funds curve DLF₁ to the demand for loanable funds curve DLF₃,could be the result of

A)an increase in the population.
B)a rise in the interest rate.
C)a fall in the interest rate.
D)a decrease in expected profit.
E)an advancement in technology.

Question 78

In the figure above,the shift from DLF₁ to DLF₂ could result from

A)the economy entering a strong expansion.
B)the economy entering a recession.
C)a decrease in the real interest rate.
D)an increase in a government budget surplus.
E)an increase in the nominal interest rate.

Question 79

During a recession,firms' expected profit from investment ________ so the demand for loanable funds curve ________.

A)rises;shifts rightward
B)falls;does not shift
C)falls;shifts leftward
D)rises;shifts leftward
E)falls;shifts rightward

Question 80

In the figure above,the leftward shift from the demand for loanable funds curve DLF₁ to the demand for loanable funds curve DLF₃,could be the result of

A)a government budget surplus.
B)the economy entering an expansion.
C)an increase in interest rates during an economic expansion.
D)the economy entering a recession.
E)a decrease in interest rates during an economic recession.