Deck 10: Finance, Saving, and Investment

Question 1

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

A) Saving; depreciation
B) Saving; investment
C) Depreciation; investment
D) Time; depreciation
E) Investment; saving

Answer 1

C

Question 2

On January 1, 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) $40,000 of depreciation.
C) an increase of new capital by $10,000.
D) an increase of net investment of $35,000.
E) a change in total financial capital of $15,000.

Answer 2

A

Question 3

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

A) $2,000 billion.
B) $2,500 billion.
C) $3,600 billion.
D) $4,100 billion.
E) $2,100 billion.

Answer 3

A

Question 4

The total amount spent on new capital goods is called

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

Question 5

Financial capital

A) is accumulated investment.
B) is another name for the machines and tools that businesses buy.
C) is independent of physical capital.
D) depends on saving and borrowing decisions.
E) depreciates each year.

Question 6

An example of financial capital is

A) machines.
B) buildings.
C) computers.
D) bonds.
E) the talents of a highly paid movie star.

Question 7

Which of the following statements is correct?

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

Question 8

Which of the following is correct?

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

Question 9

The total amount spent to buy new physical capital and replace old capital is referred to as

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

Question 10

Economists use the word "capital" to mean

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

Question 11

Financial capital is used to help finance

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

Question 12

Federal Express's purchase of trucks and planes

A) are financial capital.
B) include depreciation.
C) is an example of physical capital.
D) creates wealth.
E) reflect capital gains.

Question 13

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

A) net investment; gross investment
B) investment; depreciation
C) depreciation; net investment
D) investment; saving
E) gross investment; net investment

Question 14

Gross investment equals

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

Question 15

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) 13
C) 7
D) 27
E) 30

Question 16

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

A) physical capital.
B) financial capital.
C) government capital.
D) human capital.
E) business capital.

Question 17

Net investment is

A) the same as gross investment.
B) the same as depreciation.
C) gross investment minus depreciation.
D) gross investment plus depreciation.
E) the same as wealth.

Question 18

The distinction between physical and financial capital is that

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

Question 19

Net investment equals

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

Question 20

Net investment equals

A) gross financial capital minus stock dividends.
B) depreciation plus gross investment.
C) gross investment minus interest payments.
D) gross investment minus depreciation.
E) depreciation minus gross investment.

Question 21

During 2009, a country's total purchases of newly produced capital goods are $1,000 billion, the country issues $750 billion of stock certificates, and there is $200 billion of depreciation.Net investment in this country equals

A) $800 billion.
B) $1,550 billion.
C) $1,000 billion.
D) $1,750 billion.
E) $550 billion.

Question 22

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

A) net investment is positive and saving is negative.
B) the economy's capital stock decreases.
C) net investment is positive and saving is positive.
D) net investment is negative and saving is negative.
E) net investment must equal saving.

Question 23

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

Question 24

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) 20
B) 30
C) 27
D) 33
E) 10

Question 25

Wealth is to ________ as capital stock is to ________.

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

Question 26

During 2009, 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 2009, at the end of 2009 Barbara's wealth was

A) $2,000.
B) $4,000.
C) $5,000.
D) $6,000.
E) $60,000.

Question 27

At the beginning of the year, AAA-1 Towing owns trucks and buildings for 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) $20,000.
C) $280,000.
D) -$30,000.
E) $250,000.

Question 28

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

Question 29

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

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

Question 30

Economists use the term wealth to mean

A) the same thing as income.
B) what a person earns.
C) what a person owns.
D) the amount of income that is spent and not saved.
E) a person's investment.

Question 31

On January 1, 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) net investment of $10,000.
B) an increase in financial capital of $65,000.
C) a decrease in financial capital of $15,000.
D) depreciation of $15,000.
E) gross investment of $50,000.

Question 32

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

Question 33

A household increases its wealth by

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

Question 34

The Zonamo company produces waste disposal machines and sells them to militaries 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 equaled ________ and net investment equaled ________.

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

Question 35

Which of the following equals the change in an economy's capital stock from one period to the next?

A) depreciation
B) gross investment
C) net investment
D) wealth
E) stock

Question 36

The local Allied Moving 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 summarizes Allied Moving Company's investment?

A) Allied Moving Company made no capital investment during the year.
B) Allied Moving Company made no gross investment during the year.
C) Allied Moving Company made no net investment during the year.
D) Allied Moving Company made net investment of $150,000 during the year.
E) Allied Moving Company made gross investment of $250,000 during the year.

Question 37

Wealth is

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

Question 38

At the beginning of the year, AAA-1 Towing owns trucks and buildings for 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) $970,000.
B) $1,250,000.
C) $950,000.
D) $1,280,000.
E) $1,020,000.

Question 39

U.S.capital at the end of 2010 equals U.S.capital at the beginning of 2010 plus

A) nothing, because capital can't change in just one year.
B) gross investment during 2010.
C) gross investment during 2010 minus net investment in 2010.
D) net investment during 2010.
E) depreciation during 2010 minus gross investment during 2010.

Question 40

The difference between the amount of capital at the beginning of a year and the amount of capital at the end of the year is equal to

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

Question 41

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 42

During 2009, a country's income was $6.0 trillion, its consumption was $5.5 trillion, and its wealth at the beginning of 2009 was $30.0 trillion.The country's wealth at the end of 2009 was

A) $30.0 trillion.
B) $30.5 trillion.
C) $35.5 trillion.
D) $36.0 trillion.
E) $6.0 trillion.

Question 43

Which of the following formulas is correct?

A) Net investment = gross investment + depreciation
B) Net investment = gross investment + capital
C) Net investment = gross investment - depreciation
D) Net investment = gross investment - saving
E) Net investment = gross investment - wealth

Question 44

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

A) a stock.
B) a bond.
C) a certificate of deposit.
D) depreciation.
E) physical capital.

Question 45

Lulu purchased a security that promises to pay $50 twice a year from January 15, 2009 to January 15, 2013 and then pay $1,000 on January 15, 2013.The security is a debt to the company that issued it.The security is a

A) depreciating asset.
B) bond.
C) share of stock.
D) physical capital.
E) net investment to the company that issued it.

Question 46

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

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

Question 47

A distinction between stocks and bonds is that

A) bonds can be traded many times in the bond market, while stocks are non-transferable.
B) 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.
C) bonds cannot be sold to anyone other than the company that issued it while stocks can be resold to anyone.
D) stocks represent ownership claims to the company and bonds do not.
E) bonds must be held for a fixed number of years whereas stocks can be bought and sold at any time.

Question 48

What do Fannie Mae and Freddie Mac have in common?

A) They are both government-sponsored mortgage lenders.
B) They are both investment banks.
C) They are both pension funds.
D) Both firms went out of business in the 2008 financial crisis.
E) Both firms issue bonds on behalf of the government.

Question 49

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

Question 50

A stockholder ________ an owner of the firm and a bondholder ________ an owner of the firm.

A) is; is
B) is; is not
C) is not; is
D) is not; is not
E) might be; is not

Question 51

Which of the following represents partial ownership of a firm?

A) stocks
B) bonds
C) short-term securities
D) loans
E) commodities

Question 52

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

A) a stock.
B) a bond.
C) net investment.
D) depreciation.
E) gross investment.

Question 53

Investment banks differ from commercial banks in the fact that

A) investment banks help other financial institutions and governments engage in financial markets while commercial banks work with individuals.
B) investment banks work only with wealthy customers while commercial banks work only with private firms.
C) commercial banks service the needs of local governments while investment banks work with the federal government.
D) commercial banks issue stocks and bonds while investment banks do not.
E) commercial banks sell stocks on behalf of their customers while investment banks just finance loans.

Question 54

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

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

Question 55

Which of the following is NOT an example of physical capital?

A) a building
B) a bond
C) a dump truck
D) a lawn mower
E) a computer

Question 56

A share of stock is a

A) promise to pay specified sums of money on specified dates.
B) certificate of ownership and claim to the profits made by a firm.
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) form of investment in physical capital.

Question 57

The decrease in the value of the capital that results from its use and obsolescence is

A) appreciation.
B) deconstruction.
C) depreciation.
D) gross investment.
E) net investment.

Question 58

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 4000 shares of stock in Google

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

Question 59

Intel's capital at the end of the year equals Intel's capital at the beginning of the year

A) minus its stock dividends.
B) plus net investment.
C) minus depreciation.
D) plus gross investment.
E) plus depreciation.

Question 60

Which of the following are typically financed in the loan market?
I) a mortgage for a house
Ii) credit card balances
Iii) the purchase of a share of stock in a corporation.

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

Question 61

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

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

Question 62

One type of demander in a financial market

A) wants funds to purchase financial capital.
B) wants funds to purchase physical capital.
C) lends funds to purchase financial capital.
D) lends funds to purchase physical capital.
E) wants physical capital in order to purchase financial capital.

Question 63

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

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

Question 64

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

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

Question 65

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

A) increases because profit expectations will increase.
B) decreases due to lower profit expectations.
C) increases due to increases in the nominal interest rate.
D) decreases due to decreases in the nominal interest rate.
E) increases due to increases in the real interest rate.

Question 66

In the loanable funds market, demanders of funds are ________ and suppliers of funds are ________.

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

Question 67

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

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

Question 68

In 2009, which of the following events described the demand for loanable funds?
I) The real interest rate declined and positively affected the quantity of loanable funds demanded.
Ii) Firms increased their investment demand.
Iii) Firms' profit expectations negatively affected the demand for loanable funds.

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

Question 69

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

Question 70

Which of the following is NOT a financial institution?

A) an insurance company
B) a pension fund
C) Freddie Mac
D) a commercial bank
E) None of the above is correct because they are all financial institutions.

Question 71

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

A) 8 percent
B) 10 percent
C) 4 percent
D) 80 percent
E) None of the above are correct.

Question 72

The demand for loanable funds

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

Question 73

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

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

Question 74

An increase in the quantity of loanable funds demanded occurs when

A) the real interest rate falls.
B) the real interest rate rises.
C) the supply of loanable funds decreases.
D) the expected profit rises.
E) wealth decreases.

Question 75

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

A) Mary buying stocks for her retirement portfolio
B) George purchasing United States savings bonds for his son's college fund
C) Scott purchasing a rookie-year baseball card for last year's World Series MVP
D) Brian, owner of Bryan Games, purchasing computers to enhance the production of games
E) Mark buying rare gold coins

Question 76

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

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

Question 77

When a student uses a credit card to buy an iPod, the student is

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

Question 78

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

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

Question 79

Ford Motor Corporation is considering purchasing new technology that will increase productivity by twenty percent.If Ford Motor Corporation decides to make this investment at the going real interest rate, then

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

Question 80

Other things remaining the same, the ________ the real interest rate, the ________.

A) lower; greater the quantity of loanable funds demanded
B) lower; greater the demand for loanable funds
C) higher; greater the quantity of loanable funds demanded
D) higher; greater the demand for loanable funds
E) lower; greater the quantity of loanable funds supplied