Question 1

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

Accepted Answer

Net investment is calculated as the difference between gross investment and depreciation. 
Gross investment = total purchases of newly produced capital goods 
= $1,000 billion 
Depreciation = $200 billion 
Net investment = Gross investment - Depreciation 
= $1,000 billion - $200 billion 
= $800 billion

Question 2

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

Accepted Answer

If a country's depreciation is greater than its gross investment, it means that the country is not investing enough to replace the capital stock that is wearing out. This results in a decrease in the country's capital stock, which is the physical and human assets used to produce goods and services. Therefore, option B is the correct answer.

Question 3

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

Accepted Answer

If capital gains are zero, the change in wealth is due to savings. Therefore, the wealth at the end of the year equals the wealth at the beginning of the year plus any savings made during the year.

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.

Accepted Answer

Starting with 20 mowers, 3 break and are not worth fixing, which leaves Bill with 20 - 3 = 17 mowers. Then, he buys 10 more mowers, so he ends up with 17 + 10 = 27 mowers.

Question 5

Wealth is to ________ as capital stock is to ________.

Accepted Answer

Wealth is accumulated savings, similar to how capital stock is accumulated investment.

Question 6

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

Accepted Answer

The answer of During 2009, Barbara earned $60,000 as a...

Question 7

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

Accepted Answer

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

Question 8

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

Accepted Answer

Wealth is the total value of assets owned by individuals, firms, and the government within a nation's borders. Assuming there are no capital gains, new wealth can only be generated through savings, which increases the stock of assets. Therefore, a nation's wealth at the start of a year is equal to its wealth at the start of the previous year plus the savings made during the year.

Question 9

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

Accepted Answer

Net investment is calculated as gross investment minus depreciation. Therefore, the change in the quantity of capital from one period to the next, which is the net investment, is equal to option A, net investment.

Question 10

Economists use the term wealth to mean

Accepted Answer

Economists use the term wealth to refer to what a person owns, such as assets, savings, and property. It is different from income, which refers to what a person earns on a regular basis.

Question 11

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

Accepted Answer

The value of the equipment fell by $10,000, but Rick bought $25,000 in new equipment. So the net investment is $25,000 - $10,000 = $15,000.

Question 12

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.

Accepted Answer

Net investment is calculated by subtracting the mowers that broke (3) from the mowers purchased (10), resulting in a net investment of 7 mowers.

Question 13

A household increases its wealth by

Accepted Answer

Saving is the only option that directly increases household wealth by accumulating financial assets or acquiring physical assets. The other options may have short-term benefits but do not lead to long-term wealth accumulation.

Question 14

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 ________.

Accepted Answer

Depreciation is calculated as the initial capital plus new investment minus the ending capital stock: $10 million + $15 million - $17 million = $8 million. Net investment is the change in capital stock: $17 million - $10 million = $7 million.

Question 15

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

Accepted Answer

Net investment is the difference between gross investment and depreciation. It represents the change in an economy's capital stock from one period to the next, as it is the amount of investment that adds to the existing capital stock after accounting for the capital that has worn out in the production process (depreciation). Options A, D, and E are not directly related to the change in capital stock.

Question 16

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?

Accepted Answer

Depreciation is not a cash outflow and does not represent a net investment in the company. The fact that Allied Moving Company ended the year with the same amount of capital as it started with suggests that any gross investment (capital expenditures) made during the year were offset by depreciation and other factors such as net income or dividends. Therefore, the company did not make a net investment during the year, and the correct statement is C, "Allied Moving Company made no net investment during the year."

Question 17

Wealth is

Accepted Answer

Wealth is the total value of all the assets, including finances, property, investments, and other possessions that a person owns. It is not just limited to the money in savings, income, or savings alone. Wealth also includes the value of an individual's non-financial possessions such as real estate, cars, land, and other assets.

Question 18

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

Accepted Answer

AAA-1 Towing started with $1 million in capital stock. They invested $250,000 to replace trucks worth $230,000 and cover $50,000 in depreciation. The net effect is a decrease of $30,000 ($230,000 - $250,000 + $50,000) in capital stock, resulting in $970,000 at the end of the year.

Question 19

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

Accepted Answer

Net investment during 2010 is the amount by which the capital stock increases, which is gross investment minus depreciation. Therefore, U.S. capital at the end of 2010 equals the capital at the beginning of 2010 plus net investment during 2010.

Question 20

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

Accepted Answer

Net investment is the difference between the capital at the beginning and the end of the year, accounting for depreciation.

Quiz 10: Finance, Saving, and Investment