31) During 2013, a country‘s total purchases of newly produced capital goods are $1,000
billion, the country issues $750 billion of stock certiicates, 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
32) 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) inancial investment.
E) wealth.
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
33) 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
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
11
34) The diference 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) inancial consumption.
E) depreciation.
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
35) U.S. capital at the end of 2012 equals U.S. capital at the beginning of 2012 plus
A) nothing, because capital can’t change in just one year.
B) gross investment during 2012.
C) gross investment during 2012 minus net investment in 2012.
D) net investment during 2012.
E) depreciation during 2012 minus gross investment during 2012.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
36) Wealth is to ________ as capital stock is to ________.
A) saving; investment
B) income; earnings
C) investment; saving
D) income; net investment
E) saving; depreciation
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
12
37) 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.
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
38) Wealth is
A) deined 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 inancial capital.
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
39) 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.
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
13
40) 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.
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
41) During this year, Barbara earned $60,000 as a inancial 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 was
A) $2,000.
B) $4,000.
C) $5,000.
D) $6,000.
E) $60,000.
Skill: Level 3: Using models
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
42) 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
14
43) 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 was
A) $30.0 trillion.
B) $30.5 trillion.
C) $35.5 trillion.
D) $36.0 trillion.
E) $6.0 trillion.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
44) To acquire inancial capital, a irm 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
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
45) A document that promises to pay speciied sums of money on speciied dates and is a
debt to the issuer is called
A) a stock.
B) a bond.
C) net investment.
D) depreciation.
E) gross investment.
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
15
46) When Bank of America inances 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
47) Which of the following are typically inanced in the loan market?
i. a mortgage for a house
iii. 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
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
48) Which of the following are typically inanced 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
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
16
49) Lulu purchased a security that promises to pay $50 twice a year from January 15, 2012
to January 15, 2016 and then pay $1,000 on January 15, 2016. 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
50) A share of stock is a
A) promise to pay speciied sums of money on speciied dates.
B) certiicate of ownership and claim to the proits made by a irm.
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.
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
51) A certiicate of ownership and claim to part of a irm’s proits is called
A) a stock.
B) a bond.
C) a certiicate of deposit.
D) depreciation.
E) physical capital.
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
17
52) Which of the following are typically inanced in a “stock market”?
i. shares sold by a irm to inance 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
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
53) Which of the following represents ownership of a irm?
A) stocks
B) bonds
C) short-term securities
D) loans
E) commodities
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
54) 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 ixed number of years whereas stocks can be bought and sold
at any time.
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
18
55) A stockholder ________ an owner of the irm, and a bondholder ________ an owner of the
irm.
A) is; is
B) is; is not
C) is not; is
D) is not; is not
E) might be; is not
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
56) Investment banks difer from commercial banks in the fact that
A) investment banks help other inancial institutions and governments engage in inancial
markets while commercial banks work with individuals.
B) investment banks work only with wealthy customers while commercial banks work only
with private irms.
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
inance loans.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
57) 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 irms went out of business in the 2008 inancial crisis.
E) Both irms issue bonds on behalf of the government.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
19
58) 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
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
59) 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.
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
60) 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
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Analytical thinking
20