Chapter 43
Investment Spending and Profit
MULTIPLE CHOICE
476. What is gross investment?
a. investment in additional buildings and equipment to expand the capital beyond the
present level.
b. investment in capital goods that have worn out or become obsolete.
c. the dollar value of worn-out plants and equipment.
d. the total value of all capital goods produced in a year.
477. What is net investment?
a. investment in additional buildings and equipment to expand the capital beyond the
present level.
b. investment in capital goods that have worn out or become obsolete.
c. the dollar value of worn-out plants and equipment.
d. the total value of all capital goods produced in a year.
478. What is replacement investment?
a. investment in additional buildings and equipment to expand the capital beyond the
present level.
b. investment in capital goods that have worn out or become obsolete.
c. the dollar value of worn-out plants and equipment.
d. the total value of all capital goods produced in a year.
479. What 2 things does the decision to invest require?
a. funds necessary to make the investment; the ability to claim depreciation for new plant
and equipment.
b. funds necessary to make the investment; the motivation to make the investment.
c. funds necessary to make the investment; a low interest rate to obtain these funds.
d. low capital gains tax; low interest rate.
480. What are the three sources of funds available to corporations for investment?
a. retained profits, borrowing from financial institutions, individual investors.
b. dividends, retained profits, individual investors.
c. borrowing from financial institutions, borrowing from the government, borrowing from
other firms.
d. borrowing from consumers, borrowing from financial institutions, borrowing from the
government.
481. Which of the following would provide funds for investment for Acme Corporation?
a. Sam receives 1000 shares of stock in Acme Corporation from his Aunt Lulu.
b. Acme Corporation issues 100,000 shares of new stock on July 1, 2008. Sam buys 1000
shares.
c. Donald Bigg, a major investor, buys 10,000 shares of stock from Leona Small, another
investor, who uses the funds to buy a retirement condo in Florida.
d. Acme Corporation declares a dividend of $1.25 per share.
482. Assume that gross investment is $1.6 trillion, and depreciation is $2.1 trillion. How much is
new net investment?
a. $0.4 trillion.
b. – $ 0.4 trillion.
c. $3.7 trillion.
d. $1.6 trillion.
483. Over the business cycle, investment spending tracks closely with
a. consumption
b. profit
c. corporate debt
d. unemployment
APPENDIX 43.1
The Stock Market and Investment
MULTIPLE CHOICE
484. If the objective is to buy a stock at a low price and sell it at a high price, when should a
savvy investor buy and sell?
a. buy at the top of the economic expansion and sell at the bottom of the recession.
b. buy at the bottom of the recession and sell at the top of the expansion.
c. buy at the bottom of the recession and sell at the bottom of the next recession.
d. buy at the top of the economic expansion and sell at the top of the next expansion.
485. Investing in the stock market
a. is safe and involves little risk.
b. is more risky if one buys stock in only 1 corporation.
c. is more risky if one buys a diverse set of stocks.
d. is safe as long as one sells out during a recession.