Question 1

Human capital is a type of social capital.

Accepted Answer

A) True 
 B)False

Question 2

Polar Water, a company that delivers bottled water, is considering three investment opportunities. The expected returns for each of the projects are as follows: buying a new delivery van, 12%; computer training for its office staff, 9%; and defensive driving training for its drivers, 8%. If the current interest rate is 7%, the firm should invest in

Accepted Answer

A)  only the purchase of a new delivery van. 
B)  the purchase of a new delivery van and computer training for its office staff. 
C)  all of the projects. 
D)  none of the projects. 
A)  only the purchase of a new delivery van. 
B)  the purchase of a new delivery van and computer training for its office staff. 
C)  all of the projects. 
D)  none of the projects.

Question 3

Payments for capital include interest and credit.

Accepted Answer

A) True 
 B)False

Question 4

China has invested heavily in turbine manufacturing and in 2009 had become the world's largest wind power market. Capital that provides services to the public, like energy derived from wind power, is known as

Accepted Answer

A)  intangible capital. 
B)  human capital. 
C)  tangible capital. 
D)  social capital. 
A)  intangible capital. 
B)  human capital. 
C)  tangible capital. 
D)  social capital.

Question 5

Firms will only invest if there are profits in their industry.

Accepted Answer

A) True 
 B)False

Question 6

Related to the Economics in Practice on page 235: In 2010, Tesla Motors decided to become a public company by offering shares of stock to the public on a stock exchange. Like most other firms, Tesla relied on ________ to manage the sales of stock from its Initial public offering.

Accepted Answer

A)  inside management 
B)  investment banks 
C)  its board of directors 
D)  the Federal Reserve 
A)  inside management 
B)  investment banks 
C)  its board of directors 
D)  the Federal Reserve

Question 7

You borrow $20,000 at an interest rate of 6% to open Candy Dan's, a gourmet sweet shop. If the return on your investment is ________, then you will earn an economic loss.

Accepted Answer

A)  less than 6% 
B)  exactly 6% 
C)  greater than 6% 
D)  It is indeterminate from the given information. 
A)  less than 6% 
B)  exactly 6% 
C)  greater than 6% 
D)  It is indeterminate from the given information.

Question 8

If future benefits are underestimated by a firm,

Accepted Answer

A)  the firm will invest too much in capital. 
B)  the firm will use only retained earnings to invest in capital. 
C)  the firm will invest too little in capital. 
D)  the firm will only sell bonds to invest in capital. 
A)  the firm will invest too much in capital. 
B)  the firm will use only retained earnings to invest in capital. 
C)  the firm will invest too little in capital. 
D)  the firm will only sell bonds to invest in capital.

Question 9

Refer to the data provided in Table 11.3 below to answer the following question(s).
Table 11.3
Project Total Investment Expected Rate of Return
(dollars) (percentage)
 $$\begin{array} { l l r } 
\text { New computer for sales staff } & \$ 250,000 & 11 \
\text { Remodel for distribution center } & \$ 200,000 & 9 \
\text { On-site day care center } & \$ 100,000 & 5 \
\text { Employee fitness center } & \$ 50,000 & 4
\end{array}$$
-Refer to Table 11.3. If the interest rate is 2.5%,Blackstar Drone Manufacturing should

Accepted Answer

A)  fund all of the projects. 
B)  not fund any of the projects. 
C)  fund only the employee fitness center. 
D)  fund all of the projects except for the employee fitness center. 
A)  fund all of the projects. 
B)  not fund any of the projects. 
C)  fund only the employee fitness center. 
D)  fund all of the projects except for the employee fitness center.

Question 10

A considerable amount of uncertainty is involved in making investment decisions.

Accepted Answer

A) True 
 B)False

Question 11

Suppose that the normal rate of return in the inkjet printer industry is 10% and the return being earned by firms in this industry equals exactly 5%. Which of the following is likely to follow from this scenario?

Accepted Answer

A)  Firms will collude to keep competition out. 
B)  New firms will want to enter the industry. 
C)  Firms will want to leave the industry. 
D)  The normal rate of return will fall to 5% in the long run. 
A)  Firms will collude to keep competition out. 
B)  New firms will want to enter the industry. 
C)  Firms will want to leave the industry. 
D)  The normal rate of return will fall to 5% in the long run.

Question 12

The present discounted value of R dollars to be paid in t years is

Accepted Answer

A)  the future market value of receiving R dollars in t years. 
B)  equal to R × t years. 
C)  the amount you have to put aside now if you want to ensure that you end up with R dollars t years from now. 
D)  the amount you will have to save in the future to allow you to consume R dollars today. 
A)  the future market value of receiving R dollars in t years. 
B)  equal to R × t years. 
C)  the amount you have to put aside now if you want to ensure that you end up with R dollars t years from now. 
D)  the amount you will have to save in the future to allow you to consume R dollars today.

Question 13

Assume that the current interest rate is 7%. You invest $10,000 of your own money in a restaurant that you own and operate. The normal return on this investment is

Accepted Answer

A)  $0, as you used your own money. 
B)  $700, as that is the interest forgone by not lending the money to someone else at a 7% interest rate. 
C)  $10,000, as that is the amount invested in the restaurant. 
D)  $10,700, the amount invested plus the interest charge on the investment. 
A)  $0, as you used your own money. 
B)  $700, as that is the interest forgone by not lending the money to someone else at a 7% interest rate. 
C)  $10,000, as that is the amount invested in the restaurant. 
D)  $10,700, the amount invested plus the interest charge on the investment.

Question 14

The level of household savings constrains firm investment.

Accepted Answer

A) True 
 B)False

Question 15

In general, a firm will be unlikely to invest as long as the

Accepted Answer

A)  interest rate is greater than the inflation rate. 
B)  firm has to borrow any money to make the investment. 
C)  profits realized from the investment are insufficient to cover the interest payments. 
D)  firm cannot sell bonds directly to the public and instead must borrow from a bank. 
A)  interest rate is greater than the inflation rate. 
B)  firm has to borrow any money to make the investment. 
C)  profits realized from the investment are insufficient to cover the interest payments. 
D)  firm cannot sell bonds directly to the public and instead must borrow from a bank.

Question 16

A firm's retaining of earnings is really equivalent to the firm

Accepted Answer

A)  lending money to households. 
B)  borrowing money from households. 
C)  decreasing the net worth of households. 
D)  decreasing its own net worth. 
A)  lending money to households. 
B)  borrowing money from households. 
C)  decreasing the net worth of households. 
D)  decreasing its own net worth.

Question 17

If Boeing decides to build a new plant using retained earnings,

Accepted Answer

A)  it does so only with the shareholders' explicit consent. 
B)  the total value of Boeing goes up. 
C)  the value of shares of Boeing held by stockholders goes up. 
D)  All of the above are correct. 
A)  it does so only with the shareholders' explicit consent. 
B)  the total value of Boeing goes up. 
C)  the value of shares of Boeing held by stockholders goes up. 
D)  All of the above are correct.

Question 18

Refer to the information provided in Figure 11.1 below to answer the question(s) that follow.   Figure 11.1
-Refer to Figure 11.1. If the market rate of interest is < 5%, this firm's investment will total

Accepted Answer

A)  $0. 
B)   $15,000. 
A)  $0. 
B)   $15,000.

Question 19

Related to the Economics in Practice on page 239: According to the Economics in Practice, there is evidence suggesting that parents who hold proportionately more equities in their investment portfolios have children

Accepted Answer

A)  who invest similarly. 
B)  who are generally less risk averse. 
C)  who are generally more risk averse. 
D)  choose to not invest at all. 
A)  who invest similarly. 
B)  who are generally less risk averse. 
C)  who are generally more risk averse. 
D)  choose to not invest at all.

Question 20

In economics, "investment" refers only to the creation of new capital.

Accepted Answer

A) True 
 B)False

Human capital is a type of social capital.

Payments for capital include interest and credit.

China has invested heavily in turbine manufacturing and in 2009 had become the world's largest wind power market. Capital that provides services to the public, like energy derived from wind power, is known as

Firms will only invest if there are profits in their industry.

Related to the Economics in Practice on page 235: In 2010, Tesla Motors decided to become a public company by offering shares of stock to the public on a stock exchange. Like most other firms, Tesla relied on ________ to manage the sales of stock from its Initial public offering.

You borrow $20,000 at an interest rate of 6% to open Candy Dan's, a gourmet sweet shop. If the return on your investment is ________, then you will earn an economic loss.

If future benefits are underestimated by a firm,

A considerable amount of uncertainty is involved in making investment decisions.

Suppose that the normal rate of return in the inkjet printer industry is 10% and the return being earned by firms in this industry equals exactly 5%. Which of the following is likely to follow from this scenario?

The present discounted value of R dollars to be paid in t years is

Assume that the current interest rate is 7%. You invest $10,000 of your own money in a restaurant that you own and operate. The normal return on this investment is

The level of household savings constrains firm investment.

In general, a firm will be unlikely to invest as long as the

A firm's retaining of earnings is really equivalent to the firm

If Boeing decides to build a new plant using retained earnings,

Refer to the information provided in Figure 11.1 below to answer the question(s) that follow. Figure 11.1 -Refer to Figure 11.1. If the market rate of interest is < 5%, this firm's investment will total

Related to the Economics in Practice on page 239: According to the Economics in Practice, there is evidence suggesting that parents who hold proportionately more equities in their investment portfolios have children

In economics, "investment" refers only to the creation of new capital.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

Exam 11: Input Demand: the Capital Market and the Investment Decision

Human capital is a type of social capital.

Payments for capital include interest and credit.

China has invested heavily in turbine manufacturing and in 2009 had become the world's largest wind power market. Capital that provides services to the public, like energy derived from wind power, is known as

Firms will only invest if there are profits in their industry.

Related to the Economics in Practice on page 235: In 2010, Tesla Motors decided to become a public company by offering shares of stock to the public on a stock exchange. Like most other firms, Tesla relied on ________ to manage the sales of stock from its Initial public offering.

You borrow $20,000 at an interest rate of 6% to open Candy Dan's, a gourmet sweet shop. If the return on your investment is ________, then you will earn an economic loss.

If future benefits are underestimated by a firm,

A considerable amount of uncertainty is involved in making investment decisions.

Suppose that the normal rate of return in the inkjet printer industry is 10% and the return being earned by firms in this industry equals exactly 5%. Which of the following is likely to follow from this scenario?

The present discounted value of R dollars to be paid in t years is

Assume that the current interest rate is 7%. You invest $10,000 of your own money in a restaurant that you own and operate. The normal return on this investment is

The level of household savings constrains firm investment.

In general, a firm will be unlikely to invest as long as the

A firm's retaining of earnings is really equivalent to the firm

If Boeing decides to build a new plant using retained earnings,

Refer to the information provided in Figure 11.1 below to answer the question(s) that follow. Figure 11.1 -Refer to Figure 11.1. If the market rate of interest is < 5%, this firm's investment will total

Related to the Economics in Practice on page 239: According to the Economics in Practice, there is evidence suggesting that parents who hold proportionately more equities in their investment portfolios have children

In economics, "investment" refers only to the creation of new capital.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters