Investment Theories and Applications
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Questions and Answers

What is referred to as the purchase of new capital used to produce goods and services?

  • Depreciation
  • Financial investment
  • Net investment
  • Real investment (correct)

Which type of investment leads to an increase in production, employment, and income?

  • Depreciation
  • Net investment
  • Financial investment
  • Real investment (correct)

What does financial investment involve?

  • Purchase of new capital goods
  • Buying of existing shares and bonds (correct)
  • Creation of new capital assets
  • Reduction of stock of capital

What is the relation between gross investment and depreciation in net investment?

<p>Net investment = gross investment - depreciation (C)</p> Signup and view all the answers

What does it imply if depreciation exceeds gross investment?

<p>Economy's stock of capital is shrinking (D)</p> Signup and view all the answers

Which of the following statements is correct?

<p>Investment increases the stock of capital (C)</p> Signup and view all the answers

Study Notes

Investment in Economics

  • Investment refers to the purchase of new capital goods used to produce goods and services, increasing the physical stock of capital.
  • Real investment involves the addition of new capital, leading to increased production, employment, income, and buying of capital goods.

Types of Investment

  • Financial investment involves buying existing shares and bonds, which is a form of savings and a change of ownership of assets, not creating new capital assets.
  • Financial investment is distinct from real investment, which involves the creation of new capital goods.

Investment vs. Depreciation

  • Investment increases the stock of capital, while depreciation reduces it.
  • Gross investment is the total amount spent on acquiring new capital goods.

Net Investment

  • Net investment is the difference between gross investment and depreciation (net investment = gross investment - depreciation).
  • A negative net investment implies that the economy's stock of capital is shrinking, as depreciation exceeds gross investment.

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Understand the different types of investments, including real investment and financial investment, and their impact on the economy.

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