Q: Which formula correctly calculates net investment?

$$\text{Net Investment} = \text{Gross Investment} - \text{Depreciation}$$

Question 1

Which of the following best describes the difference between final goods and intermediate goods in the calculation of GDP?

Accepted Answer

Final goods are purchased by the final user and counted in GDP, while intermediate goods are used as components in the production of final goods and not counted separately.

Question 2

Suppose a country produces $$500 million worth of final goods and 200 $$million worth of intermediate goods in a year. What is the country's GDP for that year?

Accepted Answer

$$500$$ million

Question 3

Which formula correctly calculates net investment?

Accepted Answer

$$	ext{Net Investment} = 	ext{Gross Investment} - 	ext{Depreciation}$$

Question 4

A financial institution is considered insolvent when:

Accepted Answer

Its net worth is negative, meaning the market value of what it has borrowed exceeds what it has lent.

Question 5

If the nominal interest rate is $$6\%$$ and the inflation rate is $$2\%$$, what is the real interest rate?

Accepted Answer

$$4\%$$

Question 6

Which of the following is NOT a function of money?

Accepted Answer

Means of production

Question 7

A government budget deficit typically leads to which effect in the loanable funds market?

Accepted Answer

Increase in the demand for loanable funds, raising the real interest rate and crowding out private investment

Question 8

Which equation represents the present value of a future sum of money $$FV$$ received in $$n$$ years at an annual interest rate $$r$$?

Accepted Answer

$$PV = FV / (1 + r)^n$$

Question 9

Which of the following best describes the crowding out effect?

Accepted Answer

Government budget deficit raises the real interest rate and decreases private investment.

Question 10

If the Fed conducts an open market purchase of government securities, what is the likely immediate effect on the monetary base?

Accepted Answer

The monetary base increases.

Question 11

Which of the following would most likely increase the supply of loanable funds?

Accepted Answer

A government budget surplus

Question 12

Which financial institution primarily uses pension contributions to buy bonds and stocks?

Accepted Answer

Pension funds

Question 13

If the velocity of circulation increases while the quantity of money remains constant, what is the likely effect on the price level according to the quantity theory of money?

Accepted Answer

The price level increases.

Question 14

Which of the following is a plausible reason for a household to increase its demand for money?

Accepted Answer

An increase in expected future income

Question 15

A bondholder is entitled to:

Accepted Answer

Specified payments on specified dates as promised by the bond

Question 16

Which of the following is NOT a component of the monetary base?

Accepted Answer

Government securities held by the Fed

Question 17

If a country's GDP increases from $$1$$ trillion to $$1.1$$ trillion in one year, what is the annual GDP growth rate?

Accepted Answer

$$10\%$$

Question 18

Which of the following best explains why rising incomes and rising value of production go together?

Accepted Answer

Because higher incomes allow people to buy more goods and services, increasing production.

Question 19

Which of the following would most likely cause an increase in the demand for loanable funds?

Accepted Answer

An increase in expected profit from investment

Question 20

According to Keynesian economics, which policy tools are considered essential for maintaining low inflation and full employment?

Accepted Answer

Both fiscal and monetary policy

Macroeconomics Study Notes: GDP, Financial Markets, Money, and Inflation

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