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Instructor: Jen Dinsmore Hanson
Multiple Choice Questions
1. A business firm with limited liability would be a A. proprietorship. B. partnership. C. corporation.
2. Which one of these would not constitute investment? A. Someone buys 100 shares of Exxon-Mobil B. Exxon-Mobil purchases 20 new oil rigs C. General Motors builds a new assembly plant D. Macy’s remodels its stores
3. To build up our capital we need to A. save more and consume more. B. save more and consume less. C. save less and consume less. D. save less and consume more.
4. The expected rate of profit is found by A. multiplying expected profits by money invested. B. dividing expected profits by money invested. C. dividing money invested by expected profits. D. none of these.
5. Which statement is true? A. Stockholders and bondholders are both owners of a corporation. B. Neither stockholders nor bondholders are owners of a corporation. C. Only stockholders are owners of a corporation. D. Only bondholders are owners of a corporation.
6. Which statement is false? A. Most corporations are small firms. B. Most firms in the United States are proprietorships. C. Preferred stockholders rarely have a voice in running corporations. D. None of these statements is false.
7. The “reserve army of the unemployed” was a term coined by A. Adam Smith B. John Maynard Keynes C. Thorstein Veblen D. Karl Marx E. Milton Friedman
8. Investment may be thought of in each of these terms except A. resources. B. money spent. C. percent of GDP. D. imports vs. exports.
9. “Benedict Arnold Corporations” are loyal to A. their customers. B. America. C. their employees. D. the profits of their stockholders.
10. Which of the following is not a characteristic of sole proprietorship? A. Ease of organization ion B. Simplicity of control C. Limited availability of capital D. Relatively free from regulation E. Limited liability
11. Which one of these is an investment as counted in GDP? A. The purchase of Rockefeller Center by Mitsubishi. B. An increase in Intel’s inventory. C. American Airline’s purchase of Trans World Airline. D. Individual’s purchase of General Motors stock through a broker.
12. The marginal efficiency of capital is a term that was coined by A. Karl Marx. B. John Maynard Keynes. C. Ambrose Bierce. D. Milton Friedman. E. John Stuart Mill.
13. Which one is not an investment? A. Mr. Retchnick buys a new home. B. Mrs. Kanaddle hopper purchases 500 shares of Dupont. C. Mr. Klopman adds a new wing to his factory. D. The Blattzspiel Brewery purchases 100 new vats.
14. As the interest rate rises a business firm would A. become less inclined to invest. B. become more inclined to invest. C. continue to invest at the same level.
15. Suppose you could invest $100,000 in inventory, which you expect to be able to sell at $140,000. If you expect your total selling costs to be $20,000, your expected profit rate would be ______ percent. A. 10 B. 20 C. 40 D. 100 E. 140
16. Suppose you could invest $1 million in inventory, which you expect to be able to sell at $1,500,000. If you expect your total selling costs to be $200,000, your expected profit rate would be _______ percent. A. 10 B. 20 C. 30 D. 40 E. 50
17. Which statement is true? A. The expected rate of profit is very high during depressions. B. The best environment for most investment projects is a high rate of interest and a low marginal efficiency of capital. C. The higher the marginal efficiency of capital, the more likely an investment project will be carried out. D. None is true.
18. Last year, the XYZ manufacturing corporation issued $10 million in new common stock, and used $8 million of the proceeds to build a new factory. The other $2 million was used to repay bank loans, and replenish XYZ’s deposits at its banks. As a result, GDP went up by A. the $8 million spent for the factory. B. the $10 million in a new common stock. C. $12 million. D. $18 million. E. $20 million.
19. If a corporation goes bankrupt, its stockholders will lose A. only the value of their stock. B. the value of their stock plus any other business assets which they may own. C. the value of their stock plus any other personal assets which they may own. D. the value of their stock plus any other business and personal assets which they may own.
20. In the United States most business firms are A. corporations. B. proprietorships. C. partnerships. D. cooperatives.
21. Which of the following is not a part of gross private domestic investment? A. Residential construction. B. Shopping centers. C. Changes in business inventories. D. Corporate stock purchased from a broker. E. Factories.
22. Whenever the level of depreciation exceeds the gross private domestic investment for the economy A. net investment is negative. B. net foreign investment is negative. C. real gross national product is falling. D. no conclusion can be made about any of these sectors of the economy. E. none of the above.
23. A business begins a year with 4,500 office machines and finishes the year with 5,500 machines while writing off the value of 750 machines as depreciation. What is the amount of net investment that this firm has undertaken during this time period? A. 1,000 machines B. 750 machines C. 250 machines D. 1,750 machines E. Impossible to calculate with the information given
24. Statement I. The typical corporation is a very small firm. Statement II. Nearly all large companies are corporations. A. Statement I is true and statement II is false. B. Statement II is true and statement I is false. C. Both statements are true. D. Both statements are false.
25. Statement I. Bondholders are owners of a corporation. Statement II. Common stockholders have voting control of a corporation. A. Statement I is true and statement II is false. B. Statement II is true and statement I is false. C. Both statements are true. D. Both statements are false.
26. During recessions, investment in plant and equipment most likely
A. goes up.
B. is steady.
C. goes down.
D. is negative.
27. When disposable income is 1,000, I is
28. When disposable income is 1,000, C + I is
29. When disposable income is 1,000, saving is
30. When savings is zero, I is
31. When disposable income is 2,000, I is A. 0. B. -400. C. 2,000. D. 400. E. 2,400.
32. When Savings is 400, I is A. 0. B. 200. C. 400. D. 2,400.
33. When disposable income is 2,000, C + I is A. 1,400. B. 2,000. C. 2,400. D. 2,800.
34. When disposable income is 2,000, saving is A. -100. B. 0. C. 100. D. 400.
35. When disposable income is 3,000, C + I is A. 400. B. 2,500. C. 2,900. D. 3,000.
36. When disposable income is 3,000, saving is A. 0. B. 200. C. 400. D. 500.
37. When disposable income is 4,000, C is A. 2,000. B. 3,000. C. 3,400. D. 4,000.
38. When disposable income is 4,000, C + I is A. 2,000. B. 3,000. C. 3,400. D. 4,000.
39. When disposable income is 4,000, saving is A. 200. B. 400. C. 600. D. 800. E. 1,000.
40. The MPC is A. .2. B. .3. C. .4. D. .5. E. .6.
41. The MPS is A. .2. B. .3. C. .4. D. .5. E. .6.
42. When disposable income is 2,000, the APC is A. .4. B. .5. C. .8. D. 1.0. E. 1.2.
43. When disposable income is 4,000, the APC is A. .25. B. .5. C. .75. D. 1.0. E. 1.25.
44. When disposable income is 4,000, the APS is A. .25. B. .5. C. .75. D. 1.0. E. 1.25.
45. All of the following are advantages of the proprietorship form of business except A. there are fewer legal complications than any other form of business. B. you are your own boss. C. a proprietor’s income is only taxed once. D. the proprietor can raise funds by issuing stock.
46. In communist countries such as North Korea and Cuba, investment is done A. entirely by the government. B. mostly by the government. C. about half by the government and half by private enterprise. D. mainly by private enterprise.
47. Statement I: In Western Europe and the United States, the corporation became the dominant form of business enterprise by the second half of the 19th century. Statement II: In the Islamic Middle East, the corporation first came into wide use in the latter part of the 18th century. A. Statement I is true and statement II is false. B. Statement II is true and statement I is false. C. Both statements are true. D. Both statements are false.
48. Double taxation is a disadvantage of the ___________ type of business firm. A. partnership B. proprietorship C. corporate D. farm
49. All of the following are true except A. the last to be paid off, whether the corporation does well or goes bankrupt, are the common stockholders. B. a key advantage of incorporating is limited liability. C. corporations account for about 50 percent of all business sales in the United States. D. corporations are controlled by the common stockholders.
50. Suppose you own $50,000 worth of personal property, $1,000 in government bonds, $500
in a savings account, and $20,000 of Walmart common stock. If Walmart goes bankrupt, the
most you could lose is
Short Answer Questions
1. When disposable income is 2,000, how much is C?
2. When disposable income is 2,000, how much is savings?
3. When disposable income is 2,000, how much is I?
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