Question

[Part A: Choose the best answer among the choices.) 1) What is the difference between gross investment and net investment? A) Net investment gross investment minus taxes B) Net investment gross investment minus nct factor payments C) Net investment gross investment minus inventory accumulation D) Net investment gross investment minus depreciation 2) A technological improvement will A) decrease the desired capital stock. B) increase the desired capital stock C) have no effect on the desired capital stock. D) have the same effect on the desired capital stock as an increase in corporate taxes. 3) Calculate the user cost of capital of a machine that costs $10,000 and depreciates at a rate of 25%, when the expected real interest rate is 5% A) $300 B) $1.000 C) S3000 D) $10,000 4) The desired level of the capital stock will increase if the A) user cost of capital increases B) expected future marginal product of capital increases. C) effective tax rate increases D) price of capital increases 5) Calculate the tax-adjusted user cost of capital of a machine that costs $10,000 and depreciates at a rate of 10%, when the real interest rate is 3% and the tax rate on revenue is 5% A) $1238 B) S1300 C) S1368 D) $1800 6) At the start of the year, your firm's capital stock equaled SIO million, and at the end of the year it equaled S15 million. The average depreciation rate on your capital stock is 20%. Net investment during the year equaled A) S3 million B) S4 million C) SS million D) $7 million units of 7) With no inflation and a nominal interest rate of 4%, you can trade of one unit of current consumption for future consumption. A) 0.96 B) 1.04 C) 04 D)-04

Answer 1

1.Gross investment refers to the total expenditure on buying capital goods over a specified period of time without considering depreciation.

Net investment refers to the gross investment minus depreciation on existing capital.

Hence option d is correct.