A level Investment Quiz 1

15 Questions

Quiz Description

In this quiz, we shall be moving forward into the study of Investment. We will be looking at some exciting concepts such as the Marginal Efficiency of Investment (MEI), the accelerator theory of investment, gross investment, and so on. You are going to master all of these with the aid of the powerful questions that are found in this quiz.

Investment refers to the value of the fixed capital assets produced in an economy over a given period of time. The primary purpose of investment is to generate income or satisfaction. A very solid example of investment is choosing to pursue education in order to acquire skills that will be later used in the generation of income. Investments also come with their risks. For example, there is a probability of you investing in a company and it ends up going bankrupt, or a project that fails to come to pass. This is where the difference between savings and investment comes in. In savings, there are little or no risks involved as compared to investment. Nevertheless, investments are the potential for long-term returns.

This economics quiz is here to assist you in your preparation for the examinations. Do you have what it takes to answer this quiz correctly? Find out by taking the quiz. Good luck. 

1:

  Which three of the following are accurate descriptions of investment expenditure in the UK? 

a) Investment is a flow concept, as it involves a rate of change
b) Investment is a stock concept, as it refers to a total value of capital
c) Investment contributes about 13% of UK aggregate demand
d) Investment contributes about 60% of UK aggregate demand
 e) Investment contributes to both demand and supply aspects of the  economy; in the latter case influencing real output per unit of factor  input


Correct
  • 1:
    b), c) and d)
  • 2:
    a), b) and c)
  • 3:
    a), c) and e)
  • 4:
    b), d) and e)
2:

  Which two of the following are likely to increase investment expenditure? 

a) A rise in the rate of interest
b) A fall in the rate of interest
c) More favourable business expectations and less uncertainty
d) Less favourable business expectations and more uncertainty
e) Higher initial capital outlays on projects


Correct
  • 1:
    a) and b)
  • 2:
    b) and c)
  • 3:
    b) and d)
  • 4:
    c) and d)
3:

  Which two of the following are likely to reduce investment expenditure? 

a) Lower initial capital outlays on projects
b) A rise in the rate of interest
c) A fall in the rate of interest
d) More favourable business expectations and less uncertainty
e) Less favourable business expectations and more uncertainty


Correct
  • 1:
    b) and d)
  • 2:
    b) and e)
  • 3:
    a) and b)
  • 4:
    c) and d)
4:

Which two of the following would shift the ‘Marginal Efficiency of Investment’ (MEI) schedule to the right? 

a) A fall in expected annual returns on projects
b) A rise in expected annual returns on projects
c) A rise in the supply price of projects
d) A fall in the supply price of projects
e) A rise in the rate of interest


Correct
  • 1:
    b) and d)
  • 2:
    d) and e)
  • 3:
    a) and e)
  • 4:
    b) and c)
5:

Which two of the following are characteristic of the ‘Accelerator Theory’ of investment? 

a) Relates gross investment to total output in a given year
b) Relates net investment to the rate of change of output
c) Relates net investment to total output in a given year
d) Involves a constant capital/output ratio to be applied when output rises above the full capacity level
e) Involves a variable capital/output ratio to be applied when output rises below the full capacity level


Correct
  • 1:
    a) and c)
  • 2:
    b) and c)
  • 3:
    a) and d)
  • 4:
    b) and d)
6:

For the following five questions, match each description to the appropriate theory of investment.  
The suggestion that the growth of output beyond ‘full capacity’ can have a quantifiable impact on net investment.


Correct
  • 1:
    Capital Stock Adjustment Model
  • 2:
    Marginal Efficiency of Investment (MEI)
  • 3:
    Accelerator Theory
  • 4:
    ‘Stop-go’ Public Policies
7:

Gross investment is seen as depending on last year’s level of output and last year’s capital stock.


Correct
  • 1:
    Levels of Profitability
  • 2:
    Marginal Efficiency of Investment (MEI)
  • 3:
    Nature of the Financial System
  • 4:
    Capital Stock Adjustment Model
8:

Identifies the rate of discount which equates the  present value of the expected returns on a project to the initial  capital outlay required to fund that project.


Correct
  • 1:
    Nature of the Financial System
  • 2:
    Marginal Efficiency of Investment (MEI)
  • 3:
    ‘Stop-go’ Public Policies
  • 4:
    Levels of Profitability
9:

Greater availability of the firm’s own internally  generated funds is seen as reducing the cost and lowering the risk of  investment.


Correct
  • 1:
    Marginal Efficiency of Investment (MEI)
  • 2:
    Levels of Profitability
  • 3:
    ‘Stop-go’ Public Policies
  • 4:
    Accelerator Theory
10:

UK banks are often criticised for ‘short-termism’ in their approach to lending.


Correct
  • 1:
    Nature of the Financial System
  • 2:
    Accelerator Theory
  • 3:
    Capital Stock Adjustment Model
  • 4:
    ‘Stop-go’ public policies
11:

  Gross  investment over-estimates the change in the stock of capital or  inventories in the year since it does not take into account the  depreciation of those assets.


Correct
  • 1:
    True
  • 2:
    False
  • 3:
    -
  • 4:
    -
12:

A less optimistic business environment will shift the  ‘Marginal Efficiency of Investment’ (MEI) schedule above and to the  right, reducing investment at any given rate of interest


Correct
  • 1:
    True
  • 2:
    False
  • 3:
    -
  • 4:
    -
13:

The ‘Capital Stock Adjustment Model’ suggests that  investment is positively related to the expected level of output and  negatively related to the existing level of capital stock.


Correct
  • 1:
    True
  • 2:
    False
  • 3:
    -
  • 4:
    -
14:

As well as raising the level of investment, raising  the efficiency with which any given amount of investment is utilised  will also be important to those interested in ‘supply-side’ policies.


Correct
  • 1:
    True
  • 2:
    False
  • 3:
    -
  • 4:
    -
15:

A rise in output of £50m for an economy with a  capital/output ratio of 5 and operating below full capacity will, via  the ‘Accelerator Theory’, raise net investment by £250m.


Correct
  • 1:
    True
  • 2:
    False
  • 3:
    -
  • 4:
    -

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A level Investment Quiz 1
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