Chapter 6
True or false? Education spending is officially classified as investment spending.
False
A corporation is controlled by its ______
common stockholders
Corporations are controlled by _____
common stockholders
The last to be paid off, whether the corporation does well or goes bankrupt, are the ______
common stockholders
gross domestic product is the sum of
consumption, gross investment, government purchases and net exports
net domestic product is the sum of
consumption, net investment, government purchases and net exports
A _____ is a legal person
corporation
Is a legal person, can sue and be sued
corporations
In Marx's terms the people who wait outside the factory gates for work are the _____
reserved army of the unemployed
The portion of profits not paid to the owners of the business
retained earnings
4 determinants of the level of investment
sales outlook capacity utilization rate interest rate expected rate of profit
Firms tend to invest when:
sales outlook is good, capacity utilization is high, interest rates are low, and their expected profit rate is high
True or false? Statement I: inventory computerization has tended to reduce inventory levels Statement II: inventory investment tends to rise during recessions
statement I is true statement II is false
owners of a corporation
stockholders
Karl Marx said that capital is produced by
the worker
A corporation's _______, or capitalization, consists of the total value of its stocks and bonds
total capital
most corporations are ______
very small
According to Karl Marx, capital was created by the _____ and expropriated by the _____
workers, capitalist
Corporations collect about _____ percent of all business receipts.
84
A corporation's capitalization is based on
- preferred stock - bonds - common stock
A partnership is owned by _____ people
2 or more
Theoretically, you would need an investment of about $______ to control a corporation that had $100 million in preferred stock, $50 million in common stock and $350 million in bonds
25 million
There are about _____ million business firms in the US
30
During severe recessions, our capacity utilization rate falls to around _____ percent
70
our capacity utilization rate is usually between
70 and 90
A corporation is owned by its ____ and its ___
Common and preferred stockholders
may vote on issues of concern to the corporation as well as on who gets to run the corporations
Common stockholders
NDP =
GDP - depreciation
Of the big three spending sectors of GDP, the least stable is _______
Investment
"Capital is created by labor but expropriated by the capitalist, the factory owner"
Marx
Das Kapital
Marx
True or false? In Middle-Easter Islamic countries, the typical partnership consisted of just two members, who pooled their resources for perhaps a single trade mission.
True
expected rate of profit =
___expected profit___ Money Invested
A business firm with one owner is _____
a proprietorship
The creditors of a corporation are mainly its _______
bondholders
lend money to a company and are therefore creditors rather than owners
bondholders
Gross investment - ______ = Net investment
depreciation
the tax-deductible funds that have been set aside to replace worn-out or obsolete plant and equipment
depreciation allowances
A key advantage of a partnership over a proprietorship is ______
division of responsibility
Inventory investment is _____
either positive or negative and very unstable
The expected profit rate is found by dividing ____ by _____
expected profits by amount invested
during bad recessions, investment in plant and equipment will
fall by around 15-20 percent
_____ (what your boss says you're earning) _____ (what you actually take home after taxes and other deductions
gross income, net income
Net investment =
gross investment - depreciation
Two main disadvantages of incorporating are ______
high corporate income taxes and the cost of incorporating
investment will be high when the capacity utilization rate is _____ and the interest rate is _____
high, low
Firms will most likely borrow money for investment when the expected profit rate is __________
higher than interest rate
Ownership of a corporation is based on whether you _____
hod stock in the company
the accumulation of knowledge and skills that make a worker productive
human capital
An investment will be undertaken if the expected profit rate is higher than the _____
interest rate
includes goods on store shelves waiting to be sold, finished goods in factory waiting to be shipped and even parts of a product ready to be assembled
inventory
the least stable for of investment is _____
inventory investment
Total investment is found by adding ____; _____; and _____
inventory investment, investment in plant and equipment, residential housing investment
Any new plant, equipment, additional inventory, computer software, or residential housing
investment
Which is the least stable? investment in plant & equipment investment in residential housing investment in inventory overall investment
investment in inventory
A key advantage of incorporating is _____
limited liability (perpetual life is also important)
Investment in plant and equipment is _____ stable than inventory investment
more
A partnership must have _____
more than one owner
During severe recessions, inventory investment is _______
negative
NDP
net domestic product
Gross investment minus depreciation equals
net investment
usually small, owned by two or more people
partnerships
A key disadvantage of incorporating is that you will have to _______
pay corporate income tax
receive a stipulated dividend provided there are any profits out of which to pay dividends
preferred stockholders
In the US investment is done mainly by ______
private enterprise
Owned by individuals and are almost always small businesses
proprietorships