Question

(15) All of the following would be considered capital goods, except o a dump truck. o a new factory o on-the-job training. All of the above are capital goods. (16) What are the sources of savings in the economy? Business savings and household savings Private savings by households, government savings, and savings by foreigners - The difference between income and spending of households The difference between income and spending of households and businesses (17) How is the level of investment related to the level of savings in the economy? The higher the level of savings, the higher the level of investment. The lower the level of savings, the higher the level of investment. The relationship depends on how firms behave. Investment depends on interest rates, not savings. (18) What is the effect on growth of eliminating trade barriers? Domestic producers are forced out of business, and growth slows. Domestic producers are forced to compete with importers, and productivity and growth increase. The domestic economy is unaffected. Consumers tend to substitute domestic goods for imports.

Answer 1

1. Capital goods are the goods which are used for a duration of generally more than a year. These help in production process of a company. Both Dump truck and factory are goods which helps in production in the factory. Thus, they are capital goods. Human capital which helps in production are also considered as capital goods. So, training provided to them on-the job will also be a part of capital goods.

Hence, the correct option will be D) All of the above are capital goods.

2. The income is saved usually by corporate houses in the form of retained earnings and income is also saved by households in the form of personal savings. Thus, sources of savings in an economy will be Business savings and Household savings.

The correct option will be A) Business and Household savings.

3. Investment is the part of the income of household which is invested in financial resources after consuming income for the general necessities of life. It is generally a part of household savings. Therefore, if there are less savings, then a larger amount will be left with the households to invest and vice versa. There is a negative relation between savings and investment.

The right option to choose is B) The lower the level of savings, the higher the level of investments.

4. Liberalization of domestic economy leads to elimination of global barriers and foreign companies may come and trade in domestic economies. This increase the threat of competition among domestic firms and will negatively motivate them to produce more and leads to growth.

The correct option here is B) Domestic producers are forced to compete with importers, and productivity and growth increase.