MCQ Quiz
Question 1
What is referred to as an increase in the stock of capital during a year?
Depreciation
Obsolescence
Investment
Consumption
C
Correct Answer: Investment
Investment is the increase in the stock of capital during a year.
Question 2
Which of the following is also known as capital formation?
Depreciation
Capital Loss
Obsolescence
Investment
D
Correct Answer: Investment
Investment is also known as capital formation.
Question 3
What does gross investment include?
Only additional assets
Only replacement assets
Additional assets and replacement assets
Total depreciation
C
Correct Answer: Additional assets and replacement assets
Gross Investment includes both additional assets and replacement assets.
Question 4
Net investment is calculated by subtracting which of the following from gross investment?
Obsolescence
Investment
Depreciation
Capital formation
C
Correct Answer: Depreciation
Net Investment = Gross Investment - Depreciation.
Question 5
Which type of investment leads to a rise in production capacity?
Inventory Investment
Gross Investment
Depreciation
Net Investment
D
Correct Answer: Net Investment
Net Investment, which represents additional capital, leads to a rise in production capacity.
Question 6
What is the decrease in the value of an asset due to wear and tear called?
Obsolescence
Capital Loss
Depreciation
Investment
C
Correct Answer: Depreciation
Depreciation refers to the decrease in the value of an asset due to normal wear and tear.
Question 7
A fall in the market value of fixed assets due to a change in technology is known as:
Depreciation
Unexpected Obsolescence
Expected Obsolescence
Capital Loss
C
Correct Answer: Expected Obsolescence
Expected Obsolescence is the fall in market value of fixed assets due to a change in technology or change in demand.
Question 8
A fall in the market value of fixed assets due to natural calamities is termed as:
Depreciation
Expected Obsolescence
Obsolescence
Capital Loss
D
Correct Answer: Capital Loss
A fall in market value due to natural calamities is considered Capital Loss, not depreciation.
Question 9
Which of the following is also referred to as the consumption of fixed capital?
Investment
Obsolescence
Depreciation
Net Investment
C
Correct Answer: Depreciation
Depreciation is also known as the consumption of fixed capital (assets).
Question 10
The primary purpose of a depreciation reserve fund is for:
Increasing production capacity
Replacing fixed assets
Investing in new inventory
Paying interest on loans
B
Correct Answer: Replacing fixed assets
A depreciation reserve fund is made for the replacement of fixed assets.
Question 11
Which of the following is an example of fixed investment?
Purchase of raw materials
Purchase of machinery for a factory
Increase in unsold stock of goods
Money deposited in a bank account
B
Correct Answer: Purchase of machinery for a factory
Investment in purchasing fixed assets for business, like machinery, is called fixed investment.
Question 12
Which of the following is an example of inventory investment?
Purchase of a new delivery vehicle
Construction of a new factory building
Increase in the stock of finished goods
Purchase of shares in another company
C
Correct Answer: Increase in the stock of finished goods
Inventory Investment includes investment in the stock of finished goods.
Question 13
What is the relationship between gross investment, net investment, and depreciation?
Gross Investment = Net Investment + Depreciation
Net Investment = Gross Investment + Depreciation
Depreciation = Net Investment + Gross Investment
Gross Investment - Net Investment - Depreciation = 0
A
Correct Answer: Gross Investment = Net Investment + Depreciation
The formula is Gross Investment = Net Investment + Depreciation.
Question 14
If gross investment is ₹100 and depreciation is ₹20, what is the net investment?
₹120
₹80
₹5
₹2000
B
Correct Answer: ₹80
Net Investment = Gross Investment - Depreciation = ₹100 - ₹20 = ₹80.
Question 15
Obsolescence leads to a fall in the value of:
Inventory
Fixed Assets
Raw Materials
Finished Goods
B
Correct Answer: Fixed Assets
Obsolescence means a fall in the value of fixed assets.
Question 16
Which of the following would be considered a capital good?
Raw cotton for a textile mill
A car purchased by a household
Machinery used in a factory for production
Bread purchased by a consumer
C
Correct Answer: Machinery used in a factory for production
Capital goods are repeatedly used in the process of production. Machinery in a factory fits this definition.
Question 17
The formula to calculate depreciation is
Net Investment Less Gross Investment
Net Investment Add Gross Investment
Gross Investment Less Net Investment
Gross Investment Add Net Investment
C
Correct Answer: Gross Investment Less Net Investment
Depreciation = Gross Investment Less Net Investment
Question 18
How does fixed investment generally affect the GDP of a country?
It leads to a fall in GDP.
It causes recession.
It raises production capacity and can lead to a rise in GDP.
It only affects inventory levels.
C
Correct Answer: It raises production capacity and can lead to a rise in GDP.
Fixed Investment raises production capacity, which can lead to a rise in the GDP of the country.
Question 19
Which of the following is not a cause of depreciation?
Wear and tear
Accidental damage
Unexpected increase in demand
Expected obsolescence
C
Correct Answer: Unexpected increase in demand
Causes of depreciation include wear and tear, normal accidents, and expected obsolescence, but not an unexpected increase in demand.
Question 20
If a company buys new machinery worth ₹50,000 and during the year ₹10,000 worth of old machinery becomes unusable, the gross investment is:
₹40,000
₹60,000
₹50,000
₹10,000
C
Correct Answer: ₹50,000
Gross investment is the total addition to capital stock before accounting for depreciation or replacement. Therefore, the gross investment is the value of the new machinery purchased, which is ₹50,000
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