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In economic theory, capital goods are defined as goods that are used up entirely within a single production cycle.
Answer: False
In economic theory, capital goods are defined as durable assets utilized in the production of other goods and services, rather than being consumed entirely within a single production cycle.
Capital equipment is a term exclusively used for large-scale industrial machinery.
Answer: False
The term 'capital equipment' refers broadly to significant, durable assets used in production, not exclusively to large-scale industrial machinery.
Capital goods are primarily intended for direct consumption by individuals.
Answer: False
Capital goods are intended for use in the production of other goods and services, whereas consumer goods are intended for direct consumption by individuals.
Immaterial capital goods are physical assets like tools and machinery.
Answer: False
Immaterial capital goods are non-physical assets, such as intellectual property, distinct from physical assets like tools and machinery.
Intangible assets like intellectual property cannot function as capital goods.
Answer: False
Intangible assets, such as intellectual property, can function as capital goods when they are essential for production, require investment, and are subject to depreciation or amortization.
Capital goods are durable items used in the production of other goods or services.
Answer: True
Capital goods are defined as durable produced goods utilized as productive inputs for the further production of other goods and services.
Intermediate goods are consumed within a single production cycle.
Answer: True
Intermediate goods, such as raw materials or components, are consumed, incorporated, or transformed into the final output within a single production cycle.
The lifecycle of a capital good includes stages like commissioning and maintenance.
Answer: True
The typical lifecycle of a capital good encompasses stages such as procurement, manufacturing, commissioning, operation, maintenance, and eventual decommissioning.
According to the provided economic definition, what are capital goods?
Answer: Durable goods used as inputs for producing other goods and services.
Capital goods are defined as durable produced assets employed as productive inputs for the creation of other goods and services.
What distinguishes capital goods from intermediate goods?
Answer: Capital goods provide services over multiple cycles, while intermediate goods are used up in one cycle.
Capital goods are durable and used repeatedly, whereas intermediate goods are consumed or transformed within a single production cycle.
Which of the following best describes 'capital equipment' as mentioned in the text?
Answer: Significant, durable items like machinery used by organizations.
Capital equipment refers to significant, durable assets, such as machinery, employed by organizations in production processes.
What is the main distinction between capital goods and consumer goods?
Answer: Capital goods are used to make other goods/services; consumer goods are for direct consumption.
The primary distinction lies in their purpose: capital goods facilitate the production of other goods and services, while consumer goods are for direct consumption.
Immaterial capital goods are best described as:
Answer: Assets that are not physical but take the form of intellectual property.
Immaterial capital goods are non-physical assets, such as intellectual property, distinct from physical assets.
How do intangible assets like intellectual property function as capital goods?
Answer: They are essential for production, require investment, and can depreciate.
Intangible assets, like intellectual property, function as capital goods when they are essential for production, require investment, and are subject to depreciation or amortization.
A nation's capital stock includes only its physical buildings and equipment from the current year.
Answer: False
A nation's capital stock encompasses all physical buildings and equipment, as well as software and inventories, accumulated over time, not solely from the current year.
The capital stock is considered homogeneous because it consists of identical units of machinery.
Answer: False
The capital stock is inherently heterogeneous, comprising a diverse array of assets, rather than being homogeneous or consisting solely of identical units of machinery.
The creation of capital goods does not contribute to the overall capital stock.
Answer: False
The creation and production of new capital goods directly contribute to the expansion and maintenance of the overall capital stock.
The Cambridge capital controversy centered on whether capital goods could be aggregated.
Answer: True
The Cambridge capital controversy primarily centered on the theoretical and practical challenges of aggregating heterogeneous capital goods for measurement purposes.
The term 'heterogeneous' implies that the capital stock is uniform and standardized.
Answer: False
The term 'heterogeneous' implies that the capital stock is composed of a diverse range of assets that differ in form and function, rather than being uniform or standardized.
Which of the following is typically included in a nation's capital stock at the macroeconomic level?
Answer: All buildings, equipment, software, and inventories from the current year.
A nation's capital stock at the macroeconomic level encompasses all accumulated buildings, equipment, software, and inventories.
The capital stock is described as 'heterogeneous' because:
Answer: It includes a wide variety of assets differing in form and function.
The capital stock is described as heterogeneous because it comprises a diverse array of assets that differ in form and function.
Which statement accurately reflects the relationship between capital goods and the capital stock?
Answer: Newly produced capital goods are added to the capital stock, replacing depreciated assets.
The production of new capital goods augments the capital stock, replacing depreciated assets and enabling future production.
A major debate in economic thought concerning capital has focused on:
Answer: The precise definition, measurement, and role of capital.
A significant and enduring debate within economic thought centers on the precise definition, aggregate measurement, and role of capital.
The core issue in the Cambridge capital controversy was:
Answer: Whether capital goods could be validly aggregated for measurement.
The Cambridge capital controversy centered on the theoretical and practical challenges of aggregating heterogeneous capital goods for measurement purposes.
The term 'heterogeneous' applied to the capital stock implies that it:
Answer: Is diverse and includes many different types of assets.
The term 'heterogeneous' implies that the capital stock is composed of a diverse range of assets that differ in form and function.
Classical economics identifies capital, labor, and land as the sole primary factors of production.
Answer: True
Classical economic doctrine identifies capital, labor, and land (natural resources) as the fundamental primary factors of production.
In standard economic production functions, capital is typically represented by the variable 'L'.
Answer: False
In standard economic production functions, capital is conventionally represented by the variable 'K', not 'L', which typically denotes labor.
Neoclassical economics considers capital as a factor of production separate from land and labor.
Answer: True
Neoclassical economic frameworks consistently treat capital as a distinct primary factor of production, separate from land and labor.
Adam Smith's 'fixed capital' includes raw materials used in production.
Answer: False
Adam Smith differentiated between fixed capital (e.g., machinery, buildings) and circulating capital (e.g., raw materials, consumables), with raw materials falling under circulating capital.
In classical economics, investment means producing goods for immediate consumption.
Answer: False
In classical economics, investment refers to the production of capital goods for future use, not the production of goods for immediate consumption.
In classical economics, which three factors are identified as primary inputs for generating output?
Answer: Capital, labor, and land (natural resources).
Classical economics identifies capital, labor, and land as the fundamental primary factors of production.
How is capital typically represented in standard economic production functions?
Answer: As the variable 'K' representing capital.
In standard economic production functions, capital is conventionally represented by the variable 'K'.
How do classical and neoclassical economists primarily categorize capital?
Answer: As a primary factor of production, distinct from labor and land.
Classical and neoclassical economics classify capital as a primary factor of production, alongside land and labor.
Adam Smith differentiated between fixed capital and circulating capital. Which category do raw materials fall into?
Answer: Circulating capital, as they are consumed during production.
Adam Smith categorized raw materials as circulating capital because they are consumed during the production process.
In classical economics, 'investment' or 'capital accumulation' means:
Answer: Producing goods that are used to create capital goods for the future.
In classical economics, investment or capital accumulation signifies the production of capital goods intended for future production.
Marxian critique views capital solely as physical machinery and buildings.
Answer: False
The Marxian critique of political economy views capital not merely as physical machinery and buildings, but fundamentally as a social relation and a process of value accumulation.
In Marxian analysis, 'constant capital' refers to the investment in labor inputs (wages).
Answer: False
In Marxian analysis, 'constant capital' refers to the value invested in capital goods (machinery, raw materials), distinct from 'variable capital,' which represents investment in labor inputs (wages).
Variable capital is termed 'variable' because it is believed to create new value beyond its own cost.
Answer: True
Variable capital is designated as 'variable' in Marxian theory because it represents the investment in labor power, which is believed to be the sole source of surplus value, creating new value beyond its own cost.
Fictitious capital in Marxian theory includes physical assets like factories and machinery.
Answer: False
In Marxian theory, 'fictitious capital' refers to intangible assets such as stocks and bonds, not physical assets like factories and machinery.
Surplus value in Marxian economics arises from the appreciation of fixed assets.
Answer: False
In Marxian economics, surplus value originates from the labor power creating value beyond its own cost, not from the appreciation of fixed assets.
Marxian analysis views variable capital as the source of surplus-value.
Answer: True
In Marxian analysis, variable capital, representing investment in labor power, is considered the unique source of surplus value, generating new value beyond its own cost.
In Marxian critique, capital is viewed primarily as:
Answer: A social relation emphasizing power dynamics.
The Marxian critique views capital fundamentally as a social relation, emphasizing power dynamics and value accumulation processes.
According to Marxian analysis, what does 'constant capital' represent?
Answer: Value invested in capital goods like machinery and buildings.
Constant capital, in Marxian economics, denotes the value invested in capital goods such as machinery and structures.
Why is 'variable capital' termed 'variable' in Marxian theory?
Answer: Because it is believed to be the only factor creating new value beyond its cost.
Variable capital is termed 'variable' because it represents investment in labor power, which is theorized to be the sole source of surplus value.
Which of the following is an example of 'fictitious capital' in Marxian theory?
Answer: A company's stock certificates.
Fictitious capital, in Marxian theory, refers to intangible representations of value, such as stocks and bonds, rather than physical assets.
In Marxian economics, 'surplus value' originates from:
Answer: The value created by labor-power exceeding its cost.
In Marxian economics, surplus value originates from the labor power creating value beyond its own cost.
The concept of capital has recently expanded to include human capital and knowledge capital.
Answer: True
Contemporary economic discourse has broadened the conceptualization of capital to encompass intangible assets such as human capital (skills, education) and knowledge capital (accumulated information and expertise).
Financial capital is defined by its historical investment cost rather than market perception.
Answer: False
The market value of financial capital is determined by market perception of expected revenues and risk, rather than solely by its historical investment cost.
Social capital is fully captured by a company's brand value.
Answer: False
Social capital, referring to the value derived from networks of relationships and trust, is a broader concept than a company's brand value, though brand value may partially reflect it.
Human capital, in technical economics, focuses solely on individual human talent.
Answer: False
In technical economics, 'human capital' encompasses more than just individual talent; it broadly includes skills, education, and health, representing an investment in human potential.
Natural capital includes only geological resources like minerals.
Answer: False
Natural capital encompasses a wide range of natural resources, including geological resources, but also extends to ecosystems, air, water, and living organisms.
Human development theory breaks human capital into social, individual, and instructional components.
Answer: True
Human development theory delineates human capital into three primary components: social capital (networks and trust), individual capital (inherent talents and skills), and instructional capital (transferable knowledge).
Culinary capital relates to the knowledge of financial markets.
Answer: False
Culinary capital pertains to knowledge and expertise related to food production, consumption, and distribution, not to the understanding of financial markets.
Public capital exclusively refers to government-owned financial assets.
Answer: False
Public capital broadly refers to government-owned infrastructure that supports production, such as highways and utilities, not exclusively financial assets.
Ecosystem services are man-made goods provided by factories.
Answer: False
Ecosystem services are natural processes and benefits provided by natural capital, such as clean air and water, not man-made goods produced by factories.
Recent economic thought has broadened the concept of capital to include:
Answer: Human capital (skills, education) and knowledge capital.
Contemporary economic thought has expanded the concept of capital to include intangible assets such as human capital and knowledge capital.
How is the market value of financial capital determined, according to the text?
Answer: By market perception of expected revenues and risk.
The market value of financial capital is determined by market perception of expected revenues and risk, rather than solely by its historical investment cost.
What does social capital refer to in the context of the economy?
Answer: The value derived from trusting relationships between individuals.
Social capital refers to the value inherent in trusting relationships among individuals within an economy.
In technical economics, 'human capital' is used to define 'balanced growth' by:
Answer: Improving human capital alongside economic capital.
In technical economics, human capital is utilized to define 'balanced growth,' advocating for concurrent enhancement of human and economic capital.
What constitutes 'natural or ecological capital'?
Answer: The world's stock of natural resources, including air, water, and living organisms.
Natural or ecological capital comprises the global stock of natural resources, including geological formations, soils, air, water, and all living organisms.
Which of the following is NOT considered one of the three elements of human capital in human development theory?
Answer: Financial capital (stocks and bonds).
Human development theory breaks human capital into social, individual, and instructional components, excluding financial capital.
What does 'culinary capital' refer to?
Answer: Knowledge related to food production, consumption, and distribution.
Culinary capital pertains to knowledge and expertise related to food production, consumption, and distribution.
Public capital primarily consists of:
Answer: Government-owned infrastructure supporting production.
Public capital broadly refers to government-owned infrastructure that supports production, such as highways and utilities.
What are 'ecosystem services' in the context of natural capital?
Answer: Free goods and services provided by natural resources like clean air and water.
Ecosystem services represent the invaluable goods and services freely provided by natural capital assets, such as clean air and water.
There has never been significant debate among economists regarding the definition or measurement of capital.
Answer: False
Significant and enduring debates have persisted among economists concerning the precise definition, measurement, and theoretical role of capital.
High costs of capital goods generally lower barriers to entry for new companies.
Answer: False
High costs associated with capital goods typically erect significant barriers to entry for new companies, potentially limiting market competition.
Capital spending by a manufacturer typically indicates anticipation of declining demand.
Answer: False
Substantial capital spending by a manufacturer generally signifies an expectation of future growth or sustained demand, rather than an anticipation of decline.
The trade in capital goods plays a minor role in international trade theory and economic development.
Answer: False
The trade in capital goods is considered a crucial element in international trade theory and plays a significant role in fostering economic development.
Henry George considered stocks and bonds as true capital, reflecting community wealth.
Answer: False
Henry George posited that financial instruments like stocks and bonds do not constitute true capital but rather represent claims on wealth, and their fluctuations do not reflect genuine community wealth.
Werner Sombart and Max Weber identified double-entry bookkeeping as foundational to the concept of capital.
Answer: True
Werner Sombart and Max Weber identified the development of double-entry bookkeeping as a critical innovation foundational to the modern concept of capital.
Eugen Boehm von Bawerk defined capital intensity by the 'roundaboutness' of production.
Answer: True
Eugen Boehm von Bawerk conceptualized capital intensity through the degree of 'roundaboutness' in production processes, referring to the stages of production involving intermediate goods.
John Maynard Keynes viewed saving and investment as identical actions.
Answer: False
John Maynard Keynes distinguished between saving (non-consumption of income) and investment (expenditure on capital goods for future production), viewing them as distinct actions.
Future consumption levels are independent of the current output of the capital-goods sector.
Answer: False
Future consumption levels are directly dependent on the current output of the capital-goods sector, as this output determines the future capital stock available for production.
Depreciation allowance treats capital goods like intermediate goods by accounting for them as business expenses.
Answer: True
A depreciation allowance, which accounts for the wear and tear of capital goods, functions similarly to the treatment of intermediate goods in that both are treated as business expenses.
The 'visible hand' in economics refers to the self-regulating nature of markets.
Answer: False
The 'invisible hand' refers to market self-regulation, while the 'visible hand' typically denotes conscious direction or intervention in economic activities.
Rent seeking involves creating new wealth through innovation.
Answer: False
Rent seeking involves manipulating policy or economic conditions to increase profits without creating new wealth, contrasting with wealth creation through innovation.
Capital deepening refers to a decrease in capital per worker.
Answer: False
Capital deepening refers to an increase in the amount of capital per worker or per unit of labor, indicating greater capital intensity.
Venture capital is typically provided for established companies with stable profits.
Answer: False
Venture capital is typically provided to startups and early-stage companies with high growth potential, rather than established firms with stable profits.
Veblen goods are characterized by increased demand as their price rises due to exclusivity.
Answer: True
Veblen goods are a category of luxury items for which demand increases as price rises, driven by perceived status or exclusivity.
Giffen goods are a common type of inferior good where demand decreases as price increases.
Answer: False
Giffen goods are a rare type of inferior good for which demand increases as price increases, defying the law of demand.
Capital goods are a key element in enabling technical innovation.
Answer: True
Capital goods are integral to technical innovation, as the development and production of new technologies and processes rely on the capital goods sector to manufacture the requisite machinery and equipment.
The value of financial capital is primarily based on the original amount invested.
Answer: False
The market value of financial capital is determined by market perception of expected revenues and risk, rather than solely by its original investment cost.
How does the high cost of capital goods potentially affect market competition?
Answer: It creates significant barriers to entry for new firms.
The substantial financial outlay required for capital goods can act as a significant barrier to entry, potentially limiting competition in certain industries.
What might significant capital spending by a manufacturer suggest?
Answer: The company anticipates future growth or steady demand.
Substantial capital spending by a manufacturer generally signifies an expectation of future growth or sustained demand for its products.
The trade in capital goods is considered important in international trade theory because:
Answer: It is crucial for economic development and dynamic relationships.
The trade in capital goods is recognized as crucial for economic development and dynamic international economic relationships.
Henry George's view on financial instruments like stocks and bonds was that they:
Answer: Are not true capital but represent power to appropriate earnings.
Henry George contended that financial instruments like stocks and bonds are not authentic capital but represent power to appropriate earnings.
According to Sombart and Weber, the concept of capital is fundamentally linked to which innovation?
Answer: Double-entry bookkeeping.
Werner Sombart and Max Weber identified the development of double-entry bookkeeping as a critical innovation foundational to the modern concept of capital.
Eugen Boehm von Bawerk measured capital intensity by the:
Answer: "Roundaboutness" of production processes.
Eugen Boehm von Bawerk defined capital intensity by the 'roundaboutness' of production processes, referring to the stages of production involving intermediate goods.
John Maynard Keynes distinguished saving from investment by stating that investment specifically refers to:
Answer: Spending on capital goods used for future production.
John Maynard Keynes defined investment as expenditure on capital goods used for future production, distinguishing it from saving.
The future level of consumption is directly dependent on:
Answer: The current output of the capital-goods sector.
The trajectory of future consumption is contingent upon the current output of the capital-goods sector, which determines the future capital stock.
A 'depreciation allowance' functions similarly to how intermediate goods are treated because:
Answer: Both are accounted for as business expenses.
A depreciation allowance, reflecting the gradual loss of value of a capital good, is treated similarly to intermediate goods in that it is accounted for as a business expense.
What does 'rent seeking' involve?
Answer: Manipulating policy to increase profits without creating wealth.
Rent seeking is defined as the practice of manipulating public policy or economic conditions to secure economic gain, typically without generating new wealth.
The concept of 'capital deepening' refers to:
Answer: An increase in the amount of capital per worker.
Capital deepening signifies an increase in the quantity of capital available per worker or per unit of labor, generally leading to enhanced productivity and output.
Venture capital is a type of financing typically aimed at:
Answer: Startups and early-stage companies with high growth potential.
Venture capital is a form of financing specifically directed towards startups and early-stage companies possessing high growth potential.
Which type of good sees increased demand as its price rises, due to status or exclusivity?
Answer: Veblen goods
Veblen goods are luxury items for which demand increases as price rises, driven by perceived status or exclusivity.
Giffen goods are a rare exception to the law of demand where:
Answer: Demand increases as price increases, due to income effect outweighing substitution effect.
Giffen goods are a rare class of inferior goods exhibiting increased demand as price rises, a phenomenon occurring when the income effect supersedes the substitution effect.