Answer True or False for each of the following 3 points each

Answer True or False for each of the following.        (3 points each)

When you buy 100 shares of IBM it is an investment according to economists.

If consumers have few durable goods, this will lower the C line, all other things equal.

A corporation is a legal person separate from the owners.

Investment is more stable than consumption.

Consumption is about 2/3 of overall spending each year in the US.

Net investment is gross investment minus depreciation.

High interest rates discourage business investment, all other things equal.

A bond holder is a part owner of a company.

High consumer debt would lower the C line, all other things equal.

Income is the largest determinant of consumption.

Solution

Part 1

According to the economists, investment implies expenditure incurred on productive assets or the assets that will assist in production of a good or service.

Purchase of 100 shares of IBM is merely a transfer of ownership from one person to another person with respect to such shares and does not result in acquisition of any productive asset.

So, it will not be an investment according to the economists.

Thus, the given statement is False.

Part 2

C line represents sum total of autonomous consumption and induced consumption.

Purchase of fewer durable goods by consumers will lower the induced consumption which in result will lower the C line.

Thus, the given statement is True.

Part 3

A corporation is regarded as a seperate legal entity altogether seperated from its owners. It acts as a seperate legal person who can sue and be sued.

Claims can be made against the corporation inindividual capacity.

Thus, the given statement is True.

Part 4

Investment tends to depend on profit-expectations and future economic conditions. It is also of an optional nature.

On the other hand, consumption is generally of non-optional nature and, in fact, greater proportion of consumption expenditure incurred by households is generally fixed in nature.

Due to these attributes, consumption tends to be more stable than investment.

Thus, the given statement is False.