Question

Indicate whether each of the following is an example of investment spending, investing in financial assets, or investing in physical assets. Rupert Moneybucks buys 100 shares of existing Coca-Cola stock. Rhonda Moviestar spends $10 million to buy a mansion built in the 1970s. Ronald Basketballstar spends $10 million to build a new mansion with a view of the Pacific Ocean. Rawlings builds a new plant to make catcher’s mitts. Russia buys $100 million in U.S. government bonds. Match each person, company, and country to the kind of action they have taken. Investment spending Investing in financial assets Investing in physical assets

Answer 1

Answer:

Ronald basketball star and Rawlings engaged in investment spending.

Rupert money buckets and Russia engaged in investing in financial assets

Rhonda moviestar invested in physical assets.

Explanation:

Each investments by these entities have been grouped under 1, 2 and 3.

1. Investment Spending

- Ronald Basketballstar spends $10 million to build a new mansion with a view of the Pacific Ocean

- Rawlings builds a new plant to make catcher’s mitts

2. Investing in Financial Assets

- Rupert Moneybuckets buys 100 shares of existing Coca-Cola stock

- Russia buys $100 million in U.S. government bonds

3. Investing in Physical Assets

- Rhonda Moviestar spends $10 million to buy a mansion built in the 1970s.

Answer 2

Answer:

Rupert Moneybucks buys 100 shares of existing Coca-Cola stock.

• RUPERT IS INVESTING IN A FINANCIAL ASSET, SINCE STOCKS ARE FINANCIAL ASSETS. IT DOESN'T ADD ANY PHYSICAL ASSETS TO THE ECONOMY OR PHYSICAL CAPITAL EITHER.

Rhonda Moviestar spends $10 million to buy a mansion built in the 1970s.

• RHONDA IS INVESTING IN PHYSICAL ASSETS BECAUSE SHE IS PURCHASING A HOUSE THAT WAS BUILT IN THE 1970s. IF SHE HAD PURCHASED A NEWLY BUILT HOUSE IT WOULD HAVE BEEN CONSIDERED INVESTMENT SPENDING.

Ronald Basketballstar spends $10 million to build a new mansion with a view of the Pacific Ocean.

• RONALD IS CARRYING OUT INVESTMENT SPENDING SINCE HE IS BUILDING A NEW MANSION, UNLIKE RHONDA THAT PURCHASED AN ALREADY BUILT MANSION.

Rawlings builds a new plant to make catcher’s mitts.

• RAWLINGS IS ENGAGING IN INVESTMENT SPENDING BECAUSE THEY ARE BUILDING A NEW PLANT WHICH WILL INCREASE THE COUNTRY'S STOCK OF PHYSICAL CAPITAL.

Russia buys $100 million in U.S. government bonds.

• RUSSIA IS INVESTING IN A FINANCIAL ASSET SINCE IT IS PURCHASING A TITLE THAT ENABLES THEM TO CLAIM FUTURE INCOME. IT DOESN'T ADD ANY PHYSICAL ASSETS TO THE ECONOMY OR PHYSICAL CAPITAL EITHER.