What Is the Difference Between Economic and fiNancial Investments

question 347

Multiple Choice

What is the difference between economic and financial investments?

• A) Financial investments are sensitive to interest rates; economic investments are not.
• B) Economic investments add to the capital stock of an economy; financial investments do not.
• C) Economic investments are expressed in real (inflation-adjusted) terms; financial investments are expressed in nominal terms.
• D) Financial investments include all purchases undertaken with the expectation of financial gain; economic investments include only purchases of new capital goods.

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Definitions:

Variable Manufacturing Overhead

Costs of manufacturing that vary directly with the level of production, such as raw materials or labor costs.

Fixed Manufacturing Overhead

Costs associated with production that do not vary with the level of output, such as rent and salaries of managers.

Variable Overhead

Costs that change in proportion to the level of production or activity within a business.

Direct Materials

Raw materials directly used in the manufacturing of a product, which can be directly attributed to the finished product.