Lesson 2.2.3

2.2.3 Investment (I) Quiz: Pearson Edexcel Economics, Unit 2

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson 2.2.3, Investment (I): 20 multiple choice questions for the Pearson Edexcel Economics (9EC0), Unit 2: Theme 2: The UK economy – performance and policies, written with Revision Ninja.

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The 20 questions

  1. Total spending on capital goods before accounting for depreciation is called what?

    • Gross investment
    • Human capital
    • Net investment
    • Portfolio investment

  2. How is net investment calculated from gross investment?

    • Divided by depreciation
    • Minus depreciation
    • Plus depreciation
    • Times depreciation

  3. If gross investment is 200 billion and depreciation is 150 billion, what is net investment?

    • -50 billion
    • 200 billion
    • 350 billion
    • 50 billion

  4. What happens to capital stock when gross investment is less than depreciation?

    • It doubles
    • It shrinks
    • It stays constant
    • It expands

  5. Which economic concept explains how GDP growth stimulates firm investment?

    • Multiplier effect
    • Fisher effect
    • Accelerator effect
    • Crowding out effect

  6. What term did Keynes use for business confidence driving investment?

    • Creative destruction
    • Invisible hand
    • Moral hazard
    • Animal spirits

  7. How does a fall in interest rates affect planned business investment?

    • Has no effect
    • Decreases investment
    • Increases investment
    • Halts investment

  8. What happens to business investment when commercial banks restrict credit access?

    • Investment doubles
    • Investment falls
    • Investment rises
    • Investment remains constant

  9. What is most likely to increase capital investment by UK export firms?

    • Higher import tariffs
    • Lower export demand
    • Stronger pound sterling
    • Higher export demand

  10. How do government tax allowances on capital equipment affect business investment?

    • Investment remains unchanged
    • Investment ceases
    • Investment increases
    • Investment decreases

  11. Why is business investment generally more volatile than household spending?

    • Constant tax rates
    • Fluctuating expectations
    • Fixed depreciation rates
    • Stable interest rates

  12. A firm's investment project costs 1 million and yields a return of 100,000 a year. Ignoring depreciation and risk, what is the approximate rate of return?

    • 1%
    • 10%
    • 0.1%
    • 100%

  13. Which component accounts for the largest proportion of UK Aggregate Demand?

    • Consumer spending
    • Government spending
    • Investment
    • Net exports

  14. According to the accelerator theory, investment depends directly on changes in which variable?

    • Exchange rate level
    • Economic growth rate
    • Interest rate level
    • Inflation rate level

  15. Which factor measures the opportunity cost of using retained profit for capital investment?

    • Interest rate
    • Exchange rate
    • Inflation rate
    • Corporation tax rate

  16. Which component of investment spending specifically offsets the depreciation of existing capital?

    • Portfolio investment
    • Net investment
    • Foreign direct investment
    • Replacement investment

  17. Which factor would cause a direct fall in a firm's expected profit from investment?

    • Higher economic growth
    • Higher interest rates
    • Lower interest rates
    • Lower corporation tax

  18. How do lengthy government planning regulations typically affect business investment decisions?

    • They reduce investment
    • They increase investment
    • They guarantee investment
    • They eliminate risk

  19. A firm invests 500,000 in a machine that lasts 5 years with straight-line depreciation and no residual value. What is annual depreciation?

    • 250,000
    • 500,000
    • 50,000
    • 100,000

  20. Which term describes the business optimism and confidence that Keynes argued drives investment?

    • Accelerator effect
    • Wealth effect
    • Multiplier effect
    • Animal spirits

All Pearson Edexcel Economics quizzes