Question 1

If the inflation rate is 10 percent, what is a bank's real rate of return on a loan of $100 at 10 percent interest?

Accepted Answer

A)  $100
B)  $10
C)  10 percent
D)  0 percentE) C) and D)
F) A) and B)

Question 2

Which of the following statements is correct?

Accepted Answer

A)  Rent performs an incentive function, but not a rationing function.
B)  Wage rate does not perform an incentive function in the supply of labor.
C)  Profits are payments to capital resource owners.
D)  Demand is the "active," and supply the "passive," determinant of land rent.E) A) and B)
F) All of the above

Question 3

The "time-value of money" refers to the fact that

Accepted Answer

A)  a given amount of money becomes more valuable over time.
B)  a given amount of money is more valuable the sooner it is obtained.
C)  people expect monetary compensation for their labor time.
D)  a given amount of money today is equivalent to a smaller amount of money in the future.E) B) and C)
F) A) and B)

Question 4

Labor's share of income earned by Americans is smaller than the share of capital.

Accepted Answer

A) True 
 B)False

Question 5

The free-land era of U.S.history reflected a situation in which the quantity of land available at a zero price exceeded the quantity of land demanded.

Accepted Answer

A) True 
 B)False

Question 6

The quantity of loanable funds supplied is inversely related to the interest rate.

Accepted Answer

A) True 
 B)False

Question 7

Which expression is used to calculate the future value of an amount of money?

Accepted Answer

A)  Present Value × (1 + interest rate) time
B)  Present Value/(1 + interest rate) time
C)  Present Value × (1 + time) interest rate
D)  (1 + interest rate) time/Present ValueE) B) and D)
F) All of the above

Question 8

Since 1900, the relative share of "wages & salaries, plus proprietors' income" in the total income earned by Americans in a typical year has been about

Accepted Answer

A)  20 percent.
B)  50 percent.
C)  80 percent.
D)  95 percent.E) C) and D)
F) A) and B)

Question 9

If an economic expansion in the economy caused an increase in the demand for loanable funds, what would be the effect on the interest rate and the quantity of funds loaned in the credit market?

Accepted Answer

A)  Interest rates would increase and the quantity of funds loaned would decrease.
B)  Interest rates would decrease and the quantity of funds loaned would increase.
C)  Interest rates and the quantity of funds loaned would decrease.
D)  Interest rates and the quantity of funds loaned would increase.E) All of the above
F) A) and B)

Question 10

The core concept that is central to understanding the time-value of money is

Accepted Answer

A)  GDP growth.
B)  inflation.
C)  interest rate.
D)  exchange rate.E) All of the above
F) B) and C)

Question 11

The risk that the firm's employees might get hurt while working is an example of the uninsurable risks faced by an entrepreneur.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following would cause an increase in interest rates in credit markets?

Accepted Answer

A)  a decrease in business demand for credit
B)  an increase in the supply of consumer saving
C)  an increase in the supply of business saving
D)  an increase in consumer demand for creditE) A) and B)
F) A) and C)

Question 13

It is most likely that a firm would borrow funds to expand its capital facilities when the

Accepted Answer

A)  pure rate of interest is greater than the real rate of interest.
B)  expected rate of return is greater than the interest rate.
C)  demand for money is greater than the supply of money.
D)  real rate of interest is greater than the nominal rate of interest.E) A) and D)
F) A) and B)

Question 14

The demand curve for loanable funds represents the behavior of

Accepted Answer

A)  lenders.
B)  savers.
C)  borrowers.
D)  bankers.E) A) and B)
F) C) and D)

Question 15

Other things equal, the interest rate on a loan will be smaller,

Accepted Answer

A)  the greater the risk involved.
B)  the smaller the amount of the loan.
C)  the longer the length of the loan.
D)  if the loan interest is exempt from taxation.E) A) and B)
F) A) and C)

Question 16

(Last Word)  Late payment fees and overdraft protection

Accepted Answer

A)  are illegal under the Truth in Lending Act.
B)  do not have to be reported under the provisions of the Truth in Savings Act.
C)  effectively charge high rates of interest on loans to bank customers.
D)  are unrelated to interest rates because they are fees.E) All of the above
F) B) and C)

Question 17

A decrease in saving that leads to an increase in the interest rate will

Accepted Answer

A)  decrease the amount of investment spending.
B)  only result in a surplus of loanable funds.
C)  shift the demand for loanable funds to the right, increasing net investment.
D)  shift the demand for loanable funds to the left, causing a decrease in investment.E) A) and D)
F) A) and C)

Question 18

If Congress were to pass a law exempting interest on saving from taxation, the

Accepted Answer

A)  supply of loanable funds would decrease and the equilibrium interest rate would rise.
B)  supply of loanable funds would increase and the equilibrium interest rate would fall.
C)  demand for loanable funds would increase and the equilibrium interest rate would rise.
D)  equilibrium interest rate would be unaffected.E) A) and C)
F) C) and D)

Question 19

The price paid for the use of money is called

Accepted Answer

A)  commission.
B)  royalty.
C)  interest.
D)  rent.E) B) and D)
F) A) and B)

Question 20

Other things equal, an increase in the equilibrium interest rate will

Accepted Answer

A)  increase R&D spending.
B)  rise when the supply of loanable funds increases.
C)  decrease purchases of capital goods and reduce R&D spending.
D)  increase bank lending.E) A) and B)
F) A) and C)

Exam 18: Rent, Interest, and Profit

If Congress were to pass a law exempting interest on saving from taxation, the

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It is most likely that a firm would borrow funds to expand its capital facilities when the

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The price paid for the use of money is called

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Labor's share of income earned by Americans is smaller than the share of capital.

Correct AnswerverifiedShow Answer

If an economic expansion in the economy caused an increase in the demand for loanable funds, what would be the effect on the interest rate and the quantity of funds loaned in the credit market?

Correct AnswerverifiedShow Answer

The "time-value of money" refers to the fact that

Correct AnswerverifiedShow Answer

The free-land era of U.S.history reflected a situation in which the quantity of land available at a zero price exceeded the quantity of land demanded.

Correct AnswerverifiedShow Answer

The risk that the firm's employees might get hurt while working is an example of the uninsurable risks faced by an entrepreneur.

Correct AnswerverifiedShow Answer

Other things equal, an increase in the equilibrium interest rate will

Correct AnswerverifiedShow Answer

(Last Word) Late payment fees and overdraft protection

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Other things equal, the interest rate on a loan will be smaller,

Correct AnswerverifiedShow Answer

The core concept that is central to understanding the time-value of money is

Correct AnswerverifiedShow Answer

The quantity of loanable funds supplied is inversely related to the interest rate.

Correct AnswerverifiedShow Answer

If the inflation rate is 10 percent, what is a bank's real rate of return on a loan of $100 at 10 percent interest?

Correct AnswerverifiedShow Answer

Which of the following would cause an increase in interest rates in credit markets?

Correct AnswerverifiedShow Answer

Since 1900, the relative share of "wages & salaries, plus proprietors' income" in the total income earned by Americans in a typical year has been about

Correct AnswerverifiedShow Answer

A decrease in saving that leads to an increase in the interest rate will

Correct AnswerverifiedShow Answer

Which expression is used to calculate the future value of an amount of money?

Correct AnswerverifiedShow Answer

The demand curve for loanable funds represents the behavior of

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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