Question 1

In year 1 the price level is constant and the nominal rate of interest is 6 percent. But in year 2 the inflation rate is 3 percent. If the real rate of interest is to remain at the same level in year 2 as it was in year 1, then in year 2 the nominal interest rate must

Accepted Answer

A)   rise by 9 percentage points.
B)   rise by 3 percentage points.
C)   fall by 3 percentage points.
D)   rise by 6 percentage points.E) A) and C)
F) B) and C)

Question 2

If Kelly deposits $10,000 into an account that pays 8 percent interest, compounded annually, and she makes no further deposits or withdrawals, how much will Kelly have in her account at the end of 5 years?

Accepted Answer

A)   $14,000
B)   $14,482
C)   $14,693
D)   $15,000E) A) and C)
F) B) and C)

Question 3

Which of the following resources is a "free and nonreproducible gift of nature"?

Accepted Answer

A)   labor
B)   entrepreneurship
C)   capital
D)   landE) A) and B)
F) C) and D)

Question 4

Broadly defined, labor's share of national income has been remarkably stable since 1900.

Accepted Answer

A) True 
 B)False

Question 5

If the interest rate is 5 percent, what is the present value of $10,000 received three years from now?

Accepted Answer

A)   $8,638
B)   $9,000
C)   $11,600
D)   $11,000E) A) and D)
F) B) and C)

Question 6

(Consider This)  The story about economist Irving Fisher's conversation with his masseuse illustrates that interest payments arise because of

Accepted Answer

A)   the possibility of inflation.
B)   the reality of credit risk.
C)   imperfect information about the future.
D)   the time-value of money.E) All of the above
F) A) and C)

Question 7

The supply curve for a productive resource wherein price provides an incentive function is

Accepted Answer

A)   vertical.
B)   horizontal.
C)   upward sloping to the right.
D)   downward sloping to the right.E) A) and C)
F) None of the above

Question 8

A firm wants to borrow funds to purchase a new piece of equipment that costs $20,000 and has a useful life of one year. The investment is expected to produce an additional $1,500 in total revenue. The firm will most likely make the investment if the interest rate is

Accepted Answer

A)   6 percent.
B)   8 percent.
C)   10 percent.
D)   12 percent.E) C) and D)
F) None of the above

Question 9

Which of the following factors is not a typical cause of changes in land rent?

Accepted Answer

A)   demand for land
B)   supply of land
C)   prices of the products produced from the land
D)   prices of other resources employed along with landE) B) and C)
F) A) and D)

Question 10

A decrease in the supply of loanable funds and an increase in the demand for loanable funds will

Accepted Answer

A)   increase the interest rate and the quantity of funds loaned.
B)   decrease the interest rate and the quantity of funds loaned.
C)   increase the interest rate, but the quantity of funds loaned may either increase or decrease.
D)   decrease the interest rate, but the quantity of funds loaned may either increase or decrease.E) A) and D)
F) All of the above

Question 11

In general, if we compare two loans or bonds with the same loan size and taxability of interest-income, we would expect a higher interest rate on the loan or bond with a

Accepted Answer

A)   higher risk and longer maturity.
B)   lower risk and longer maturity.
C)   lower risk and shorter maturity.
D)   higher risk and shorter maturity.E) A) and D)
F) A) and C)

Question 12

The XYZ Corporation determines it can make a real (inflation-adjusted)  return on an investment of 9 percent. The nominal rate of interest is 13 percent and the rate of inflation is 7 percent. We can conclude that the

Accepted Answer

A)   investment will be profitable.
B)   investment will be unprofitable.
C)   real rate of interest is 4 percent.
D)   real rate of interest is 2 percent.E) All of the above
F) C) and D)

Question 13

A firm considering whether to borrow money to purchase a capital good will compare the rate of interest for the loan with the

Accepted Answer

A)   opportunity cost of the capital good.
B)   rate of return on the investment.
C)   length of the investment.
D)   Treasury bill rate.E) A) and C)
F) None of the above

Question 14

(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) None of the above
F) B) and C)

Question 15

(Consider This)  Entrepreneurs' singular focus on profit

Accepted Answer

A)   often comes at the expense of efficiency.
B)   encourages efficiency.
C)   causes them to neglect other aspects of the business.
D)   discourages use of the MB = MC rule.E) B) and D)
F) C) and D)

Question 16

Which type of income contributes the smallest share to total income in the U.S.?

Accepted Answer

A)   wages
B)   interest
C)   rent
D)   profitsE) None of the above
F) B) and D)

Question 17

The supply of loanable funds is an upward-sloping curve because the

Accepted Answer

A)   higher the interest rate, the more households consume and the more households save.
B)   higher the interest rate, the less households consume and the more households save.
C)   lower the interest rate, the more households consume and the more households save.
D)   lower the interest rate, the less households consume and the more households save.E) A) and B)
F) All of the above

Question 18

The price paid for the use of money is called

Accepted Answer

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

Question 19

The reason why socialists favor the nationalization of land is that

Accepted Answer

A)   land is a scarce resource.
B)   the rent received by landowners does not represent anything they produced.
C)   there is a fixed total supply of land.
D)   land is not a productive resource.E) A) and B)
F) A) and C)

Question 20

In a market system, private ownership of land does not lead to which of the following results?

Accepted Answer

A)   Private owners will face no cost in using land for one purpose rather than another.
B)   Land rent reflects the opportunity cost of land.
C)   Land is allocated to its best possible uses.
D)   Private land ownership aids economic growth because land rents reflect changes in tastes and technologies.E) B) and C)
F) None of the above

Exam 18: Rent, Interest, and Profit

Which type of income contributes the smallest share to total income in the U.S.?

Correct AnswerverifiedShow Answer

A decrease in the supply of loanable funds and an increase in the demand for loanable funds will

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The reason why socialists favor the nationalization of land is that

Correct AnswerverifiedShow Answer

Which of the following factors is not a typical cause of changes in land rent?

Correct AnswerverifiedShow Answer

In a market system, private ownership of land does not lead to which of the following results?

Correct AnswerverifiedShow Answer

The supply curve for a productive resource wherein price provides an incentive function is

Correct AnswerverifiedShow Answer

(Consider This) Entrepreneurs' singular focus on profit

Correct AnswerverifiedShow Answer

The supply of loanable funds is an upward-sloping curve because the

Correct AnswerverifiedShow Answer

In general, if we compare two loans or bonds with the same loan size and taxability of interest-income, we would expect a higher interest rate on the loan or bond with a

Correct AnswerverifiedShow Answer

Broadly defined, labor's share of national income has been remarkably stable since 1900.

Correct AnswerverifiedShow Answer

If Kelly deposits $10,000 into an account that pays 8 percent interest, compounded annually, and she makes no further deposits or withdrawals, how much will Kelly have in her account at the end of 5 years?

Correct AnswerverifiedShow Answer

The XYZ Corporation determines it can make a real (inflation-adjusted) return on an investment of 9 percent. The nominal rate of interest is 13 percent and the rate of inflation is 7 percent. We can conclude that the

Correct AnswerverifiedShow Answer

A firm wants to borrow funds to purchase a new piece of equipment that costs $20,000 and has a useful life of one year. The investment is expected to produce an additional $1,500 in total revenue. The firm will most likely make the investment if the interest rate is

Correct AnswerverifiedShow Answer

In year 1 the price level is constant and the nominal rate of interest is 6 percent. But in year 2 the inflation rate is 3 percent. If the real rate of interest is to remain at the same level in year 2 as it was in year 1, then in year 2 the nominal interest rate must

Correct AnswerverifiedShow Answer

(Consider This) The story about economist Irving Fisher's conversation with his masseuse illustrates that interest payments arise because of

Correct AnswerverifiedShow Answer

A firm considering whether to borrow money to purchase a capital good will compare the rate of interest for the loan with the

Correct AnswerverifiedShow Answer

(Last Word) Late payment fees and overdraft protection

Correct AnswerverifiedShow Answer

The price paid for the use of money is called

Correct AnswerverifiedShow Answer

If the interest rate is 5 percent, what is the present value of $10,000 received three years from now?

Correct AnswerverifiedShow Answer

Which of the following resources is a "free and nonreproducible gift of nature"?

Correct AnswerverifiedShow Answer

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