Question 1

In the loanable funds market,

Accepted Answer

A) savers are suppliers of loanable funds, and borrowers are demanders of loanable funds 
B) the supply curve slopes downward, and the demand curve slopes upward 
C) the supply curve reflects the negative relation between the market rate of interest and the quantity of savings 
D) households play the role of financial intermediaries 
E) banks pay a higher interest rate on consumer savings than they could earn by lending these funds out 
A) savers are suppliers of loanable funds, and borrowers are demanders of loanable funds 
B) the supply curve slopes downward, and the demand curve slopes upward 
C) the supply curve reflects the negative relation between the market rate of interest and the quantity of savings 
D) households play the role of financial intermediaries 
E) banks pay a higher interest rate on consumer savings than they could earn by lending these funds out

Question 2

One reason investors may prefer bonds over stocks is

Accepted Answer

A) potential profits are larger 
B) bond prices never vary 
C) bondholders get paid before stockholders 
D) owning bonds implies owning a part of the company 
E) interest rates do not affect the value of bonds 
A) potential profits are larger 
B) bond prices never vary 
C) bondholders get paid before stockholders 
D) owning bonds implies owning a part of the company 
E) interest rates do not affect the value of bonds

Question 3

Other things constant, the more profitable a corporation is,

Accepted Answer

A) the lower the value of its shares on the stock market and the lower the interest rate that would have to be paid on new bond issues 
B) the higher the value of its shares on the stock market and the higher the interest rate it would have to pay on new bond issues 
C) the higher the value of its shares on the stock market and the lower the interest rate that would have to be paid on new bond issues 
D) the lower the value of its shares on the stock market and the higher the interest rate that would have to be paid on new bond issues 
E) the lower the interest rate that would have to be paid on new bond issues; the value of its shares on the stock market does not vary 
A) the lower the value of its shares on the stock market and the lower the interest rate that would have to be paid on new bond issues 
B) the higher the value of its shares on the stock market and the higher the interest rate it would have to pay on new bond issues 
C) the higher the value of its shares on the stock market and the lower the interest rate that would have to be paid on new bond issues 
D) the lower the value of its shares on the stock market and the higher the interest rate that would have to be paid on new bond issues 
E) the lower the interest rate that would have to be paid on new bond issues; the value of its shares on the stock market does not vary

Question 4

You buy a bond for $1, 000 from the federal government, which guarantees that you will receive $70 a year forever.Thus, 7 percent was the market rate of interest when you bought the bond.Suppose that immediately after you buy the bond, the market rate of interest goes to 10 percent.The market value of your bond

Accepted Answer

A) could be more or less than $1, 000 
B) will be less than $1, 000 
C) will be more than $1, 000 
D) will remain unchanged 
E) will be $1, 000 
A) could be more or less than $1, 000 
B) will be less than $1, 000 
C) will be more than $1, 000 
D) will remain unchanged 
E) will be $1, 000

Question 5

If a change in technology improves the marginal productivity of capital, the

Accepted Answer

A) supply of capital will increase 
B) supply of capital will decrease 
C) demand for loanable funds will increase 
D) demand for loanable funds will decrease 
E) supply of loanable funds will increase 
A) supply of capital will increase 
B) supply of capital will decrease 
C) demand for loanable funds will increase 
D) demand for loanable funds will decrease 
E) supply of loanable funds will increase

Question 6

A positive rate of time preference means that

Accepted Answer

A) time is relative to consumption 
B) consumption in the future is more important than consumption today 
C) consumption today is valued less than consumption in the future 
D) consumption in the future is valued less than consumption today 
E) consumption in the future and consumption today are positively related 
A) time is relative to consumption 
B) consumption in the future is more important than consumption today 
C) consumption today is valued less than consumption in the future 
D) consumption in the future is valued less than consumption today 
E) consumption in the future and consumption today are positively related

Question 7

Production cannot occur without

Accepted Answer

A) saving 
B) government 
C) a market system 
D) low interest rates 
E) high interest rates 
A) saving 
B) government 
C) a market system 
D) low interest rates 
E) high interest rates

Question 8

The exchange of secondhand securities

Accepted Answer

A) takes place in an oligopolistic market 
B) does not provide funds to the firm that issued those securities 
C) includes the initial sale when securities are issued by a firm 
D) involves very few institutional investors 
E) lowers the liquidity of the securities 
A) takes place in an oligopolistic market 
B) does not provide funds to the firm that issued those securities 
C) includes the initial sale when securities are issued by a firm 
D) involves very few institutional investors 
E) lowers the liquidity of the securities

Question 9

A marginal revenue product curve shows the change in

Accepted Answer

A) total revenue caused by a one-unit change in output, other things constant 
B) total revenue caused by a one-unit change in an input, other things constant 
C) total product caused by a one-unit change in output, other things constant 
D) total product caused by a one-unit change in an input, other things constant 
E) total revenue product caused by a one-unit change in the price of the output, other things constant 
A) total revenue caused by a one-unit change in output, other things constant 
B) total revenue caused by a one-unit change in an input, other things constant 
C) total product caused by a one-unit change in output, other things constant 
D) total product caused by a one-unit change in an input, other things constant 
E) total revenue product caused by a one-unit change in the price of the output, other things constant

Question 10

The supply of loanable funds curve reflects

Accepted Answer

A) the inverse relationship between the market interest rate and the quantity of borrowed funds 
B) the inverse relationship between the market interest rate and the quantity of saving 
C) the direct relationship between the market interest rate and the quantity of borrowed funds 
D) the direct relationship between the market interest rate and the quantity of saving 
E) the direct relationship between the market interest rate and the quantity of present consumption 
A) the inverse relationship between the market interest rate and the quantity of borrowed funds 
B) the inverse relationship between the market interest rate and the quantity of saving 
C) the direct relationship between the market interest rate and the quantity of borrowed funds 
D) the direct relationship between the market interest rate and the quantity of saving 
E) the direct relationship between the market interest rate and the quantity of present consumption

Question 11

Intellectual property

Accepted Answer

A) requires copyright protection that is expensive to obtain, but cheap to enforce 
B) usually ends up being owned by the government 
C) is costly to produce, but can be transmitted at low cost 
D) cannot be owned by anyone 
E) is usually located on college campuses 
A) requires copyright protection that is expensive to obtain, but cheap to enforce 
B) usually ends up being owned by the government 
C) is costly to produce, but can be transmitted at low cost 
D) cannot be owned by anyone 
E) is usually located on college campuses

Question 12

A firm's demand curve for investment is its

Accepted Answer

A) marginal resource cost curve 
B) marginal product curve 
C) marginal revenue curve 
D) marginal rate of return on investment curve 
E) supply of loanable funds curve 
A) marginal resource cost curve 
B) marginal product curve 
C) marginal revenue curve 
D) marginal rate of return on investment curve 
E) supply of loanable funds curve

Question 13

Exhibit 13-2   Given the data in Exhibit 13-2, the marginal product is

Accepted Answer

A) positive for all copy machines 
B) positive for the first copy machine only 
C) positive for the first four copy machines only 
D) positive for the first five copy machines only 
E) never positive 
A) positive for all copy machines 
B) positive for the first copy machine only 
C) positive for the first four copy machines only 
D) positive for the first five copy machines only 
E) never positive

Question 14

The present value of a promise to pay $100 one year from now is approximately $90.91 if the interest rate is 10 percent.

Accepted Answer

A) True 
 B)False

Question 15

Generally, the longer the maturity on a bond, the lower the interest rate.

Accepted Answer

A) True 
 B)False

Question 16

If ABC Corp.is profitable,

Accepted Answer

A) it must pay dividends to its stockholders 
B) pretax profits are either paid as dividends or reinvested in the corporation 
C) after-tax profits are either paid as dividends or reinvested in the corporation 
D) it is contractually obligated to retain a portion of its earnings 
E) it typically uses the profits to buy back its own stock from the underwriter 
A) it must pay dividends to its stockholders 
B) pretax profits are either paid as dividends or reinvested in the corporation 
C) after-tax profits are either paid as dividends or reinvested in the corporation 
D) it is contractually obligated to retain a portion of its earnings 
E) it typically uses the profits to buy back its own stock from the underwriter

Question 17

Exhibit 13-5   Exhibit 13-5 shows data on the various dough-mixing machines that a donut shop is considering buying.Assume that any dough-mixing machine is expected to last indefinitely, that operating expenses are negligible, and that the price of donuts is expected to remain constant in the future.If the market rate of interest is 8 percent, what size machine should the donut shop buy?

Accepted Answer

A) none 
B) the machine with the one-quart bowl 
C) the machine with the two-quart bowl 
D) the machine with the three-quart bowl 
E) the answer can't be determined from the given data 
A) none 
B) the machine with the one-quart bowl 
C) the machine with the two-quart bowl 
D) the machine with the three-quart bowl 
E) the answer can't be determined from the given data

Question 18

The largest securities exchange in the United States is the

Accepted Answer

A) American Stock Exchange 
B) Chicago Board of Trade 
C) Securities and Exchange Commission 
D) New York Stock Exchange 
E) Federal Trade Commission 
A) American Stock Exchange 
B) Chicago Board of Trade 
C) Securities and Exchange Commission 
D) New York Stock Exchange 
E) Federal Trade Commission

Question 19

Exhibit 13-4   Exhibit 13-4 shows data gathered by Memo Co.as it prepares to purchase personal computers for its sales offices.Given the data in Exhibit 13-4, Memo Co.

Accepted Answer

A) must be a perfectly competitive seller of output 
B) must be a monopoly seller of output 
C) must be a perfectly competitive buyer of personal computers 
D) cannot be a perfectly competitive buyer of personal computers 
E) may or may not be a perfectly competitive buyer of personal computers 
A) must be a perfectly competitive seller of output 
B) must be a monopoly seller of output 
C) must be a perfectly competitive buyer of personal computers 
D) cannot be a perfectly competitive buyer of personal computers 
E) may or may not be a perfectly competitive buyer of personal computers

Question 20

Exhibit 13-2   The marginal product of the third copy machine listed in Exhibit 13-2 is

Accepted Answer

A) 4 copies 
B) 6 copies 
C) 24 copies 
D) 28 copies 
E) 52 copies 
A) 4 copies 
B) 6 copies 
C) 24 copies 
D) 28 copies 
E) 52 copies

Exam 13: Capital, Interest, and Corporate Finance

In the loanable funds market,

One reason investors may prefer bonds over stocks is

Other things constant, the more profitable a corporation is,

If a change in technology improves the marginal productivity of capital, the

A positive rate of time preference means that

Production cannot occur without

The exchange of secondhand securities

A marginal revenue product curve shows the change in

The supply of loanable funds curve reflects

Intellectual property

A firm's demand curve for investment is its

Exhibit 13-2 Given the data in Exhibit 13-2, the marginal product is

The present value of a promise to pay $100 one year from now is approximately $90.91 if the interest rate is 10 percent.

Generally, the longer the maturity on a bond, the lower the interest rate.

If ABC Corp.is profitable,

The largest securities exchange in the United States is the

Exhibit 13-4 Exhibit 13-4 shows data gathered by Memo Co.as it prepares to purchase personal computers for its sales offices.Given the data in Exhibit 13-4, Memo Co.

Exhibit 13-2 The marginal product of the third copy machine listed in Exhibit 13-2 is

The Art and Science of Economic Analysis

Appendix--Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Appendix--Price Elasticity and Tax Incidence

Consumer Choice and Demand

Appendix--Indifference Curves and Utility Maximization

Production and Cost in the Firm

A--Perfect Competition

B--Perfect Competition

A--Monopoly

B--Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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