Question 1

A labor union is a group of

Accepted Answer

A) employees who join together to improve their working conditions 
B) firms that join together to hire workers 
C) firms that work together to negotiate better prices in the market 
D) farmers who work together to receive better prices for their agricultural products 
E) workers and firm owners who join together to improve working conditions 
A) employees who join together to improve their working conditions 
B) firms that join together to hire workers 
C) firms that work together to negotiate better prices in the market 
D) farmers who work together to receive better prices for their agricultural products 
E) workers and firm owners who join together to improve working conditions

Question 2

Suppose the star pitcher on a university's baseball team, who is now a sophomore, decides to finish college instead of joining a major league team.In doing this, he is giving up a $40, 000 salary for each of the next two years.At an interest rate of 10 percent, the total value of this sacrifice is approximately

Accepted Answer

A) $46, 000 
B) $77, 777 
C) $69, 420 
D) $80, 000 
E) $88, 000 
A) $46, 000 
B) $77, 777 
C) $69, 420 
D) $80, 000 
E) $88, 000

Question 3

The administration costs of a loan as a proportion of the total cost of the loan typically

Accepted Answer

A) decrease as the size of the loan increases.Therefore, the larger the loan, other things constant, the lower the interest rate 
B) decrease as the size of the loan increases.Therefore, the larger the loan, other things constant, the higher the interest rate 
C) increase as the size of the loan increases.Therefore, the larger the loan, other things constant, the lower the interest rate 
D) increase as the size of the loan increases.Therefore, the larger the loan, other things constant, the higher the interest rate 
E) increase as the size of the loan increases, but this has no impact on the interest rates charged for large loans compared to small loans 
A) decrease as the size of the loan increases.Therefore, the larger the loan, other things constant, the lower the interest rate 
B) decrease as the size of the loan increases.Therefore, the larger the loan, other things constant, the higher the interest rate 
C) increase as the size of the loan increases.Therefore, the larger the loan, other things constant, the lower the interest rate 
D) increase as the size of the loan increases.Therefore, the larger the loan, other things constant, the higher the interest rate 
E) increase as the size of the loan increases, but this has no impact on the interest rates charged for large loans compared to small loans

Question 4

An increase in the interest rate tends to increase the demand for loanable funds.

Accepted Answer

A) True 
 B)False

Question 5

A given sum of money received each year for a specific number of years is called a(n)

Accepted Answer

A) bond 
B) perpetuity 
C) debt 
D) discount 
E) annuity 
A) bond 
B) perpetuity 
C) debt 
D) discount 
E) annuity

Question 6

If the interest rate increases from 3 percent to 4 percent, other things constant, individuals will want to

Accepted Answer

A) save and borrow more 
B) save and borrow less 
C) save more and borrow less 
D) save less and borrow more 
E) borrow more but save the same amount 
A) save and borrow more 
B) save and borrow less 
C) save more and borrow less 
D) save less and borrow more 
E) borrow more but save the same amount

Question 7

The market interest rate

Accepted Answer

A) represents the opportunity cost of investing with borrowed funds 
B) has no impact on the firm's investment decision if the firm uses borrowed funds 
C) represents the opportunity cost of investing with savings 
D) has no impact on the firm's investment decision if the firm uses savings 
E) represents the opportunity cost of investing with either borrowed funds or savings 
A) represents the opportunity cost of investing with borrowed funds 
B) has no impact on the firm's investment decision if the firm uses borrowed funds 
C) represents the opportunity cost of investing with savings 
D) has no impact on the firm's investment decision if the firm uses savings 
E) represents the opportunity cost of investing with either borrowed funds or savings

Question 8

The present value of receiving $200 one year from now when the prevailing rate of interest is 8 percent is

Accepted Answer

A) $192 
B) $185.19 
C) $200 
D) $208 
E) $160 
A) $192 
B) $185.19 
C) $200 
D) $208 
E) $160

Question 9

If you will receive $5, 000 two years from today, what is its present value if the discount rate is 5 percent?

Accepted Answer

A) $5, 025 
B) $4, 500 
C) $3, 429 
D) $4, 535 
E) $4, 762 
A) $5, 025 
B) $4, 500 
C) $3, 429 
D) $4, 535 
E) $4, 762

Question 10

An increase in the marginal rate of return on bread-mixing machines would

Accepted Answer

A) reduce the supply of loanable funds and reduce the equilibrium market interest rate 
B) reduce the supply of loanable funds and increase the equilibrium market interest rate 
C) increase the supply of loanable funds and reduce the equilibrium market interest rate 
D) increase the supply of loanable funds and increase the equilibrium market interest rate 
E) increase the demand for loanable funds and increase the equilibrium market interest rate 
A) reduce the supply of loanable funds and reduce the equilibrium market interest rate 
B) reduce the supply of loanable funds and increase the equilibrium market interest rate 
C) increase the supply of loanable funds and reduce the equilibrium market interest rate 
D) increase the supply of loanable funds and increase the equilibrium market interest rate 
E) increase the demand for loanable funds and increase the equilibrium market interest rate

Question 11

If a company offers a consultant the following five alternatives, which should she choose?

Accepted Answer

A) to be paid $50, 000 now 
B) to be paid $30, 000 now and $20, 000 when the project in question is completed 
C) to be paid $25, 000 now and $25, 000 when the project in question is completed 
D) to be paid $10, 000 now and $40, 000 when the project in question is completed 
E) to be paid $50, 000 when the project in question is completed 
A) to be paid $50, 000 now 
B) to be paid $30, 000 now and $20, 000 when the project in question is completed 
C) to be paid $25, 000 now and $25, 000 when the project in question is completed 
D) to be paid $10, 000 now and $40, 000 when the project in question is completed 
E) to be paid $50, 000 when the project in question is completed

Question 12

As the interest rate increases, consumers will tend to increase their amount of saving due to

Accepted Answer

A) increased profit 
B) their greater reliance on borrowing 
C) the lower opportunity cost of current consumption 
D) diminishing marginal utility 
E) the higher opportunity cost of current consumption 
A) increased profit 
B) their greater reliance on borrowing 
C) the lower opportunity cost of current consumption 
D) diminishing marginal utility 
E) the higher opportunity cost of current consumption

Question 13

In order to predict the marginal rate of return on investment, producers must forecast the interest rate.

Accepted Answer

A) True 
 B)False

Question 14

If Arnold has a positive rate of time preference, he desires to

Accepted Answer

A) save in case of inflation 
B) consume now rather than later 
C) invest in stocks and bonds 
D) invest in education 
E) plan for retirement 
A) save in case of inflation 
B) consume now rather than later 
C) invest in stocks and bonds 
D) invest in education 
E) plan for retirement

Question 15

Exhibit 13-9   In the market for loanable funds depicted in Exhibit 13-9, what is the equilibrium interest rate?

Accepted Answer

A) 50% 
B) 40% 
C) 30% 
D) 20% 
E) 10% 
A) 50% 
B) 40% 
C) 30% 
D) 20% 
E) 10%

Question 16

A technological breakthrough that increases the marginal productivity of capital would increase the

Accepted Answer

A) demand for loanable funds, leading to a lower equilibrium market interest rate 
B) supply of loanable funds, leading to a lower equilibrium market interest rate 
C) demand for loanable funds, leading to a higher equilibrium market interest rate 
D) supply of loanable funds, leading to a higher equilibrium market interest rate 
E) supply of loanable funds but have no impact on the equilibrium market interest rate 
A) demand for loanable funds, leading to a lower equilibrium market interest rate 
B) supply of loanable funds, leading to a lower equilibrium market interest rate 
C) demand for loanable funds, leading to a higher equilibrium market interest rate 
D) supply of loanable funds, leading to a higher equilibrium market interest rate 
E) supply of loanable funds but have no impact on the equilibrium market interest rate

Question 17

Market interest rates are determined by

Accepted Answer

A) banks 
B) Wall Street 
C) the demand for loanable funds 
D) the supply of loanable funds 
E) the demand for and supply of loanable funds 
A) banks 
B) Wall Street 
C) the demand for loanable funds 
D) the supply of loanable funds 
E) the demand for and supply of loanable funds

Question 18

The reward offered to households to refrain from spending their income on current consumption and instead save their income is

Accepted Answer

A) rent 
B) credit 
C) utility 
D) interest 
E) forgone utility 
A) rent 
B) credit 
C) utility 
D) interest 
E) forgone utility

Question 19

By saving, households

Accepted Answer

A) are supplying loanable funds 
B) are demanding loanable funds 
C) are investing 
D) are acting as a financial intermediary 
E) must find a borrower 
A) are supplying loanable funds 
B) are demanding loanable funds 
C) are investing 
D) are acting as a financial intermediary 
E) must find a borrower

Question 20

Which of the following affects the interest rate on a loan?

Accepted Answer

A) all of the following 
B) the duration of the loan 
C) the tax treatment of the loan 
D) the administrative cost of the loan 
E) the risk of default on the loan 
A) all of the following 
B) the duration of the loan 
C) the tax treatment of the loan 
D) the administrative cost of the loan 
E) the risk of default on the loan

Exam 13: Capital, Interest, and Corporate Finance

A labor union is a group of

The administration costs of a loan as a proportion of the total cost of the loan typically

An increase in the interest rate tends to increase the demand for loanable funds.

A given sum of money received each year for a specific number of years is called a(n)

If the interest rate increases from 3 percent to 4 percent, other things constant, individuals will want to

The market interest rate

The present value of receiving $200 one year from now when the prevailing rate of interest is 8 percent is

If you will receive $5, 000 two years from today, what is its present value if the discount rate is 5 percent?

An increase in the marginal rate of return on bread-mixing machines would

If a company offers a consultant the following five alternatives, which should she choose?

As the interest rate increases, consumers will tend to increase their amount of saving due to

In order to predict the marginal rate of return on investment, producers must forecast the interest rate.

If Arnold has a positive rate of time preference, he desires to

Exhibit 13-9 In the market for loanable funds depicted in Exhibit 13-9, what is the equilibrium interest rate?

A technological breakthrough that increases the marginal productivity of capital would increase the

Market interest rates are determined by

The reward offered to households to refrain from spending their income on current consumption and instead save their income is

By saving, households

Which of the following affects the interest rate on a loan?

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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