Question 1

The present value of a given payment will be lower

Accepted Answer

A) if the payment comes sooner than expected 
B) the lower the prevailing interest rate 
C) the further in the future the payment is to be received 
D) the sooner the payment is to be received 
E) if the payment is made in cash 
A) if the payment comes sooner than expected 
B) the lower the prevailing interest rate 
C) the further in the future the payment is to be received 
D) the sooner the payment is to be received 
E) if the payment is made in cash

Question 2

Intellectual property is

Accepted Answer

A) a special form of capital 
B) a type of labor 
C) a special type of service 
D) cheap to produce, but expensive to transmit 
E) a kind of entrepreneurial ability 
A) a special form of capital 
B) a type of labor 
C) a special type of service 
D) cheap to produce, but expensive to transmit 
E) a kind of entrepreneurial ability

Question 3

Which of the following is an example of roundabout production?

Accepted Answer

A) Paul pays Ringo to wash his car. 
B) A church has a bake sale to raise money for a new narthex. 
C) Jane saves her money to buy a stereo. 
D) Robinson Crusoe makes a fish net to help him catch more fish per day. 
E) Business owners in Minneapolis buy blocks of Minnesota Twins baseball tickets to help guarantee that the team will stay in town. 
A) Paul pays Ringo to wash his car. 
B) A church has a bake sale to raise money for a new narthex. 
C) Jane saves her money to buy a stereo. 
D) Robinson Crusoe makes a fish net to help him catch more fish per day. 
E) Business owners in Minneapolis buy blocks of Minnesota Twins baseball tickets to help guarantee that the team will stay in town.

Question 4

Which of the following does not reflect a positive rate of time preference?

Accepted Answer

A) People are willing to pay high prices to see new movies at first-run theaters. 
B) A bank pays interest on savings accounts. 
C) Ed puts money in his mattress for a rainy day. 
D) Dry cleaners that provide faster service can charge more. 
E) A college freshman parties all semester, then stays awake studying for 50 straight hours during final exam week. 
A) People are willing to pay high prices to see new movies at first-run theaters. 
B) A bank pays interest on savings accounts. 
C) Ed puts money in his mattress for a rainy day. 
D) Dry cleaners that provide faster service can charge more. 
E) A college freshman parties all semester, then stays awake studying for 50 straight hours during final exam week.

Question 5

The present discounted value of $100 to be received in one year and with an interest rate of 10 percent is closest to

Accepted Answer

A) $100 
B) $10 
C) $110 
D) $91 
E) $80 
A) $100 
B) $10 
C) $110 
D) $91 
E) $80

Question 6

The production of capital is a form of roundabout production.

Accepted Answer

A) True 
 B)False

Question 7

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.The marginal rate of return on the machine with the three-quart bowl is

Accepted Answer

A) 1 percent 
B) 5 percent 
C) 10 percent 
D) 20 percent 
E) 55 percent 
A) 1 percent 
B) 5 percent 
C) 10 percent 
D) 20 percent 
E) 55 percent

Question 8

If the market interest rate increases, then

Accepted Answer

A) the cost of borrowing increases and so saving falls 
B) the opportunity cost of consuming a good in the future increases and saving, therefore, increases 
C) the opportunity cost of consuming a good in the future increases and saving, therefore, falls 
D) the reward for saving diminishes and so present consumption increases 
E) the reward for saving increases and so saving increases 
A) the cost of borrowing increases and so saving falls 
B) the opportunity cost of consuming a good in the future increases and saving, therefore, increases 
C) the opportunity cost of consuming a good in the future increases and saving, therefore, falls 
D) the reward for saving diminishes and so present consumption increases 
E) the reward for saving increases and so saving increases

Question 9

Interest provides an incentive for households to defer current consumption

Accepted Answer

A) True 
 B)False

Question 10

If an economy increases the amount of roundabout production today,

Accepted Answer

A) more consumer goods can be produced in the present 
B) fewer consumer goods can be produced in the future 
C) more capital accumulates 
D) less capital accumulates 
E) fewer capital goods can be produced in the future 
A) more consumer goods can be produced in the present 
B) fewer consumer goods can be produced in the future 
C) more capital accumulates 
D) less capital accumulates 
E) fewer capital goods can be produced in the future

Question 11

If 900 million shares of stock are traded on the New York Stock Exchange today at an average price of $100, then the total amount of money raised today by the corporations whose stock traded on this exchange would be $90 billion.

Accepted Answer

A) True 
 B)False

Question 12

An IOU reflecting the corporation's promise to pay the holder a fixed sum of money at a designated maturity date plus an annual interest payment until maturity is

Accepted Answer

A) a bond 
B) a stock certificate 
C) a prospectus 
D) a golden parachute 
E) an underwriting note 
A) a bond 
B) a stock certificate 
C) a prospectus 
D) a golden parachute 
E) an underwriting note

Question 13

The market interest rate

Accepted Answer

A) typically increases from one year to the next 
B) represents the demand for investment 
C) represents the opportunity cost of funds 
D) represents the supply of loanable funds 
E) is not affected by the demand for investment 
A) typically increases from one year to the next 
B) represents the demand for investment 
C) represents the opportunity cost of funds 
D) represents the supply of loanable funds 
E) is not affected by the demand for investment

Question 14

The loanable funds market brings together savers and borrowers to determine the

Accepted Answer

A) marginal rate of return on investment 
B) rate of time preference 
C) market rate of interest 
D) marginal resource cost of investment 
E) marginal revenue product of investment 
A) marginal rate of return on investment 
B) rate of time preference 
C) market rate of interest 
D) marginal resource cost of investment 
E) marginal revenue product of investment

Question 15

Exhibit 13-3   Exhibit 13-3 gives data on the number of tools a certain firm buys to use in its production process.Assume that the tools are expected to last indefinitely, that operating expenses are negligible, and that the price of the firm's output is expected to remain constant in the future.At what interest rate would the firm in Exhibit 13-3 choose not to buy any machines?

Accepted Answer

A) 10% 
B) 20% 
C) 30% 
D) 35% 
E) 40% 
A) 10% 
B) 20% 
C) 30% 
D) 35% 
E) 40%

Question 16

Exhibit 13-8   In Exhibit 13-8, D0 and S0 represent the initial demand and supply of loanable funds.If consumers decide to save more in preparation for retirement it would shift the equilibrium in this market from point a to

Accepted Answer

A) point b 
B) point c 
C) point d 
D) point f 
E) point h 
A) point b 
B) point c 
C) point d 
D) point f 
E) point h

Question 17

The federal agency that regulates the New York Stock Exchange is the

Accepted Answer

A) Securities and Exchange Commission 
B) Department of Justice 
C) Department of Commerce 
D) Federal Reserve Board 
E) Department of the Treasury 
A) Securities and Exchange Commission 
B) Department of Justice 
C) Department of Commerce 
D) Federal Reserve Board 
E) Department of the Treasury

Question 18

The supply of loanable funds comes, in part, from

Accepted Answer

A) consumer saving 
B) business investment 
C) the federal government 
D) current consumption 
E) future consumption 
A) consumer saving 
B) business investment 
C) the federal government 
D) current consumption 
E) future consumption

Question 19

Exhibit 13-8   In Exhibit 13-8, D0 and S0 represent the initial demand and supply of loanable funds.If the federal government borrows more money to fund a deficit it would shift the equilibrium in this market from point a to

Accepted Answer

A) point b 
B) point c 
C) point d 
D) point f 
E) point h 
A) point b 
B) point c 
C) point d 
D) point f 
E) point h

Question 20

If you are receiving $2, 000 per year forever, the present value of that income stream when the prevailing interest rate is 7 percent is equal to

Accepted Answer

A) $20, 000 
B) $62, 472 
C) $100, 087 
D) $27, 000 
E) $28, 571 
A) $20, 000 
B) $62, 472 
C) $100, 087 
D) $27, 000 
E) $28, 571

Exam 13: Capital, Interest, and Corporate Finance

The present value of a given payment will be lower

Intellectual property is

Which of the following is an example of roundabout production?

Which of the following does not reflect a positive rate of time preference?

The present discounted value of $100 to be received in one year and with an interest rate of 10 percent is closest to

The production of capital is a form of roundabout production.

If the market interest rate increases, then

Interest provides an incentive for households to defer current consumption

If an economy increases the amount of roundabout production today,

If 900 million shares of stock are traded on the New York Stock Exchange today at an average price of $100, then the total amount of money raised today by the corporations whose stock traded on this exchange would be $90 billion.

An IOU reflecting the corporation's promise to pay the holder a fixed sum of money at a designated maturity date plus an annual interest payment until maturity is

The market interest rate

The loanable funds market brings together savers and borrowers to determine the

Exhibit 13-8 In Exhibit 13-8, D0 and S0 represent the initial demand and supply of loanable funds.If consumers decide to save more in preparation for retirement it would shift the equilibrium in this market from point a to

The federal agency that regulates the New York Stock Exchange is the

The supply of loanable funds comes, in part, from

Exhibit 13-8 In Exhibit 13-8, D0 and S0 represent the initial demand and supply of loanable funds.If the federal government borrows more money to fund a deficit it would shift the equilibrium in this market from point a to

If you are receiving $2, 000 per year forever, the present value of that income stream when the prevailing interest rate is 7 percent is equal to

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

Filters

Exhibit 13-8 In Exhibit 13-8, D₀and S₀ represent the initial demand and supply of loanable funds.If consumers decide to save more in preparation for retirement it would shift the equilibrium in this market from point a to

Exhibit 13-8 In Exhibit 13-8, D₀and S₀ represent the initial demand and supply of loanable funds.If the federal government borrows more money to fund a deficit it would shift the equilibrium in this market from point a to