Question 1

If I own a share of stock in IBM, I own

Accepted Answer

A) only the right to vote in elections of corporate directors 
B) a claim to a share of IBM's assets and earnings as well as the right to demand annual dividend payments 
C) the right to demand annual dividend payments as well as the right to vote in elections of corporate directors 
D) only the right to demand annual dividend payments 
E) a claim to a share of IBM's assets and earnings as well as the right to vote in elections of corporate directors 
A) only the right to vote in elections of corporate directors 
B) a claim to a share of IBM's assets and earnings as well as the right to demand annual dividend payments 
C) the right to demand annual dividend payments as well as the right to vote in elections of corporate directors 
D) only the right to demand annual dividend payments 
E) a claim to a share of IBM's assets and earnings as well as the right to vote in elections of corporate directors

Question 2

Economic development around the globe will be affected by how society nurtures incentives to create new

Accepted Answer

A) ideas 
B) inventions 
C) only ideas and inventions 
D) only ideas and artistic creations 
E) ideas, inventions, and artistic creations 
A) ideas 
B) inventions 
C) only ideas and inventions 
D) only ideas and artistic creations 
E) ideas, inventions, and artistic creations

Question 3

Financial intermediaries bring suppliers and demanders together in the market for

Accepted Answer

A) checks 
B) loanable funds 
C) saving 
D) physical capital 
E) income 
A) checks 
B) loanable funds 
C) saving 
D) physical capital 
E) income

Question 4

The payment of a given sum of money each year that continues indefinitely into the future is known as

Accepted Answer

A) a perpetuity 
B) a lottery 
C) a term payment 
D) a permanent annuity 
E) an indefinite annuity 
A) a perpetuity 
B) a lottery 
C) a term payment 
D) a permanent annuity 
E) an indefinite annuity

Question 5

Roundabout production occurs when

Accepted Answer

A) entrepreneurs hire others to work for them, rather than taking the time to produce things themselves 
B) workers avoid intermediary entrepreneurs and cooperate to produce output themselves 
C) inefficient technology is used 
D) producers make capital goods instead of consumption goods 
E) a company takes time to market shares in the company 
A) entrepreneurs hire others to work for them, rather than taking the time to produce things themselves 
B) workers avoid intermediary entrepreneurs and cooperate to produce output themselves 
C) inefficient technology is used 
D) producers make capital goods instead of consumption goods 
E) a company takes time to market shares in the company

Question 6

The present value of a promise to pay $5, 000 every year forever when the prevailing interest rate is 10 percent equals

Accepted Answer

A) $5, 000 
B) $50, 000 
C) $100, 000 
D) $250, 000 
E) $500, 000 
A) $5, 000 
B) $50, 000 
C) $100, 000 
D) $250, 000 
E) $500, 000

Question 7

For the typical consumer, present consumption is

Accepted Answer

A) preferred to future consumption 
B) not preferred to future consumption 
C) preferred to future saving 
D) not preferred to future saving 
E) financed out of present saving 
A) preferred to future consumption 
B) not preferred to future consumption 
C) preferred to future saving 
D) not preferred to future saving 
E) financed out of present saving

Question 8

If consumers decide to increase their rate of saving, the

Accepted Answer

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

Question 9

A profit-maximizing firm invests up to the point at which the marginal rate of return on capital is greatest.

Accepted Answer

A) True 
 B)False

Question 10

The procedure of determining the present value of payments to be received in the future is known as

Accepted Answer

A) compounding 
B) amortizing 
C) perpetuating 
D) nominalizing 
E) discounting 
A) compounding 
B) amortizing 
C) perpetuating 
D) nominalizing 
E) discounting

Question 11

Exhibit 13-8   In Exhibit 13-8, D0 and S0 represent the initial demand and supply of loanable funds.A decrease in the expected rate of inflation 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 g 
A) point b 
B) point c 
C) point d 
D) point f 
E) point g

Question 12

Most companies that sell CDs by mail deliver in 1 to 2 weeks.Mosey Music, Inc., takes 4 weeks to deliver CDs.We should expect that Mosey Music

Accepted Answer

A) will lose all its customers 
B) will not lose customers because the good in question is CDs, not the delivery date 
C) will have to charge more for its CDs to make up for the business it loses through slow delivery 
D) will have to charge less for its CDs to compete with firms that deliver CDs faster 
E) will be able to charge the same amount for its CDs as other firms do, as long as the CD quality is the same 
A) will lose all its customers 
B) will not lose customers because the good in question is CDs, not the delivery date 
C) will have to charge more for its CDs to make up for the business it loses through slow delivery 
D) will have to charge less for its CDs to compete with firms that deliver CDs faster 
E) will be able to charge the same amount for its CDs as other firms do, as long as the CD quality is the same

Question 13

The present value of receiving M dollars two years from now when the prevailing interest rate is i is equal to

Accepted Answer

A) M - i2 
B) M ´ i2 
C) M/i 
D) M/(1 - i) 
E) M/(1 + i)2 
A) M - i2 
B) M ´ i2 
C) M/i 
D) M/(1 - i) 
E) M/(1 + i)2

Question 14

You expect to rent out a vacation home on Sanibel Island for $800 a month as an investment.Upkeep is estimated at $3, 000 a year.If the current market interest rate is 5 percent, you are willing to pay __________ for the house.

Accepted Answer

A) $132, 000 
B) $100, 000 
C) $160, 000 
D) $192, 000 
E) $800, 000 
A) $132, 000 
B) $100, 000 
C) $160, 000 
D) $192, 000 
E) $800, 000

Question 15

Exhibit 13-5   Exhibit 13-5 shows data on the various dough-mixing machines that a donut shop is considering buying.The marginal product of the machine with the three-quart mixing bowl is

Accepted Answer

A) 50 donuts per day 
B) 100 donuts per day 
C) 1, 000 donuts per day 
D) 550 donuts per day 
E) 5 percent 
A) 50 donuts per day 
B) 100 donuts per day 
C) 1, 000 donuts per day 
D) 550 donuts per day 
E) 5 percent

Question 16

One problem associated with intellectual property is that

Accepted Answer

A) only one person can use it at a time 
B) the patent system reduces incentives to create new intellectual property 
C) the cost of producing it usually exceeds the benefit 
D) encryption software creates monopoly power 
E) the original producer has difficulty preventing non-paying beneficiaries from consuming the property 
A) only one person can use it at a time 
B) the patent system reduces incentives to create new intellectual property 
C) the cost of producing it usually exceeds the benefit 
D) encryption software creates monopoly power 
E) the original producer has difficulty preventing non-paying beneficiaries from consuming the property

Question 17

The supply of loanable funds curve is

Accepted Answer

A) upward sloping because fewer people are persuaded to forgo current consumption as the interest rate rises 
B) downward sloping, showing that more investment will be undertaken as inflation decreases 
C) upward sloping because the opportunity cost of goods and services that must be forgone increases 
D) downward sloping, showing that as more funds are made available, the risk cost of loaning funds decreases 
E) usually horizontal 
A) upward sloping because fewer people are persuaded to forgo current consumption as the interest rate rises 
B) downward sloping, showing that more investment will be undertaken as inflation decreases 
C) upward sloping because the opportunity cost of goods and services that must be forgone increases 
D) downward sloping, showing that as more funds are made available, the risk cost of loaning funds decreases 
E) usually horizontal

Question 18

Which of the following does not contribute to differences in interest rates?

Accepted Answer

A) Different loans are for different periods of time. 
B) Large loans generate more administrative costs per dollar than smaller loans. 
C) Different loans are subject to different tax rules. 
D) Loans to established businesses are evaluated differently from loans to new businesses. 
E) The longer the period of repayment, the greater the risk of higher-than-expected inflation. 
A) Different loans are for different periods of time. 
B) Large loans generate more administrative costs per dollar than smaller loans. 
C) Different loans are subject to different tax rules. 
D) Loans to established businesses are evaluated differently from loans to new businesses. 
E) The longer the period of repayment, the greater the risk of higher-than-expected inflation.

Question 19

Because present consumption is more highly valued higher than future consumption, interest is paid.

Accepted Answer

A) True 
 B)False

Question 20

Another term for an investment good is

Accepted Answer

A) interest 
B) savings 
C) capital 
D) rent 
E) production 
A) interest 
B) savings 
C) capital 
D) rent 
E) production

Exam 13: Capital, Interest, and Corporate Finance

If I own a share of stock in IBM, I own

Economic development around the globe will be affected by how society nurtures incentives to create new

Financial intermediaries bring suppliers and demanders together in the market for

The payment of a given sum of money each year that continues indefinitely into the future is known as

Roundabout production occurs when

The present value of a promise to pay $5, 000 every year forever when the prevailing interest rate is 10 percent equals

For the typical consumer, present consumption is

If consumers decide to increase their rate of saving, the

A profit-maximizing firm invests up to the point at which the marginal rate of return on capital is greatest.

The procedure of determining the present value of payments to be received in the future is known as

Exhibit 13-8 In Exhibit 13-8, D0 and S0 represent the initial demand and supply of loanable funds.A decrease in the expected rate of inflation would shift the equilibrium in this market from point a to

Most companies that sell CDs by mail deliver in 1 to 2 weeks.Mosey Music, Inc., takes 4 weeks to deliver CDs.We should expect that Mosey Music

The present value of receiving M dollars two years from now when the prevailing interest rate is i is equal to

You expect to rent out a vacation home on Sanibel Island for $800 a month as an investment.Upkeep is estimated at $3, 000 a year.If the current market interest rate is 5 percent, you are willing to pay __________ for the house.

Exhibit 13-5 Exhibit 13-5 shows data on the various dough-mixing machines that a donut shop is considering buying.The marginal product of the machine with the three-quart mixing bowl is

One problem associated with intellectual property is that

The supply of loanable funds curve is

Which of the following does not contribute to differences in interest rates?

Because present consumption is more highly valued higher than future consumption, interest is paid.

Another term for an investment good 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

Filters

Exhibit 13-8 In Exhibit 13-8, D₀and S₀ represent the initial demand and supply of loanable funds.A decrease in the expected rate of inflation would shift the equilibrium in this market from point a to