Question 1

If the marginal revenue product of capital for a profit-maximizing firm is $800 and the price of capital is $600, then the firm

Accepted Answer

A) has just the right amount of capital. 
B) should decrease the amount of other inputs its production process requires. 
C) should increase the amount of other inputs its production process requires. 
D) should purchase or rent more capital. 
E) should reduce the amount of capital. 
A) has just the right amount of capital. 
B) should decrease the amount of other inputs its production process requires. 
C) should increase the amount of other inputs its production process requires. 
D) should purchase or rent more capital. 
E) should reduce the amount of capital.

Question 2

One possible role for government is to intervene to prevent the failure of large financial institutions and thereby prevent instability in the financial markets. Indeed, during 2008 the federal government intervened in several ways by loaning or investing funds to help some of these financial institutions.

Accepted Answer

A) True 
 B)False

Question 3

A problem can be created when there are different levels of information available to different people in an economic interaction or exchange. This is known in economic and financial theory as

Accepted Answer

A) information advantage. 
B) unwarranted information advantage. 
C) unfair trade. 
D) asymmetric information. 
E) None of these. 
A) information advantage. 
B) unwarranted information advantage. 
C) unfair trade. 
D) asymmetric information. 
E) None of these.

Question 4

The price of a good with a vertical market supply is called

Accepted Answer

A) pure profit. 
B) economic rent. 
C) pure price. 
D) fixed-supply price. 
E) gouged price. 
A) pure profit. 
B) economic rent. 
C) pure price. 
D) fixed-supply price. 
E) gouged price.

Question 5

For a bond, a higher yield means a lower face value.

Accepted Answer

A) True 
 B)False

Question 6

The face value of a bond is the principal that will be paid back when the bond matures.

Accepted Answer

A) True 
 B)False

Question 7

One major reason for the outbreak of the financial crisis was too much government regulation in the banking system.

Accepted Answer

A) True 
 B)False

Question 8

Draw a diagram of a market in which economic rent occurs. Be sure to label the rent in the diagram.

Accepted Answer

The answer of Draw a diagram of a market in...

Question 9

If the price of a stock rises from $80 to $100 over the course of a year and the dividend paid is $5, the capital gain is

Accepted Answer

A) 15 percent. 
B) 31.25 percent. 
C) $25. 
D) $20. 
E) 6.25 percent. 
A) 15 percent. 
B) 31.25 percent. 
C) $25. 
D) $20. 
E) 6.25 percent.

Question 10

Find an expression for the present discounted value of

Accepted Answer

The answer of Find an expression for the present discounted...

Question 11

Suppose the U.S. government issues a one-year Treasury bill with a face value of $5,000 and a $100 coupon payment. If the market interest rate is 9 percent, what is the market price of the bond based on its present discounted value? If bond prices rise by 4 percent, what must have happened to the market interest rate? Explain.

Accepted Answer

The price of the bond is @#IMG-DLM& .
If

Question 12

You are considering two work contracts, each of which lasts for five years. The two contracts are summarized in the following table.   Assume that you will be paid at the end of each year. Contract 1 includes a signing bonus of $5,000 to be paid at the beginning of year 1, whereas contract 2 does not include a signing bonus. If the interest rate is 5 percent, which is the better offer?

Accepted Answer

The present discounted value o

Question 13

What is the yield on a very long-term bond with a $500 face value, a coupon of $35, and a current price of $650?

Accepted Answer

A) 37 percent 
B) 35 percent 
C) 5.4 percent 
D) 7 percent 
E) 17.7 percent 
A) 37 percent 
B) 35 percent 
C) 5.4 percent 
D) 7 percent 
E) 17.7 percent

Question 14

Many experts think a major reason for the housing boom during the years leading up to the housing bust in 2006 was that mortgage interest rates were very low.

Accepted Answer

A) True 
 B)False

Question 15

The equilibrium risk-return curve for a risk-averse person is positively sloped.

Accepted Answer

A) True 
 B)False

Question 16

The U.S. government did not intervene to prevent the failure of any financial institution during the 2007-2008 financial crisis.

Accepted Answer

A) True 
 B)False

Question 17

Suppose a bond with a face value of $1,000 pays a coupon of $200, and the bond matures in 50 years. If the interest rate is currently 15 percent, calculate the approximate price of the bond.

Accepted Answer

For a very long maturity, bond

Question 18

The equilibrium risk-return curve for a risk-neutral individual will be

Accepted Answer

A) horizontal. 
B) a 45-degree line. 
C) positively sloped. 
D) vertical. 
E) negatively sloped. 
A) horizontal. 
B) a 45-degree line. 
C) positively sloped. 
D) vertical. 
E) negatively sloped.

Question 19

Depreciation of physical capital occurs because it

Accepted Answer

A) is no longer wanted. 
B) cannot be fixed. 
C) is not made well. 
D) gets old. 
E) wears out. 
A) is no longer wanted. 
B) cannot be fixed. 
C) is not made well. 
D) gets old. 
E) wears out.

Question 20

The Federal Reserve is the only government authority that oversees U.S. banks.

Accepted Answer

A) True 
 B)False

Exam 16: Capital and Financial Markets

If the marginal revenue product of capital for a profit-maximizing firm is $800 and the price of capital is $600, then the firm

A problem can be created when there are different levels of information available to different people in an economic interaction or exchange. This is known in economic and financial theory as

The price of a good with a vertical market supply is called

For a bond, a higher yield means a lower face value.

The face value of a bond is the principal that will be paid back when the bond matures.

One major reason for the outbreak of the financial crisis was too much government regulation in the banking system.

Draw a diagram of a market in which economic rent occurs. Be sure to label the rent in the diagram.

If the price of a stock rises from $80 to $100 over the course of a year and the dividend paid is $5, the capital gain is

Find an expression for the present discounted value of

What is the yield on a very long-term bond with a $500 face value, a coupon of $35, and a current price of $650?

Many experts think a major reason for the housing boom during the years leading up to the housing bust in 2006 was that mortgage interest rates were very low.

The equilibrium risk-return curve for a risk-averse person is positively sloped.

The U.S. government did not intervene to prevent the failure of any financial institution during the 2007-2008 financial crisis.

Suppose a bond with a face value of $1,000 pays a coupon of $200, and the bond matures in 50 years. If the interest rate is currently 15 percent, calculate the approximate price of the bond.

The equilibrium risk-return curve for a risk-neutral individual will be

Depreciation of physical capital occurs because it

The Federal Reserve is the only government authority that oversees U.S. banks.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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