Question 1

What is the present value of a future income stream of three $12,000 payments to be received one,two,and three years from today if the interest rate is 2.8 percent?

Accepted Answer

A)  $32,799 
B)  $34,074 
C)  $28,134 
D)  $11,046 
A)  $32,799 
B)  $34,074 
C)  $28,134 
D)  $11,046

Question 2

Which of the following statements is false?

Accepted Answer

A)  Capital depreciates over time. 
B)  As the capital stock decreases, the marginal physical product of capital rises. 
C)  If the return on capital is less than the price of credit, a firm will not borrow funds to invest in capital. 
D)  If the return on capital is greater than the price of credit, then the price of credit must be greater than the price for loanable funds. 
A)  Capital depreciates over time. 
B)  As the capital stock decreases, the marginal physical product of capital rises. 
C)  If the return on capital is less than the price of credit, a firm will not borrow funds to invest in capital. 
D)  If the return on capital is greater than the price of credit, then the price of credit must be greater than the price for loanable funds.

Question 3

The term "present value" refers to

Accepted Answer

A)  how much something costs today relative to what it could be sold for in the future after it depreciates in value. 
B)  how much you would be willing to pay for a good today if you are not sure that the good will be available in the future. 
C)  the current worth of some future dollar amount of income. 
D)  how much your savings are worth today after having been invested for a certain number of years. 
E)  the difference between the price you pay for a good and the costs of producing that good. 
A)  how much something costs today relative to what it could be sold for in the future after it depreciates in value. 
B)  how much you would be willing to pay for a good today if you are not sure that the good will be available in the future. 
C)  the current worth of some future dollar amount of income. 
D)  how much your savings are worth today after having been invested for a certain number of years. 
E)  the difference between the price you pay for a good and the costs of producing that good.

Question 4

The current nominal interest rate is 9 percent.If the expected inflation rate changes from 2 to 3 percent (ceteris paribus),it follows that the demand for loanable funds will

Accepted Answer

A)  rise by more than the supply of loanable funds will rise. 
B)  will rise by less than the supply of loanable funds will fall. 
C)  will fall by more than the supply of loanable funds will rise. 
D)  rise by the same amount that the supply of loanable funds will rise. 
E)  none of the above 
A)  rise by more than the supply of loanable funds will rise. 
B)  will rise by less than the supply of loanable funds will fall. 
C)  will fall by more than the supply of loanable funds will rise. 
D)  rise by the same amount that the supply of loanable funds will rise. 
E)  none of the above

Question 5

Jaime has an old car that he expects will last for only three more years. He says he derives $1,000 worth of services from the car each year. He expects the scrap value of the car to be so low that it is not worth considering.If the interest rate is 7 percent,it is not likely that he will sell the car unless he is paid more than

Accepted Answer

A)  $763. 
B)  $2,800. 
C)  $1,562. 
D)  $1,925. 
E)  $2,624. 
A)  $763. 
B)  $2,800. 
C)  $1,562. 
D)  $1,925. 
E)  $2,624.

Question 6

Michelle can work at job A earning $50,000 a year,job B earning $83,000 a year,or job C earning $85,000 a year.If Michelle chooses job C,then her economic rent from working at that job rather than job A is

Accepted Answer

A)  $35,000. 
B)  $2,000. 
C)  $0. 
D)  $33,000. 
A)  $35,000. 
B)  $2,000. 
C)  $0. 
D)  $33,000.

Question 7

The price of a loanable fund is greater than the return on capital.It follows that firms will

Accepted Answer

A)  not borrow funds and eventually the capital stock will decrease and the return on capital will rise. 
B)  borrow funds and, as a result, the capital stock will rise. 
C)  not borrow funds and eventually the capital stock will increase and the return on capital will rise. 
D)  borrow funds and, as a result, the price of credit will rise. 
E)  none of the above 
A)  not borrow funds and eventually the capital stock will decrease and the return on capital will rise. 
B)  borrow funds and, as a result, the capital stock will rise. 
C)  not borrow funds and eventually the capital stock will increase and the return on capital will rise. 
D)  borrow funds and, as a result, the price of credit will rise. 
E)  none of the above

Question 8

The supply curve for land will be upward sloping as long as

Accepted Answer

A)  there is unimproved land ready for development. 
B)  the money price of land is greater than zero. 
C)  land has alternative uses. 
D)  the demand for land is variable. 
A)  there is unimproved land ready for development. 
B)  the money price of land is greater than zero. 
C)  land has alternative uses. 
D)  the demand for land is variable.

Question 9

As the interest rate (price for loanable funds)decreases,businesses will

Accepted Answer

A)  find it less profitable to invest in capital goods, because the lower interest rate means that they will earn a lower return on their investments. 
B)  find it less profitable to invest in capital goods, because their costs of production will be higher. 
C)  increase their borrowings of loanable funds, because the cost of borrowing has declined relative to the benefits of borrowing. 
D)  decrease their borrowings of loanable funds, because there will now be cheaper ways to produce goods than to employ roundabout methods of production. 
E)  b and c 
A)  find it less profitable to invest in capital goods, because the lower interest rate means that they will earn a lower return on their investments. 
B)  find it less profitable to invest in capital goods, because their costs of production will be higher. 
C)  increase their borrowings of loanable funds, because the cost of borrowing has declined relative to the benefits of borrowing. 
D)  decrease their borrowings of loanable funds, because there will now be cheaper ways to produce goods than to employ roundabout methods of production. 
E)  b and c

Question 10

As the interest rate falls,firms are more inclined to buy capital goods because the

Accepted Answer

A)  present value of the stream of returns the goods will provide in the future increases. 
B)  present value of the stream of returns the goods will provide in the future decreases. 
C)  future value of the money paid for the capital goods decreases. 
D)  none of the above 
A)  present value of the stream of returns the goods will provide in the future increases. 
B)  present value of the stream of returns the goods will provide in the future decreases. 
C)  future value of the money paid for the capital goods decreases. 
D)  none of the above

Question 11

Land can earn economic rent,and so can

Accepted Answer

A)  labor and capital. 
B)  labor. 
C)  capital. 
D)  none of the above 
A)  labor and capital. 
B)  labor. 
C)  capital. 
D)  none of the above

Question 12

The only resource that cannot earn economic rent is labor.

Accepted Answer

A) True 
 B)False

Question 13

Prices of goods and services are high in cities such as Tokyo and New York City as a result of high land rents in those cities.

Accepted Answer

A) True 
 B)False

Question 14

If the demand for consumption loans rises,this could be the result of

Accepted Answer

A)  the discovery of new roundabout methods of production. 
B)  a higher rate of time preference in society. 
C)  an increase in (people) saving. 
D)  a higher interest rate. 
E)  a and c 
A)  the discovery of new roundabout methods of production. 
B)  a higher rate of time preference in society. 
C)  an increase in (people) saving. 
D)  a higher interest rate. 
E)  a and c

Question 15

Professor Simpson earns $80,000 per year teaching at the local college.Due to budget cutbacks,the college cuts her annual salary to $50,000 per year.Professor Simpson remains at the college and her behavior at work is not affected by the salary cut.It follows that

Accepted Answer

A)  Professor Simpson's entire salary is an economic rent. 
B)  the $30,000 cut from Professor Simpson's salary was entirely economic rent. 
C)  the $30,000 cut from Professor Simpson's salary was partly economic rent. 
D)  a and b 
A)  Professor Simpson's entire salary is an economic rent. 
B)  the $30,000 cut from Professor Simpson's salary was entirely economic rent. 
C)  the $30,000 cut from Professor Simpson's salary was partly economic rent. 
D)  a and b

Question 16

Exhibit 30-2
  
-Refer to Exhibit 30-2.The interest and interest rate for loan 5 are,respectively,

Accepted Answer

A)  $21,600 and 8.0 percent. 
B)  $21,600 and 10.8 percent. 
C)  $1,600 and 8.0 percent. 
D)  $1,600 and 10.8 percent. 
E)  none of the above 
A)  $21,600 and 8.0 percent. 
B)  $21,600 and 10.8 percent. 
C)  $1,600 and 8.0 percent. 
D)  $1,600 and 10.8 percent. 
E)  none of the above

Question 17

A decrease in the expected rate of inflation will shift the demand for loanable funds curve __________,while shifting the supply of loanable funds curve __________.

Accepted Answer

A)  leftward; leftward 
B)  leftward; rightward 
C)  rightward; rightward 
D)  rightward; leftward 
A)  leftward; leftward 
B)  leftward; rightward 
C)  rightward; rightward 
D)  rightward; leftward

Question 18

If you have a low rate of time preference,then you

Accepted Answer

A)  buy goods right now because "you just can't wait." 
B)  are willing to save a larger percentage of your income than a person who has a high rate of time preference. 
C)  find it difficult to save much of your income because money "just sitting around" is worthless to you. 
D)  are willing to borrow money to buy goods now. 
E)  a, c, and d 
A)  buy goods right now because "you just can't wait." 
B)  are willing to save a larger percentage of your income than a person who has a high rate of time preference. 
C)  find it difficult to save much of your income because money "just sitting around" is worthless to you. 
D)  are willing to borrow money to buy goods now. 
E)  a, c, and d

Question 19

The present value of $5,000 one year in the future at a 5 percent interest rate is approximately

Accepted Answer

A)  $4,762. 
B)  $5,005. 
C)  $5,250. 
D)  $10,500. 
A)  $4,762. 
B)  $5,005. 
C)  $5,250. 
D)  $10,500.

Question 20

Firms demand credit so that they can invest in capital goods and finance roundabout methods of production.

Accepted Answer

A) True 
 B)False

Exam 30: Interest, Rent, and Profit

What is the present value of a future income stream of three $12,000 payments to be received one,two,and three years from today if the interest rate is 2.8 percent?

Which of the following statements is false?

The term "present value" refers to

The current nominal interest rate is 9 percent.If the expected inflation rate changes from 2 to 3 percent (ceteris paribus),it follows that the demand for loanable funds will

Michelle can work at job A earning $50,000 a year,job B earning $83,000 a year,or job C earning $85,000 a year.If Michelle chooses job C,then her economic rent from working at that job rather than job A is

The price of a loanable fund is greater than the return on capital.It follows that firms will

The supply curve for land will be upward sloping as long as

As the interest rate (price for loanable funds)decreases,businesses will

As the interest rate falls,firms are more inclined to buy capital goods because the

Land can earn economic rent,and so can

The only resource that cannot earn economic rent is labor.

Prices of goods and services are high in cities such as Tokyo and New York City as a result of high land rents in those cities.

If the demand for consumption loans rises,this could be the result of

Professor Simpson earns $80,000 per year teaching at the local college.Due to budget cutbacks,the college cuts her annual salary to $50,000 per year.Professor Simpson remains at the college and her behavior at work is not affected by the salary cut.It follows that

Exhibit 30-2 -Refer to Exhibit 30-2.The interest and interest rate for loan 5 are,respectively,

A decrease in the expected rate of inflation will shift the demand for loanable funds curve __________,while shifting the supply of loanable funds curve __________.

If you have a low rate of time preference,then you

The present value of $5,000 one year in the future at a 5 percent interest rate is approximately

Firms demand credit so that they can invest in capital goods and finance roundabout methods of production.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, Controlled, and Relative

Supply, Demand, and Price: Applications

Macroeconomic Measurements: Prices and Unemployment

Macroeconomic Measurements: GDP and Real GDP

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self Regulating Economy

Keynesian Macroeconomics and Economic Instability: A Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money, Banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, Technology, Ideas, and Institutions

The Financial Crisis of 2007-2009

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice: Maximizing Utility and Behavioral Economics

Production and Costs

Perfect Competition

Monopoly

Monopolistic Competition, Oligopoly, and Game Theory

Government and Product Markets: Antitrust and Regulation

Factor Markets: With Emphasis on the Labor Market

Wages,Unions,and Labor

The Distribution of Income and Poverty

Market Failure: Externalities, Public Goods, and Asymmetric Information

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case For and Against Government: Five Topics Considered

Stocks, Bonds, Futures, and Options

Agriculture: Problems, Policies, and Unintended Effects

Filters

A decrease in the expected rate of inflation will shift the demand for loanable funds curve ,while shifting the supply of loanable funds curve .