Question 1

If the return on capital is 12 percent and the price for loanable funds is 14 percent,then

Accepted Answer

A)  currently businesses will not borrow loanable funds to invest in capital goods. 
B)  eventually the return on capital will decrease to the point where businesses will find it profitable to borrow loanable funds. 
C)  the return on capital will fall as the supply of capital decreases over time, and simultaneously, the price for loanable funds will increase as savers make even more savings available. 
D)  a and b 
A)  currently businesses will not borrow loanable funds to invest in capital goods. 
B)  eventually the return on capital will decrease to the point where businesses will find it profitable to borrow loanable funds. 
C)  the return on capital will fall as the supply of capital decreases over time, and simultaneously, the price for loanable funds will increase as savers make even more savings available. 
D)  a and b

Question 2

The nominal interest rate is

Accepted Answer

A)  determined by the forces of supply and demand in the consumer goods market. 
B)  the interest rate in current dollars, unadjusted for inflation. 
C)  higher than the real interest rate even if the expected inflation rate is zero. 
D)  lower than the real interest rate even if the expected inflation rate is zero. 
E)  b and d 
A)  determined by the forces of supply and demand in the consumer goods market. 
B)  the interest rate in current dollars, unadjusted for inflation. 
C)  higher than the real interest rate even if the expected inflation rate is zero. 
D)  lower than the real interest rate even if the expected inflation rate is zero. 
E)  b and d

Question 3

Profits are income to

Accepted Answer

A)  owners of capital. 
B)  all factors of production in a profitable firm. 
C)  owners of land. 
D)  entrepreneurs who bear the risks of production. 
E)  owners of a highly productive resource. 
A)  owners of capital. 
B)  all factors of production in a profitable firm. 
C)  owners of land. 
D)  entrepreneurs who bear the risks of production. 
E)  owners of a highly productive resource.

Question 4

Which of the following statements is true?

Accepted Answer

A)  The supply curve for land is upward sloping in the short run, but is perfectly inelastic in the long run. 
B)  The supply curve for land is upward sloping in the short run, but is perfectly elastic in the long run. 
C)  The supply curve for land is upward sloping when considering a small portion of the total amount of land, but is perfectly inelastic when considering the total amount. 
D)  The supply curve for land is upward sloping when considering the total amount of land, but is perfectly inelastic when considering a small portion of the total amount. 
A)  The supply curve for land is upward sloping in the short run, but is perfectly inelastic in the long run. 
B)  The supply curve for land is upward sloping in the short run, but is perfectly elastic in the long run. 
C)  The supply curve for land is upward sloping when considering a small portion of the total amount of land, but is perfectly inelastic when considering the total amount. 
D)  The supply curve for land is upward sloping when considering the total amount of land, but is perfectly inelastic when considering a small portion of the total amount.

Question 5

The current real interest rate is 6 percent.It follows the nominal interest rate is __________ percent if the expected inflation rate is __________ percent.

Accepted Answer

A)  8; 14 
B)  10; 2 
C)  -2; 4 
D)  9; 3 
E)  There is not enough information to answer the question. 
A)  8; 14 
B)  10; 2 
C)  -2; 4 
D)  9; 3 
E)  There is not enough information to answer the question.

Question 6

Economic rent is

Accepted Answer

A)  the payment a renter pays his or her landlord. 
B)  payment in excess of fixed costs. 
C)  payment in excess of opportunity costs. 
D)  the same as interest if we are discussing a capital good purchase. 
E)  none of the above 
A)  the payment a renter pays his or her landlord. 
B)  payment in excess of fixed costs. 
C)  payment in excess of opportunity costs. 
D)  the same as interest if we are discussing a capital good purchase. 
E)  none of the above

Question 7

If medical research were to find that grain consumption lowers human life expectancy,agricultural land rents would

Accepted Answer

A)  increase. 
B)  decrease. 
C)  not be affected. 
D)  increase in the short run and decrease in the long run. 
A)  increase. 
B)  decrease. 
C)  not be affected. 
D)  increase in the short run and decrease in the long run.

Question 8

"Pure economic rent" is a payment

Accepted Answer

A)  in excess of opportunity costs. 
B)  in excess of opportunity costs when opportunity costs are zero. 
C)  for the use of land. 
D)  in excess of opportunity costs when opportunity costs are positive. 
E)  to a pure monopolist for the monopolist's product. 
A)  in excess of opportunity costs. 
B)  in excess of opportunity costs when opportunity costs are zero. 
C)  for the use of land. 
D)  in excess of opportunity costs when opportunity costs are positive. 
E)  to a pure monopolist for the monopolist's product.

Question 9

Lawrence earns $X in his current job.If he weren't working at his current job,he would be working at another job earning $Y.It follows that

Accepted Answer

A)  Lawrence is not earning any economic rent in his current job. 
B)  Lawrence is earning economic rent in his current job if $X - $Y is a positive dollar amount. 
C)  Lawrence is earning economic rent in his current job if $X - $Y is a negative dollar amount. 
D)  Lawrence is earning pure economic rent in his current job. 
E)  Lawrence is definitely earning some economic rent in his current job. 
A)  Lawrence is not earning any economic rent in his current job. 
B)  Lawrence is earning economic rent in his current job if $X - $Y is a positive dollar amount. 
C)  Lawrence is earning economic rent in his current job if $X - $Y is a negative dollar amount. 
D)  Lawrence is earning pure economic rent in his current job. 
E)  Lawrence is definitely earning some economic rent in his current job.

Question 10

Many years ago someone developed an item that was simply a small rock inside a box with holes.The person earned large profits from selling "pet rocks." Which of the following theories on the source of profits best describes the reason behind this success?

Accepted Answer

A)  Uncertainty is a source of profits. 
B)  Profit is the reward for alertness to arbitrage opportunities. 
C)  Profit is the return to the entrepreneur as innovator. 
D)  There's a sucker born every minute. 
E)  Sometimes all that it takes is to be in the right place at the right time. 
A)  Uncertainty is a source of profits. 
B)  Profit is the reward for alertness to arbitrage opportunities. 
C)  Profit is the return to the entrepreneur as innovator. 
D)  There's a sucker born every minute. 
E)  Sometimes all that it takes is to be in the right place at the right time.

Question 11

As the interest rate rises,the opportunity cost of

Accepted Answer

A)  future consumption rises. 
B)  present consumption rises. 
C)  investing in roundabout methods of production rises. 
D)  lending money rises. 
A)  future consumption rises. 
B)  present consumption rises. 
C)  investing in roundabout methods of production rises. 
D)  lending money rises.

Question 12

The English economist who said that grain prices weren't high because rents were high,but rents were high because grain prices were high was

Accepted Answer

A)  Adam Smith. 
B)  Alfred Marshall. 
C)  David Ricardo. 
D)  John Maynard Keynes. 
E)  Joan Robinson. 
A)  Adam Smith. 
B)  Alfred Marshall. 
C)  David Ricardo. 
D)  John Maynard Keynes. 
E)  Joan Robinson.

Question 13

Ceteris paribus,the nominal rate of interest will increase when the

Accepted Answer

A)  real rate of interest falls. 
B)  expected rate of inflation increases. 
C)  expected rate of inflation falls. 
D)  a and b 
E)  a and c 
A)  real rate of interest falls. 
B)  expected rate of inflation increases. 
C)  expected rate of inflation falls. 
D)  a and b 
E)  a and c

Question 14

If 1 percent inflation rather than zero percent inflation is expected by both the suppliers and demanders of loanable funds,then the nominal interest rate will

Accepted Answer

A)  fall, ceteris paribus. 
B)  remain constant. 
C)  rise. 
D)  rise, ceteris paribus. 
A)  fall, ceteris paribus. 
B)  remain constant. 
C)  rise. 
D)  rise, ceteris paribus.

Question 15

Exhibit 30-2
  
-Refer to Exhibit 30-2.The interest and interest rate on loan 1 are,respectively,

Accepted Answer

A)  $1,100 and 100 percent. 
B)  $1,100 and 10 percent. 
C)  10 percent and $100. 
D)  $100 and 10 percent. 
A)  $1,100 and 100 percent. 
B)  $1,100 and 10 percent. 
C)  10 percent and $100. 
D)  $100 and 10 percent.

Question 16

If the nominal rate of interest is 7 percent and the expected rate of inflation is 6 percent,then the real rate of interest is

Accepted Answer

A)  6 percent. 
B)  12 percent. 
C)  1 percent. 
D)  4 percent. 
A)  6 percent. 
B)  12 percent. 
C)  1 percent. 
D)  4 percent.

Question 17

If the interest rate increases,then

Accepted Answer

A)  households will decrease their level of saving. 
B)  the supply of loanable funds will fall because it now costs more to borrow funds and people who were supplying the funds will realize that fewer people will be willing to borrow their funds. 
C)  households will consume less and save more. 
D)  government will consume more because it now costs more to borrow funds to buy goods. 
E)  a, b, and d 
A)  households will decrease their level of saving. 
B)  the supply of loanable funds will fall because it now costs more to borrow funds and people who were supplying the funds will realize that fewer people will be willing to borrow their funds. 
C)  households will consume less and save more. 
D)  government will consume more because it now costs more to borrow funds to buy goods. 
E)  a, b, and d

Question 18

The interest rate on a loan will be lower,

Accepted Answer

A)  the shorter the term of the loan. 
B)  the less risk associated with the loan. 
C)  the lower the processing costs of the loan. 
D)  the lower the administrative costs of the loan. 
E)  all of the above 
A)  the shorter the term of the loan. 
B)  the less risk associated with the loan. 
C)  the lower the processing costs of the loan. 
D)  the lower the administrative costs of the loan. 
E)  all of the above

Question 19

If roundabout methods of production did not ultimately __________,they would probably not be employed.

Accepted Answer

A)  decrease taxes 
B)  increase consumption 
C)  decrease interest rates 
D)  lower inflation 
E)  increase the number of persons working 
A)  decrease taxes 
B)  increase consumption 
C)  decrease interest rates 
D)  lower inflation 
E)  increase the number of persons working

Question 20

If the nominal interest rate is 14 percent and the real interest rate is 6 percent,then the expected rate of inflation is

Accepted Answer

A)  20 percent. 
B)  6 percent. 
C)  8 percent. 
D)  -8 percent. 
E)  impossible to determine from the data given. 
A)  20 percent. 
B)  6 percent. 
C)  8 percent. 
D)  -8 percent. 
E)  impossible to determine from the data given.

Exam 30: Interest, Rent, and Profit

If the return on capital is 12 percent and the price for loanable funds is 14 percent,then

The nominal interest rate is

Profits are income to

Which of the following statements is true?

The current real interest rate is 6 percent.It follows the nominal interest rate is __________ percent if the expected inflation rate is __________ percent.

Economic rent is

If medical research were to find that grain consumption lowers human life expectancy,agricultural land rents would

"Pure economic rent" is a payment

Lawrence earns $X in his current job.If he weren't working at his current job,he would be working at another job earning $Y.It follows that

Many years ago someone developed an item that was simply a small rock inside a box with holes.The person earned large profits from selling "pet rocks." Which of the following theories on the source of profits best describes the reason behind this success?

As the interest rate rises,the opportunity cost of

The English economist who said that grain prices weren't high because rents were high,but rents were high because grain prices were high was

Ceteris paribus,the nominal rate of interest will increase when the

If 1 percent inflation rather than zero percent inflation is expected by both the suppliers and demanders of loanable funds,then the nominal interest rate will

Exhibit 30-2 -Refer to Exhibit 30-2.The interest and interest rate on loan 1 are,respectively,

If the nominal rate of interest is 7 percent and the expected rate of inflation is 6 percent,then the real rate of interest is

If the interest rate increases,then

The interest rate on a loan will be lower,

If roundabout methods of production did not ultimately __________,they would probably not be employed.

If the nominal interest rate is 14 percent and the real interest rate is 6 percent,then the expected rate of inflation is

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

The current real interest rate is 6 percent.It follows the nominal interest rate is percent if the expected inflation rate is percent.