Question 1

The equilibrium interest rate is determined

Accepted Answer

A)  by the demand for loanable funds. 
B)  by the supply of loanable funds. 
C)  by the demand for and supply of loanable funds. 
D)  independently of the demand for and supply of loanable funds. 
A)  by the demand for loanable funds. 
B)  by the supply of loanable funds. 
C)  by the demand for and supply of loanable funds. 
D)  independently of the demand for and supply of loanable funds.

Question 2

The nominal interest rate will rise if the

Accepted Answer

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

Question 3

If consumers prefer earlier availability of goods to later availability,they are said to have a __________ rate of time preference.

Accepted Answer

A)  positive 
B)  negative 
C)  rational 
D)  roundabout 
E)  none of the above 
A)  positive 
B)  negative 
C)  rational 
D)  roundabout 
E)  none of the above

Question 4

Uncertainty

Accepted Answer

A)  is the result of economic rent seeking. 
B)  is the same thing as risk. 
C)  exists when the probability of a given event can be estimated. 
D)  exists when the probability of a given event cannot be estimated. 
E)  none of the above 
A)  is the result of economic rent seeking. 
B)  is the same thing as risk. 
C)  exists when the probability of a given event can be estimated. 
D)  exists when the probability of a given event cannot be estimated. 
E)  none of the above

Question 5

Which of the following statements is true?

Accepted Answer

A)  Ceteris paribus, the longer the term of a loan, the lower the interest rate. 
B)  The nominal interest rate is the interest rate adjusted for expected inflation. 
C)  Loans that cost more to process and administer will come with higher interest rates than loans that cost less to process. 
D)  a and b 
E)  none of the above 
A)  Ceteris paribus, the longer the term of a loan, the lower the interest rate. 
B)  The nominal interest rate is the interest rate adjusted for expected inflation. 
C)  Loans that cost more to process and administer will come with higher interest rates than loans that cost less to process. 
D)  a and b 
E)  none of the above

Question 6

If you place $10,000 in a savings account that pays 3 percent interest per year and you leave all the money,principal plus interest earned,in the account for three years,approximately how much money will you have at the end of the three years?

Accepted Answer

A)  $10,090 
B)  $11,120 
C)  $10,927 
D)  $9,152 
E)  $10,124 
A)  $10,090 
B)  $11,120 
C)  $10,927 
D)  $9,152 
E)  $10,124

Question 7

Exhibit 30-3
  
-Refer to Exhibit 30-3.The real interest rate in year 1 is

Accepted Answer

A)  10 percent. 
B)  -5 percent. 
C)  15 percent. 
D)  -15 percent. 
E)  5 percent. 
A)  10 percent. 
B)  -5 percent. 
C)  15 percent. 
D)  -15 percent. 
E)  5 percent.

Question 8

Which of the following is true?

Accepted Answer

A)  A major corporation would tend to pay a higher interest rate for a $10,000 loan than a single parent working for a fast food restaurant. 
B)  The more risky the loan, the higher the interest rate charged, ceteris paribus. 
C)  The less risky the loan, the higher the interest rate charged, ceteris paribus. 
D)  The duration (length) of a loan is unrelated to the interest rate charged for the loan. 
E)  c and d 
A)  A major corporation would tend to pay a higher interest rate for a $10,000 loan than a single parent working for a fast food restaurant. 
B)  The more risky the loan, the higher the interest rate charged, ceteris paribus. 
C)  The less risky the loan, the higher the interest rate charged, ceteris paribus. 
D)  The duration (length) of a loan is unrelated to the interest rate charged for the loan. 
E)  c and d

Question 9

If the nominal interest rate is 4 percent and expected inflation rate is 5 percent,the real interest rate

Accepted Answer

A)  equals 1 percent. 
B)  equals -1 percent. 
C)  equals 9 percent. 
D)  cannot be calculated. 
E)  none of the above 
A)  equals 1 percent. 
B)  equals -1 percent. 
C)  equals 9 percent. 
D)  cannot be calculated. 
E)  none of the above

Question 10

What is a roundabout method of production?

Accepted Answer

A)  It refers to an inefficient way of producing goods. 
B)  It refers to the production of capital goods that are used to enhance productive capabilities. 
C)  It refers to hiring more workers and using fewer capital goods. 
D)  It refers to producing more consumer goods and fewer capital goods. 
E)  none of the above 
A)  It refers to an inefficient way of producing goods. 
B)  It refers to the production of capital goods that are used to enhance productive capabilities. 
C)  It refers to hiring more workers and using fewer capital goods. 
D)  It refers to producing more consumer goods and fewer capital goods. 
E)  none of the above

Question 11

Which of the following is not a theory of the source of profit as discussed in the text?

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)  Profit is the return to those who are fortunate enough to own resources. 
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)  Profit is the return to those who are fortunate enough to own resources.

Question 12

Exhibit 30-2
  
-Refer to Exhibit 30-2.The interest and interest rate for loan 4 are,respectively,

Accepted Answer

A)  $11,200 and 12.0 percent. 
B)  $1,200 and 12.0 percent. 
C)  $11,200 and 11.2 percent. 
D)  $1,200 and 11.2 percent. 
E)  none of the above 
A)  $11,200 and 12.0 percent. 
B)  $1,200 and 12.0 percent. 
C)  $11,200 and 11.2 percent. 
D)  $1,200 and 11.2 percent. 
E)  none of the above

Question 13

A person who greatly prefers present to future consumption has a(n)__________ rate of time preference.

Accepted Answer

A)  low 
B)  high 
C)  efficient 
D)  roundabout 
A)  low 
B)  high 
C)  efficient 
D)  roundabout

Question 14

The term "positive rate of time preference" suggests that

Accepted Answer

A)  people prefer more time to do something than less time. 
B)  people prefer goods to be available at an earlier time period than at a later time period. 
C)  some people are irrational because they would rather have something now than wait to consume it later when they can enjoy it more. 
D)  interest rates tend to increase over time. 
E)  businesses know that if they invest in capital goods, they will earn profits. 
A)  people prefer more time to do something than less time. 
B)  people prefer goods to be available at an earlier time period than at a later time period. 
C)  some people are irrational because they would rather have something now than wait to consume it later when they can enjoy it more. 
D)  interest rates tend to increase over time. 
E)  businesses know that if they invest in capital goods, they will earn profits.

Question 15

Exhibit 30-1
  
-Refer to Exhibit 30-1.Suppose the supply curve is S2 and the price is A.Economic rent equals area

Accepted Answer

A)  EBD. 
B)  ABD. 
C)  ODBC. 
D)  EBA. 
E)  none of the above 
A)  EBD. 
B)  ABD. 
C)  ODBC. 
D)  EBA. 
E)  none of the above

Question 16

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

Accepted Answer

A)  $500 and 25.0 percent. 
B)  $2,500 and 25.0 percent. 
C)  $500 and 12.5 percent. 
D)  $2,500 and 12.5 percent. 
E)  none of the above 
A)  $500 and 25.0 percent. 
B)  $2,500 and 25.0 percent. 
C)  $500 and 12.5 percent. 
D)  $2,500 and 12.5 percent. 
E)  none of the above

Question 17

What is the difference between uncertainty and risk?

Accepted Answer

A)  Risk deals with people, uncertainty with events. 
B)  Uncertainty deals with people, risk deals with events. 
C)  Risk exists when the probability of a given event cannot be estimated, whereas uncertainty exists when the probability of a given event can be estimated. 
D)  Uncertainty exists when the probability of a given event cannot be estimated, whereas risk exists when the probability of a given event can be estimated. 
E)  b and d 
A)  Risk deals with people, uncertainty with events. 
B)  Uncertainty deals with people, risk deals with events. 
C)  Risk exists when the probability of a given event cannot be estimated, whereas uncertainty exists when the probability of a given event can be estimated. 
D)  Uncertainty exists when the probability of a given event cannot be estimated, whereas risk exists when the probability of a given event can be estimated. 
E)  b and d

Question 18

A firm is considering the purchase of a capital good that will generate an additional $400 income each year for 4 years (after which time the capital good is useless and has no scrap value).The interest rate is 3 percent.It follows that the firm should not purchase the capital good if its price is greater than (approximately)

Accepted Answer

A)  $1,358. 
B)  $1,487. 
C)  $1,602. 
D)  $1,749. 
E)  $1,233. 
A)  $1,358. 
B)  $1,487. 
C)  $1,602. 
D)  $1,749. 
E)  $1,233.

Question 19

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

Accepted Answer

A)  the discovery of new and better roundabout methods of production. 
B)  a lower rate of time preference in society. 
C)  a lower interest rate. 
D)  a higher interest rate. 
E)  a and c 
A)  the discovery of new and better roundabout methods of production. 
B)  a lower rate of time preference in society. 
C)  a lower interest rate. 
D)  a higher interest rate. 
E)  a and c

Question 20

Interest can be regarded as the

Accepted Answer

A)  payment to entrepreneurs for incurring risk in the production of new goods. 
B)  rate that a lender receives for the use of the lender's loanable funds. 
C)  return earned by capital as an input in the production process. 
D)  dollar amount of loanable funds that a person borrows to invest in a capital good. 
A)  payment to entrepreneurs for incurring risk in the production of new goods. 
B)  rate that a lender receives for the use of the lender's loanable funds. 
C)  return earned by capital as an input in the production process. 
D)  dollar amount of loanable funds that a person borrows to invest in a capital good.

Exam 30: Interest, Rent, and Profit

The equilibrium interest rate is determined

The nominal interest rate will rise if the

If consumers prefer earlier availability of goods to later availability,they are said to have a __________ rate of time preference.

Uncertainty

Which of the following statements is true?

If you place $10,000 in a savings account that pays 3 percent interest per year and you leave all the money,principal plus interest earned,in the account for three years,approximately how much money will you have at the end of the three years?

Exhibit 30-3 -Refer to Exhibit 30-3.The real interest rate in year 1 is

Which of the following is true?

If the nominal interest rate is 4 percent and expected inflation rate is 5 percent,the real interest rate

What is a roundabout method of production?

Which of the following is not a theory of the source of profit as discussed in the text?

Exhibit 30-2 -Refer to Exhibit 30-2.The interest and interest rate for loan 4 are,respectively,

A person who greatly prefers present to future consumption has a(n)__________ rate of time preference.

The term "positive rate of time preference" suggests that

Exhibit 30-1 -Refer to Exhibit 30-1.Suppose the supply curve is S2 and the price is A.Economic rent equals area

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

What is the difference between uncertainty and risk?

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

Interest can be regarded as the

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

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Exhibit 30-1 -Refer to Exhibit 30-1.Suppose the supply curve is S₂ and the price is A.Economic rent equals area