Question 1

Prices in stores and restaurants in Tokyo are high because

Accepted Answer

A)  land rents are high in Tokyo. 
B)  the supply of land is high in Tokyo. 
C)  the demand for living, visiting, and shopping in Tokyo is high. 
D)  a and b 
E)  all of the above 
A)  land rents are high in Tokyo. 
B)  the supply of land is high in Tokyo. 
C)  the demand for living, visiting, and shopping in Tokyo is high. 
D)  a and b 
E)  all of the above

Question 2

The term "roundabout methods of production" refers to

Accepted Answer

A)  Firm A purchasing a product from Firm B and reselling it to consumers. 
B)  firms first producing capital goods and then using those capital goods to produce consumer goods. 
C)  firms selling unassembled products so that the consumer completes the production process. 
D)  banks and other financial institutions making loans available to producers so that the producers can make goods available to consumers; thus in a roundabout way the banks are making the goods available to consumers. 
A)  Firm A purchasing a product from Firm B and reselling it to consumers. 
B)  firms first producing capital goods and then using those capital goods to produce consumer goods. 
C)  firms selling unassembled products so that the consumer completes the production process. 
D)  banks and other financial institutions making loans available to producers so that the producers can make goods available to consumers; thus in a roundabout way the banks are making the goods available to consumers.

Question 3

Which of the following statements is false?

Accepted Answer

A)  The quantity supplied of loanable funds and the interest rate are inversely related. 
B)  The supply curve of loanable funds is upward sloping. 
C)  One of the reasons the federal government demands loanable funds is that it needs to finance budget deficits. 
D)  Savers are people who consume less than their current income. 
A)  The quantity supplied of loanable funds and the interest rate are inversely related. 
B)  The supply curve of loanable funds is upward sloping. 
C)  One of the reasons the federal government demands loanable funds is that it needs to finance budget deficits. 
D)  Savers are people who consume less than their current income.

Question 4

Roundabout methods of production are said to be productive.What does this mean?

Accepted Answer

A)  Goods are best produced by many people working together-as in a circle. 
B)  If you go round and round thinking about something, you will usually come up with the right way to do it-so you minimize on mistakes. 
C)  If you take the most direct route to producing a good, you will save time, and time is something that producers want to save since "time is money." 
D)  If you take time out to produce a capital good, with that capital good you can produce more than you could produce without it. 
A)  Goods are best produced by many people working together-as in a circle. 
B)  If you go round and round thinking about something, you will usually come up with the right way to do it-so you minimize on mistakes. 
C)  If you take the most direct route to producing a good, you will save time, and time is something that producers want to save since "time is money." 
D)  If you take time out to produce a capital good, with that capital good you can produce more than you could produce without it.

Question 5

Ceteris paribus,the more risk associated with a loan,

Accepted Answer

A)  the lower the interest rate. 
B)  the higher the interest rate. 
C)  the more likely the loan will be granted. 
D)  the bigger the loan. 
A)  the lower the interest rate. 
B)  the higher the interest rate. 
C)  the more likely the loan will be granted. 
D)  the bigger the loan.

Question 6

Exhibit 30-3
  
-Refer to Exhibit 30-3.The real interest rate in year 5 is

Accepted Answer

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

Question 7

George earns $500,000 playing baseball for team X.His next best alternative to playing baseball is to own a fast-food restaurant,for which he would earn $100,000 a year.His next best alternative to playing baseball for team X is playing baseball for team Y,for which he would earn $400,000 a year.This example best illustrates the economic principle that

Accepted Answer

A)  economic rent is never zero. 
B)  baseball players earn higher incomes than fast-food restaurateurs. 
C)  economic rent exists in all situations. 
D)  economic rent differs depending upon the perspective from which the factor is viewed. 
A)  economic rent is never zero. 
B)  baseball players earn higher incomes than fast-food restaurateurs. 
C)  economic rent exists in all situations. 
D)  economic rent differs depending upon the perspective from which the factor is viewed.

Question 8

If the price for loanable funds is less than the return on capital,then firms will

Accepted Answer

A)  borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital decreases and its return rises. 
B)  borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital increases and its return falls. 
C)  not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will fall. 
D)  not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will rise. 
A)  borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital decreases and its return rises. 
B)  borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital increases and its return falls. 
C)  not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will fall. 
D)  not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will rise.

Question 9

If the nominal interest rate is 5.5 percent and expected inflation rate is 3 percent,the real interest rate equals

Accepted Answer

A)  8.5 percent. 
B)  2.5 percent. 
C)  13.5 percent. 
D)  11.5 percent. 
E)  none of the above 
A)  8.5 percent. 
B)  2.5 percent. 
C)  13.5 percent. 
D)  11.5 percent. 
E)  none of the above

Question 10

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 for working at job C rather than job B 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 11

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

Question 12

If X is the actual amount of income or receipts and i is the interest rate (in decimals)that could be earned on alternative uses of money that face the same risk,the present value of X in t years from now is computed by

Accepted Answer

A)  (it)(1 + X). 
B)  (Xt)(1 + i). 
C)  i/(1 + X)t. 
D)  X/(1 + i)t. 
E)  X/(1 - i)t . 
A)  (it)(1 + X). 
B)  (Xt)(1 + i). 
C)  i/(1 + X)t. 
D)  X/(1 + i)t. 
E)  X/(1 - i)t .

Question 13

If you have a high rate of time preference,then you are

Accepted Answer

A)  willing to wait a longer time to consume a good than someone with a low rate of time preference. 
B)  not willing to wait a long time to consume a good. 
C)  willing to save your earnings so that you can buy more goods in the future. 
D)  not acting rationally, because it means that you are willing to delay consumption of goods and services until a later date (but you might not be around to do so). 
E)  a and c 
A)  willing to wait a longer time to consume a good than someone with a low rate of time preference. 
B)  not willing to wait a long time to consume a good. 
C)  willing to save your earnings so that you can buy more goods in the future. 
D)  not acting rationally, because it means that you are willing to delay consumption of goods and services until a later date (but you might not be around to do so). 
E)  a and c

Question 14

Which of the following statements is true?

Accepted Answer

A)  The nominal interest rate is always higher than the real interest rate since the nominal interest rate equals the real interest rate plus the expected inflation rate. 
B)  The nominal interest rate is always lower than the real interest rate since the nominal interest rate equals the real interest rate minus the expected inflation rate. 
C)  The nominal interest rate can equal the real interest rate, but to do so the expected inflation rate must be zero percent. 
D)  It is the nominal interest rate-not the real interest rate-that matters to borrowers. 
A)  The nominal interest rate is always higher than the real interest rate since the nominal interest rate equals the real interest rate plus the expected inflation rate. 
B)  The nominal interest rate is always lower than the real interest rate since the nominal interest rate equals the real interest rate minus the expected inflation rate. 
C)  The nominal interest rate can equal the real interest rate, but to do so the expected inflation rate must be zero percent. 
D)  It is the nominal interest rate-not the real interest rate-that matters to borrowers.

Question 15

People such as Henry Ford and Thomas Edison most likely earned profit as a result of "innovative genius."

Accepted Answer

A) True 
 B)False

Question 16

Suppose there are no barriers to competing for real rents.It follows that if real rents exist,people will compete for them

Accepted Answer

A)  and in the process produce less of the good or service that is connected with the real rents. 
B)  and in the process produce more of the good or service that is connected with the real rents. 
C)  only if the real rents can be turned into artificial rents and therefore maintained over a long period of time. 
D)  only if the real rents are pure economic rents and not simply economic rents. 
E)  There is not enough information to answer the question. 
A)  and in the process produce less of the good or service that is connected with the real rents. 
B)  and in the process produce more of the good or service that is connected with the real rents. 
C)  only if the real rents can be turned into artificial rents and therefore maintained over a long period of time. 
D)  only if the real rents are pure economic rents and not simply economic rents. 
E)  There is not enough information to answer the question.

Question 17

A person buys X in one market and combines it with Y purchased in another market.The combination of X and Y gives Z,which the person sells in a third market for a higher price than the sum of the prices of X and Y.Which theory of profit is most consistent with this example?

Accepted Answer

A)  Profit is the return to being alert to an arbitrage (broadly defined) opportunity. 
B)  Uncertainty is the source of profit. 
C)  Profit is the return to the entrepreneur as innovator. 
D)  none of the above 
A)  Profit is the return to being alert to an arbitrage (broadly defined) opportunity. 
B)  Uncertainty is the source of profit. 
C)  Profit is the return to the entrepreneur as innovator. 
D)  none of the above

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 capital good will cost $1,600.If the interest rate is 3 percent,it follows that the firm should

Accepted Answer

A)  purchase the capital good. 
B)  not purchase the capital good. 
C)  purchase the capital good only on the condition that the expected inflation rate is greater than the nominal interest rate. 
D)  not purchase the capital good since the expected inflation rate is less than the real interest rate. 
E)  There is not enough information to answer the question. 
A)  purchase the capital good. 
B)  not purchase the capital good. 
C)  purchase the capital good only on the condition that the expected inflation rate is greater than the nominal interest rate. 
D)  not purchase the capital good since the expected inflation rate is less than the real interest rate. 
E)  There is not enough information to answer the question.

Question 19

Land rents are high in both New York City and in London.It follows that

Accepted Answer

A)  because land rents are high in both cities, prices (of goods and services) will be high in both cities. 
B)  because land rents are high in both cities, we can expect prices (of goods and services) to be low in order to counter the high land rents. 
C)  landowners must be more greedy in New York City and London than in cities or towns where land rents are lower. 
D)  b and c 
E)  none of the above 
A)  because land rents are high in both cities, prices (of goods and services) will be high in both cities. 
B)  because land rents are high in both cities, we can expect prices (of goods and services) to be low in order to counter the high land rents. 
C)  landowners must be more greedy in New York City and London than in cities or towns where land rents are lower. 
D)  b and c 
E)  none of the above

Question 20

Exhibit 30-4
  
-Refer to Exhibit 30-4.At the equilibrium point shown,what is the pure economic rent on land?

Accepted Answer

A)  Q1 x (R1 - T) 
B)  Q1 x R1 
C)  Q1 x (R1 + T) 
D)  0 
A)  Q1 x (R1 - T) 
B)  Q1 x R1 
C)  Q1 x (R1 + T) 
D)  0

Exam 30: Interest, Rent, and Profit

Prices in stores and restaurants in Tokyo are high because

The term "roundabout methods of production" refers to

Which of the following statements is false?

Roundabout methods of production are said to be productive.What does this mean?

Ceteris paribus,the more risk associated with a loan,

Exhibit 30-3 -Refer to Exhibit 30-3.The real interest rate in year 5 is

If the price for loanable funds is less than the return on capital,then firms will

If the nominal interest rate is 5.5 percent and expected inflation rate is 3 percent,the real interest rate equals

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 for working at job C rather than job B is

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

If X is the actual amount of income or receipts and i is the interest rate (in decimals)that could be earned on alternative uses of money that face the same risk,the present value of X in t years from now is computed by

If you have a high rate of time preference,then you are

Which of the following statements is true?

People such as Henry Ford and Thomas Edison most likely earned profit as a result of "innovative genius."

Suppose there are no barriers to competing for real rents.It follows that if real rents exist,people will compete for them

A person buys X in one market and combines it with Y purchased in another market.The combination of X and Y gives Z,which the person sells in a third market for a higher price than the sum of the prices of X and Y.Which theory of profit is most consistent with this example?

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 capital good will cost $1,600.If the interest rate is 3 percent,it follows that the firm should

Land rents are high in both New York City and in London.It follows that

Exhibit 30-4 -Refer to Exhibit 30-4.At the equilibrium point shown,what is the pure economic rent on land?

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

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