Question 1

Which of the following is true?

Accepted Answer

A)  As interest rates increase, present values increase. 
B)  Pure economic rent is a payment to a monopolist for the monopolist's product. 
C)  Ricardo argued that land rent is price determined, not price determining. 
D)  The present value of $10,000 in one year, at a 6 percent interest rate, is $9,200. 
E)  none of the above 
A)  As interest rates increase, present values increase. 
B)  Pure economic rent is a payment to a monopolist for the monopolist's product. 
C)  Ricardo argued that land rent is price determined, not price determining. 
D)  The present value of $10,000 in one year, at a 6 percent interest rate, is $9,200. 
E)  none of the above

Question 2

Describe the three theories of where profit comes from.

Accepted Answer

One theory holds that uncertainty is the

Question 3

The nominal interest rate is determined in the loanable funds market.

Accepted Answer

A) True 
 B)False

Question 4

A person with a high positive rate of time preference greatly prefers current consumption over future consumption.

Accepted Answer

A) True 
 B)False

Question 5

Economists generally agree that land rents are

Accepted Answer

A)  price determining, not price determined. 
B)  price determined, not price determining. 
C)  too high. 
D)  too low. 
E)  Economists generally do not agree on anything. 
A)  price determining, not price determined. 
B)  price determined, not price determining. 
C)  too high. 
D)  too low. 
E)  Economists generally do not agree on anything.

Question 6

The people most likely to save are those with a

Accepted Answer

A)  low rate of time preference since they only slightly prefer present consumption to future consumption. 
B)  high rate of time preference since they greatly prefer present consumption to future consumption. 
C)  low rate of time preference since they greatly prefer present consumption to future consumption. 
D)  efficient rate of time preference since they do not prefer consuming luxury goods to necessities. 
E)  roundabout rate of time preference since they don't really care about consuming. 
A)  low rate of time preference since they only slightly prefer present consumption to future consumption. 
B)  high rate of time preference since they greatly prefer present consumption to future consumption. 
C)  low rate of time preference since they greatly prefer present consumption to future consumption. 
D)  efficient rate of time preference since they do not prefer consuming luxury goods to necessities. 
E)  roundabout rate of time preference since they don't really care about consuming.

Question 7

An increase in the anticipated (or expected)rate of inflation will cause the nominal interest rate to

Accepted Answer

A)  increase by less than the change in the anticipated inflation rate. 
B)  increase by the same amount as the change in the anticipated inflation rate. 
C)  decrease by more than the change in the anticipated inflation rate. 
D)  decrease by the same amount as the change in the anticipated inflation rate. 
E)  stay the same. 
A)  increase by less than the change in the anticipated inflation rate. 
B)  increase by the same amount as the change in the anticipated inflation rate. 
C)  decrease by more than the change in the anticipated inflation rate. 
D)  decrease by the same amount as the change in the anticipated inflation rate. 
E)  stay the same.

Question 8

Profits differ from the other factor payments in that they

Accepted Answer

A)  are a residual payment. 
B)  can be negative. 
C)  are a transfer payment. 
D)  a and b 
E)  all of the above 
A)  are a residual payment. 
B)  can be negative. 
C)  are a transfer payment. 
D)  a and b 
E)  all of the above

Question 9

Jimmy borrowed $30,000 to add a room to his house.He financed the loan over 3 years at 6 percent per year.He expects a 2 percent inflation rate each year for the next 3 years.It follows that he expects to pay an annual real interest rate of

Accepted Answer

A)  8 percent. 
B)  9 percent. 
C)  11 percent. 
D)  4 percent. 
A)  8 percent. 
B)  9 percent. 
C)  11 percent. 
D)  4 percent.

Question 10

The supply curve of loanable funds is __________ sloping,which implies that as the interest rate __________,the __________ loanable funds will increase.

Accepted Answer

A)  downward; decreases; demand for 
B)  upward; increases; supply of 
C)  upward; decreases; supply of 
D)  downward; decreases; quantity demanded of 
E)  upward; increases; quantity supplied of 
A)  downward; decreases; demand for 
B)  upward; increases; supply of 
C)  upward; decreases; supply of 
D)  downward; decreases; quantity demanded of 
E)  upward; increases; quantity supplied of

Question 11

Risk

Accepted Answer

A)  is the result of economic rent seeking. 
B)  is the same as uncertainty. 
C)  exists when the probability of a given event can be estimated. 
D)  exists when a potential occurrence is so unpredictable that a probability cannot be estimated. 
E)  none of the above 
A)  is the result of economic rent seeking. 
B)  is the same as uncertainty. 
C)  exists when the probability of a given event can be estimated. 
D)  exists when a potential occurrence is so unpredictable that a probability cannot be estimated. 
E)  none of the above

Question 12

When someone wins a lottery jackpot they are often given the choice between receiving their winnings over some period of time or receiving less money but receiving it all at once.It makes the most economic sense to

Accepted Answer

A)  receive the money over time because the amount received will be greater. 
B)  receive the reduced amount of money in one lump sum because it is always better to have money sooner rather than later. 
C)  receive whichever option yields the greatest present value. 
D)  none of the above 
A)  receive the money over time because the amount received will be greater. 
B)  receive the reduced amount of money in one lump sum because it is always better to have money sooner rather than later. 
C)  receive whichever option yields the greatest present value. 
D)  none of the above

Question 13

The interest rate will be higher,

Accepted Answer

A)  the longer 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)  none of the above 
A)  the longer 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)  none of the above

Question 14

A firm knows that it can borrow funds at 7 percent to invest in capital.Whether or not it borrows the funds depends upon the

Accepted Answer

A)  amount of people's saving. 
B)  rate of time preference of consumers. 
C)  return on capital relative to the price of credit. 
D)  difference between its interest payments and the interest rate. 
E)  none of the above 
A)  amount of people's saving. 
B)  rate of time preference of consumers. 
C)  return on capital relative to the price of credit. 
D)  difference between its interest payments and the interest rate. 
E)  none of the above

Question 15

Profits may exist as the result of

Accepted Answer

A)  uncertainty. 
B)  alertness to arbitrage opportunities. 
C)  innovation. 
D)  all of the above 
E)  none of the above 
A)  uncertainty. 
B)  alertness to arbitrage opportunities. 
C)  innovation. 
D)  all of the above 
E)  none of the above

Question 16

As the interest rate falls,

Accepted Answer

A)  the quantity demanded of loanable funds rises. 
B)  the quantity demanded of loanable funds falls. 
C)  the demand for loanable funds rises. 
D)  the supply of loanable funds falls. 
A)  the quantity demanded of loanable funds rises. 
B)  the quantity demanded of loanable funds falls. 
C)  the demand for loanable funds rises. 
D)  the supply of loanable funds falls.

Question 17

Loanable funds are

Accepted Answer

A)  another term for capital. 
B)  a particular type of investment fund that companies such as Merrill Lynch offer to consumers. 
C)  funds that someone borrows with a promise to pay interest for the use of the funds. 
D)  funds that someone lends with the requirement that interest be paid for the use of the funds. 
E)  c and d 
A)  another term for capital. 
B)  a particular type of investment fund that companies such as Merrill Lynch offer to consumers. 
C)  funds that someone borrows with a promise to pay interest for the use of the funds. 
D)  funds that someone lends with the requirement that interest be paid for the use of the funds. 
E)  c and d

Question 18

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 one year from now is computed by

Accepted Answer

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

Question 19

The nominal interest rate is the

Accepted Answer

A)  interest rate in current dollars, unadjusted for expected inflation. 
B)  real interest rate minus the expected inflation rate. 
C)  interest rate determined in the loanable funds market. 
D)  a and c 
E)  all of the above 
A)  interest rate in current dollars, unadjusted for expected inflation. 
B)  real interest rate minus the expected inflation rate. 
C)  interest rate determined in the loanable funds market. 
D)  a and c 
E)  all of the above

Question 20

Which of the following statements is true?

Accepted Answer

A)  All persons have a high rate of time preference. 
B)  People with a high rate of time preference are more likely to be borrowers than people with a low rate of time preference. 
C)  People with a high rate of time preference are more likely to be lenders than people with a low rate of time preference. 
D)  A high interest rate is the cause of a high rate of time preference. 
E)  none of the above 
A)  All persons have a high rate of time preference. 
B)  People with a high rate of time preference are more likely to be borrowers than people with a low rate of time preference. 
C)  People with a high rate of time preference are more likely to be lenders than people with a low rate of time preference. 
D)  A high interest rate is the cause of a high rate of time preference. 
E)  none of the above

Exam 30: Interest, Rent, and Profit

Which of the following is true?

Describe the three theories of where profit comes from.

The nominal interest rate is determined in the loanable funds market.

A person with a high positive rate of time preference greatly prefers current consumption over future consumption.

Economists generally agree that land rents are

The people most likely to save are those with a

An increase in the anticipated (or expected)rate of inflation will cause the nominal interest rate to

Profits differ from the other factor payments in that they

Jimmy borrowed $30,000 to add a room to his house.He financed the loan over 3 years at 6 percent per year.He expects a 2 percent inflation rate each year for the next 3 years.It follows that he expects to pay an annual real interest rate of

The supply curve of loanable funds is __________ sloping,which implies that as the interest rate __________,the __________ loanable funds will increase.

Risk

When someone wins a lottery jackpot they are often given the choice between receiving their winnings over some period of time or receiving less money but receiving it all at once.It makes the most economic sense to

The interest rate will be higher,

A firm knows that it can borrow funds at 7 percent to invest in capital.Whether or not it borrows the funds depends upon the

Profits may exist as the result of

As the interest rate falls,

Loanable funds are

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 one year from now is computed by

The nominal interest rate is the

Which of the following statements is true?

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 supply curve of loanable funds is sloping,which implies that as the interest rate ,the __ loanable funds will increase.