Question 1

A change in the expected rate of inflation from 3 percent to 5 percent will

Accepted Answer

A)  increase the real interest rate by 2 percentage points. 
B)  decrease the real interest rate by 3 percentage points. 
C)  increase the nominal interest rate by 2 percentage points. 
D)  decrease the nominal interest rate by 2 percentage points. 
A)  increase the real interest rate by 2 percentage points. 
B)  decrease the real interest rate by 3 percentage points. 
C)  increase the nominal interest rate by 2 percentage points. 
D)  decrease the nominal interest rate by 2 percentage points.

Question 2

A change in the expected rate of inflation from 5 percent to 3 percent will

Accepted Answer

A)  decrease the real interest rate by 2 percentage points. 
B)  decrease the real interest rate by 3 percentage points. 
C)  increase the nominal interest rate by 2 percentage points. 
D)  decrease the nominal interest rate by 2 percentage points. 
A)  decrease the real interest rate by 2 percentage points. 
B)  decrease the real interest rate by 3 percentage points. 
C)  increase the nominal interest rate by 2 percentage points. 
D)  decrease the nominal interest rate by 2 percentage points.

Question 3

Jim Smith made his fortune by buying and selling real estate.Which of the following theories on the source of profits best describes the reason behind his 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)  Land is always a source of economic rent and profit. 
E)  If one works hard enough, one will be rewarded. 
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)  Land is always a source of economic rent and profit. 
E)  If one works hard enough, one will be rewarded.

Question 4

Pure economic rent exists only when

Accepted Answer

A)  opportunity costs are negative. 
B)  opportunity costs are zero. 
C)  opportunity costs are positive. 
D)  explicit costs are zero. 
E)  b and d 
A)  opportunity costs are negative. 
B)  opportunity costs are zero. 
C)  opportunity costs are positive. 
D)  explicit costs are zero. 
E)  b and d

Question 5

Exhibit 30-1
  
-Refer to Exhibit 30-1.Suppose the supply curve is S1and the price is A.Pure economic rent equals area

Accepted Answer

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

Question 6

Jane has an old car that she expects will last for only two more years.She says she derives $900 worth of services from the car each year.She expects the scrap value of the car to be so low that it is not worth considering.If the interest rate is 6 percent,it is not likely that she will sell the car unless she is paid more than

Accepted Answer

A)  $1,650. 
B)  $1,800. 
C)  $1,562. 
D)  $1,723. 
E)  $1,697. 
A)  $1,650. 
B)  $1,800. 
C)  $1,562. 
D)  $1,723. 
E)  $1,697.

Question 7

What is the approximate present value of $8,000 received four years from today if the interest rate is 12 percent?

Accepted Answer

A)  $12,588 
B)  $4,882 
C)  $10,837 
D)  $5,084 
E)  $6,908 
A)  $12,588 
B)  $4,882 
C)  $10,837 
D)  $5,084 
E)  $6,908

Question 8

What is the approximate present value of a future income stream of three $1,000 payments to be received one,two,and three years from today if the interest rate is 6.75 percent?

Accepted Answer

A)  $2,814 
B)  $2,636 
C)  $2,882 
D)  $3,205 
A)  $2,814 
B)  $2,636 
C)  $2,882 
D)  $3,205

Question 9

Which of the following statements is true?

Accepted Answer

A)  The administrative costs per dollar are greater for a large loan than a small loan. 
B)  The risk on a long-term loan is likely to be less than on a short-term loan, ceteris paribus. 
C)  a and b 
D)  none of the above 
A)  The administrative costs per dollar are greater for a large loan than a small loan. 
B)  The risk on a long-term loan is likely to be less than on a short-term loan, ceteris paribus. 
C)  a and b 
D)  none of the above

Question 10

If the return on capital is 12 percent and the price for loanable funds is 9 percent,then

Accepted Answer

A)  firms will not be willing to borrow loanable funds until either the return on capital decreases or the price for loanable funds increases, because the market for loanable funds is not in equilibrium and businesses will be wary of further investment. 
B)  firms will realize that if they borrow loanable funds and invest in capital goods, it will cause the return on capital to decrease, so they won't want to borrow the funds. 
C)  savers will realize that they can earn more if they invest their savings in capital, so they will withdraw their savings and supply them to firms at 14 percent. 
D)  none of the above 
A)  firms will not be willing to borrow loanable funds until either the return on capital decreases or the price for loanable funds increases, because the market for loanable funds is not in equilibrium and businesses will be wary of further investment. 
B)  firms will realize that if they borrow loanable funds and invest in capital goods, it will cause the return on capital to decrease, so they won't want to borrow the funds. 
C)  savers will realize that they can earn more if they invest their savings in capital, so they will withdraw their savings and supply them to firms at 14 percent. 
D)  none of the above

Question 11

In economics,the word "interest" refers to the

Accepted Answer

A)  return earned by capital as an input in the production process. 
B)  return earned by land as an input in the production process. 
C)  price for credit or loanable funds. 
D)  price consumers pay to use the money supply. 
E)  a and c 
A)  return earned by capital as an input in the production process. 
B)  return earned by land as an input in the production process. 
C)  price for credit or loanable funds. 
D)  price consumers pay to use the money supply. 
E)  a and c

Question 12

Which of the following statements is false?

Accepted Answer

A)  Firms calculate present values when they make investment decisions because investment decisions yield benefits in the future and firms want some idea of the value of these benefits. 
B)  The present value of $100 a year from today at a 10 percent interest rate is approximately $91. 
C)  The present value of $100 two years from today at a 10 percent interest rate is approximately $83. 
D)  A firm will not undertake an investment if the present value of the future income resulting from the investment is greater than the cost of the investment. 
A)  Firms calculate present values when they make investment decisions because investment decisions yield benefits in the future and firms want some idea of the value of these benefits. 
B)  The present value of $100 a year from today at a 10 percent interest rate is approximately $91. 
C)  The present value of $100 two years from today at a 10 percent interest rate is approximately $83. 
D)  A firm will not undertake an investment if the present value of the future income resulting from the investment is greater than the cost of the investment.

Question 13

If people have a positive rate of time preference,a dollar today is worth __________ a dollar in the future.

Accepted Answer

A)  less than 
B)  more than 
C)  the same as 
D)  Any of the above can be true. 
A)  less than 
B)  more than 
C)  the same as 
D)  Any of the above can be true.

Question 14

"Present value" refers to the

Accepted Answer

A)  current worth of some future dollar amount of income. 
B)  future worth of some current dollar amount of income. 
C)  current worth of some past dollar amount of income. 
D)  current worth of some current dollar amount of income. 
E)  past worth of some current dollar amount of income. 
A)  current worth of some future dollar amount of income. 
B)  future worth of some current dollar amount of income. 
C)  current worth of some past dollar amount of income. 
D)  current worth of some current dollar amount of income. 
E)  past worth of some current dollar amount of income.

Question 15

According to Henry George,in his book Progress and Poverty,all land rents are pure economic rents and should therefore be heavily taxed.

Accepted Answer

A) True 
 B)False

Question 16

Firm X competes for the monopoly right to produce and sell widgets by expending resources to lobby politicians.The government decides to award the monopoly right to the firm.Which of the following is false?

Accepted Answer

A)  The resources used to affect the transfer are expended in a socially wasteful manner. 
B)  The resources used to affect the transfer are better used from society's point of view in the production of goods and services. 
C)  The resources used to affect the transfer are not used in a wasteful manner from the firm's point of view. 
D)  The rent the firm consequently earns is real economic rent. 
E)  None of the above; all of the above are true. 
A)  The resources used to affect the transfer are expended in a socially wasteful manner. 
B)  The resources used to affect the transfer are better used from society's point of view in the production of goods and services. 
C)  The resources used to affect the transfer are not used in a wasteful manner from the firm's point of view. 
D)  The rent the firm consequently earns is real economic rent. 
E)  None of the above; all of the above are true.

Question 17

Bill Brown commands $2 million a year as either a professional basketball player or a professional baseball player.His next best alternative is a coaching job at a high school that pays $60,000 a year.If Bill chooses to play professional basketball,then his economic rent from working at that job rather than working as a professional baseball player is

Accepted Answer

A)  $0. 
B)  $60,000. 
C)  $1 million. 
D)  $1,930,000. 
E)  $2 million. 
A)  $0. 
B)  $60,000. 
C)  $1 million. 
D)  $1,930,000. 
E)  $2 million.

Question 18

The English economist David Ricardo argued that

Accepted Answer

A)  grain prices were high because land rents were high. 
B)  land rents were high because grain prices were high. 
C)  grain prices were high because land rents were low. 
D)  land rents were high because grain prices were low. 
E)  none of the above 
A)  grain prices were high because land rents were high. 
B)  land rents were high because grain prices were high. 
C)  grain prices were high because land rents were low. 
D)  land rents were high because grain prices were low. 
E)  none of the above

Question 19

Describe the two major ways that entrepreneurs increase trade. Give your own unique example of each to help support your answer.

Accepted Answer

One way in which entrepreneurs increase

Question 20

Pure economic rent can exist only when a factor has a demand curve that is perfectly inelastic.

Accepted Answer

A) True 
 B)False

Exam 30: Interest, Rent, and Profit

A change in the expected rate of inflation from 3 percent to 5 percent will

A change in the expected rate of inflation from 5 percent to 3 percent will

Jim Smith made his fortune by buying and selling real estate.Which of the following theories on the source of profits best describes the reason behind his success?

Pure economic rent exists only when

Exhibit 30-1 -Refer to Exhibit 30-1.Suppose the supply curve is S1and the price is A.Pure economic rent equals area

What is the approximate present value of $8,000 received four years from today if the interest rate is 12 percent?

What is the approximate present value of a future income stream of three $1,000 payments to be received one,two,and three years from today if the interest rate is 6.75 percent?

Which of the following statements is true?

If the return on capital is 12 percent and the price for loanable funds is 9 percent,then

In economics,the word "interest" refers to the

Which of the following statements is false?

If people have a positive rate of time preference,a dollar today is worth __________ a dollar in the future.

"Present value" refers to the

According to Henry George,in his book Progress and Poverty,all land rents are pure economic rents and should therefore be heavily taxed.

Firm X competes for the monopoly right to produce and sell widgets by expending resources to lobby politicians.The government decides to award the monopoly right to the firm.Which of the following is false?

The English economist David Ricardo argued that

Describe the two major ways that entrepreneurs increase trade. Give your own unique example of each to help support your answer.

Pure economic rent can exist only when a factor has a demand curve that is perfectly inelastic.

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

Exhibit 30-1 -Refer to Exhibit 30-1.Suppose the supply curve is S₁and the price is A.Pure economic rent equals area