Question 1

Households receive bonds when they

Accepted Answer

A)  purchase a share of ownership in firms. 
B)  sell shares of a firm's stock. 
C)  lend money directly to firms. 
D)  borrow money from financial institutions. 
A)  purchase a share of ownership in firms. 
B)  sell shares of a firm's stock. 
C)  lend money directly to firms. 
D)  borrow money from financial institutions.

Question 2

The value of capital is as great as the services it produces over time.

Accepted Answer

A) True 
 B)False

Question 3

If business leaders expect the new Congress to lower the corporate profits tax, most likely this will cause business firms, ceteris paribus, to

Accepted Answer

A)  plan to decrease investment in the future to compensate for the lower tax rate. 
B)  decrease investment because they would expect lower benefits from investment. 
C)  not change their investment plans because lower corporate profit taxes will not change the demand for their product. 
D)  increase investment because the lower corporate profits tax will increase the return on any investment. 
A)  plan to decrease investment in the future to compensate for the lower tax rate. 
B)  decrease investment because they would expect lower benefits from investment. 
C)  not change their investment plans because lower corporate profit taxes will not change the demand for their product. 
D)  increase investment because the lower corporate profits tax will increase the return on any investment.

Question 4

A firm should never undertake an investment if the present value of the

Accepted Answer

A)  income stream associated with the investment is greater than the full cost of the investment project. 
B)  income stream associated with the investment is less than the full cost of the investment project. 
C)  income stream associated with the investment is positive. 
D)  costs of the investment project are lower than the present value of the returns from the investment project. 
A)  income stream associated with the investment is greater than the full cost of the investment project. 
B)  income stream associated with the investment is less than the full cost of the investment project. 
C)  income stream associated with the investment is positive. 
D)  costs of the investment project are lower than the present value of the returns from the investment project.

Question 5

As interest rates fall, a firm would

Accepted Answer

A)  have higher expected costs of investment. 
B)  have decreasing present value of expected earning. 
C)  be willing to pay less now to purchase the same number of future dollars. 
D)  be willing to pay more now to purchase the same number of future dollars. 
A)  have higher expected costs of investment. 
B)  have decreasing present value of expected earning. 
C)  be willing to pay less now to purchase the same number of future dollars. 
D)  be willing to pay more now to purchase the same number of future dollars.

Question 6

Which of the following are examples of institutions that economists would classify as belonging to the financial capital market?

Accepted Answer

A)  the stock market 
B)  banks 
C)  savings and loans 
D)  all of the above 
A)  the stock market 
B)  banks 
C)  savings and loans 
D)  all of the above

Question 7

You use $5,000 of your own money to start a dog-walking business. During the first year you earn a 5% return on your investment. If the current interest rate on savings is 8%, you earn an economic profit of

Accepted Answer

A)  -$150. 
B)  $150. 
C)  $250. 
D)  $400. 
A)  -$150. 
B)  $150. 
C)  $250. 
D)  $400.

Question 8

The present discounted value of a stream of future income increases as the interest rate decreases.

Accepted Answer

A) True 
 B)False

Question 9

A firm's capital is measured as a ________ while investment in new capital is measured as a ________.

Accepted Answer

A)  flow; stock 
B)  stock; flow 
C)  stock; change 
D)  physical amount; dollar value 
A)  flow; stock 
B)  stock; flow 
C)  stock; change 
D)  physical amount; dollar value

Question 10

A worker's skills and knowledge are types of social capital.

Accepted Answer

A) True 
 B)False

Question 11

If the interest rate is 5 percent, the value of $250 today after one year would be

Accepted Answer

A)  $255.00. 
B)  $262.50. 
C)  $275.00. 
D)  $287.50. 
A)  $255.00. 
B)  $262.50. 
C)  $275.00. 
D)  $287.50.

Question 12

Refer to the data provided in Table 11.1 below to answer the following question(s).
Table 11.1 $$\begin{array}{l}
\begin{array} { l c c } 
&\text { Total Investment }&\text {Expected Rate of Return }\
 { \text { Project } } & \text { (dollars) } & \text { (percentage) } \
\hline \text { New tablet computer for sales staff } & \$ 500,000 & 22 \
\text { Remodel for distribution center } & \$ 400,000 & 18 \
\text { On-site day care center } & \$ 200,000 & 10 \
\text { Employee fitness center } & \$ 100,000 & 8
\end{array}
\end{array}$$
-Refer to Table 11.1. If the interest rate is 20%, Nashbar Bicycle's total investment would be

Accepted Answer

A)  $0. 
B)  $100,000. 
C)  $500,000. 
D)  $700,000. 
A)  $0. 
B)  $100,000. 
C)  $500,000. 
D)  $700,000.

Question 13

Dynaflex Corp. is considering an investment project that costs $950 today. It expects the project will yield income of $350 at the end of years 1, 2, and 3. The interest rate must be ________ for the firm to undertake the project.

Accepted Answer

A)  at least 8% 
B)  no more than 5% 
C)  exactly equal to 10.5% 
D)  It is indeterminate from the given information. 
A)  at least 8% 
B)  no more than 5% 
C)  exactly equal to 10.5% 
D)  It is indeterminate from the given information.

Question 14

Infrastructure is capital that provides services to the public.

Accepted Answer

A) True 
 B)False

Question 15

If the interest rate is 3 percent, to get back $500 in two years you would need to deposit ________ today.

Accepted Answer

A)  $242.72. 
B)  $471.30. 
C)  $485.44. 
D)  $494.00. 
A)  $242.72. 
B)  $471.30. 
C)  $485.44. 
D)  $494.00.

Question 16

You borrow $10,000 at an interest rate of 5% to open Movies Galore, a DVD rental store. You will earn an economic loss if

Accepted Answer

A)  the return on your investment is less than 5%. 
B)  the return on your investment is exactly 5%. 
C)  the return on your investment is greater than 5%. 
D)  indeterminate from given information. 
A)  the return on your investment is less than 5%. 
B)  the return on your investment is exactly 5%. 
C)  the return on your investment is greater than 5%. 
D)  indeterminate from given information.

Question 17

The net income of a firm is the firm's

Accepted Answer

A)  profits. 
B)  retained earnings. 
C)  total revenue. 
D)  capital income. 
A)  profits. 
B)  retained earnings. 
C)  total revenue. 
D)  capital income.

Question 18

Assume the current interest rate is 25%. The present value of $2,000 to be received in one year would be

Accepted Answer

A)  $1,000. 
B)  $1,200. 
C)  $1,600. 
D)  $1,800. 
A)  $1,000. 
B)  $1,200. 
C)  $1,600. 
D)  $1,800.

Question 19

You use $45,000 of your own money to start an espresso stand. During the first year you earn a 10% return on that investment. If the current interest rate is 8%, you earn an economic profit of

Accepted Answer

A)  -$900. 
B)  $100. 
C)  $500. 
D)  $900. 
A)  -$900. 
B)  $100. 
C)  $500. 
D)  $900.

Question 20

A motorcycle manufacturer produced 8,000 motorcycles, but sold only 6,500 of them. We would classify the remaining 1,500 motorcycles as

Accepted Answer

A)  a loss to the firm. 
B)  part of the firmʹs tangible capital. 
C)  part of the firmʹs intangible capital. 
D)  a factor of production. 
A)  a loss to the firm. 
B)  part of the firmʹs tangible capital. 
C)  part of the firmʹs intangible capital. 
D)  a factor of production.

Exam 11: Input Demand: the Capital Market and the Investment Decision

Households receive bonds when they

The value of capital is as great as the services it produces over time.

If business leaders expect the new Congress to lower the corporate profits tax, most likely this will cause business firms, ceteris paribus, to

A firm should never undertake an investment if the present value of the

As interest rates fall, a firm would

Which of the following are examples of institutions that economists would classify as belonging to the financial capital market?

You use $5,000 of your own money to start a dog-walking business. During the first year you earn a 5% return on your investment. If the current interest rate on savings is 8%, you earn an economic profit of

The present discounted value of a stream of future income increases as the interest rate decreases.

A firm's capital is measured as a ________ while investment in new capital is measured as a ________.

A worker's skills and knowledge are types of social capital.

If the interest rate is 5 percent, the value of $250 today after one year would be

Dynaflex Corp. is considering an investment project that costs $950 today. It expects the project will yield income of $350 at the end of years 1, 2, and 3. The interest rate must be ________ for the firm to undertake the project.

Infrastructure is capital that provides services to the public.

If the interest rate is 3 percent, to get back $500 in two years you would need to deposit ________ today.

You borrow $10,000 at an interest rate of 5% to open Movies Galore, a DVD rental store. You will earn an economic loss if

The net income of a firm is the firm's

Assume the current interest rate is 25%. The present value of $2,000 to be received in one year would be

You use $45,000 of your own money to start an espresso stand. During the first year you earn a 10% return on that investment. If the current interest rate is 8%, you earn an economic profit of

A motorcycle manufacturer produced 8,000 motorcycles, but sold only 6,500 of them. We would classify the remaining 1,500 motorcycles as

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

A firm's capital is measured as a while investment in new capital is measured as a .