Question 1

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 D

Question 2

Which of the following statements is false?

Accepted Answer

A) Competing for artificial rents is socially unproductive; competing for real rents is not. 
B) If the production of good X generates real rents, then in the process of competing for these real rents, it would not be unusual for the supply of good X to rise. 
C) Individuals and firms will compete for real rents, but not for artificial rents. 
D) An artificial rent is an economic rent that would not exist without government. 
A) Competing for artificial rents is socially unproductive; competing for real rents is not. 
B) If the production of good X generates real rents, then in the process of competing for these real rents, it would not be unusual for the supply of good X to rise. 
C) Individuals and firms will compete for real rents, but not for artificial rents. 
D) An artificial rent is an economic rent that would not exist without government. C

Question 3

As interest rates decrease, present values __________, and firms will buy __________ capital goods.

Accepted Answer

A) increase; fewer 
B) decrease; fewer 
C) increase; more 
D) decrease; more 
A) increase; fewer 
B) decrease; fewer 
C) increase; more 
D) decrease; more C

Question 4

If the interest rate increases, then

Accepted Answer

A) households will decrease their level of saving. 
B) the supply of loanable funds will fall because it now costs more to borrow funds and people who were supplying the funds will realize that fewer people will be willing to borrow their funds. 
C) households will consume less and save more. 
D) government will consume more because it now costs more to borrow funds to buy goods. 
E) a, b, and d 
A) households will decrease their level of saving. 
B) the supply of loanable funds will fall because it now costs more to borrow funds and people who were supplying the funds will realize that fewer people will be willing to borrow their funds. 
C) households will consume less and save more. 
D) government will consume more because it now costs more to borrow funds to buy goods. 
E) a, b, and d

Question 5

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 6

The supply curve for land is __________ when the total supply is in question and __________ when subparcels are in question.

Accepted Answer

A) upward sloping; vertical 
B) upward sloping; upward sloping 
C) vertical; vertical 
D) vertical; upward sloping 
A) upward sloping; vertical 
B) upward sloping; upward sloping 
C) vertical; vertical 
D) vertical; upward sloping

Question 7

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 8

Suppose that if Madison Bumgarner, the major league baseball player, weren't playing baseball he would be coaching a college baseball team. It follows that

Accepted Answer

A) Bumgarner earns economic rent as long as his major league baseball salary is greater than his salary as the coach of a college baseball team. 
B) Bumgarner earns pure economic rent as a baseball player. 
C) Bumgarner earns pure economic rent as a baseball player and simply economic rent as a college coach. 
D) if Bumgarner's salary as a coach is much less than his salary as a baseball player, then Bumgarner is overpaid as a baseball player. 
E) none of the above 
A) Bumgarner earns economic rent as long as his major league baseball salary is greater than his salary as the coach of a college baseball team. 
B) Bumgarner earns pure economic rent as a baseball player. 
C) Bumgarner earns pure economic rent as a baseball player and simply economic rent as a college coach. 
D) if Bumgarner's salary as a coach is much less than his salary as a baseball player, then Bumgarner is overpaid as a baseball player. 
E) none of the above

Question 9

In a very popular movie, the principal character wore aviator sunglasses that were given to the movie studio by the producer of the sunglasses. The sunglasses suddenly became very popular, and the sunglasses producer earned significant profits. Which of the following theories on the source of profits discussed in the textbook best describes the reason behind this success?

Accepted Answer

A) Uncertainty is a source of profits. 
B) Profit is a reward for alertness to arbitrage opportunities. 
C) Profit is the return to the entrepreneur as innovator. 
D) Profit is a reward for waiting long enough for consumers to respond to your product. 
A) Uncertainty is a source of profits. 
B) Profit is a reward for alertness to arbitrage opportunities. 
C) Profit is the return to the entrepreneur as innovator. 
D) Profit is a reward for waiting long enough for consumers to respond to your product.

Question 10

What does it mean if a woman has a positive rate of time preference?

Accepted Answer

A) She prefers to arrive early (instead of on time) to an employee interview. 
B) She prefers to buy resources before they rise in price. 
C) She prefers earlier availability of goods over later availability of goods. 
D) She prefers "having more time" to "having less time." 
E) none of the above 
A) She prefers to arrive early (instead of on time) to an employee interview. 
B) She prefers to buy resources before they rise in price. 
C) She prefers earlier availability of goods over later availability of goods. 
D) She prefers "having more time" to "having less time." 
E) none of the above

Question 11

Suppose you borrow $1,000 today with the promise to pay back $1,070 one year from today. Based upon this information, the interest rate is __________, and the interest is __________.

Accepted Answer

A) $70; 7 percent 
B) 7 percent; $1,070 
C) 7 percent; $70 
D) $100; 10 percent 
E) 10 percent; $100 
A) $70; 7 percent 
B) 7 percent; $1,070 
C) 7 percent; $70 
D) $100; 10 percent 
E) 10 percent; $100

Question 12

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 from working at that job rather than job A 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 13

Which of the following statements is true?

Accepted Answer

A) The real interest rate matters more to borrowers than the nominal interest rate. 
B) The nominal interest rate is equal to the real interest rate minus the expected inflation rate. 
C) If there is expected deflation (expected decline in the price level), instead of expected inflation, the nominal interest rate will be greater than the real interest rate. 
D) The nominal interest rate is determined by the demand for credit and the supply of credit, or by the demand for loanable funds and the supply of loanable funds. 
E) If there is expected deflation, the nominal interest rate will necessarily be negative. 
A) The real interest rate matters more to borrowers than the nominal interest rate. 
B) The nominal interest rate is equal to the real interest rate minus the expected inflation rate. 
C) If there is expected deflation (expected decline in the price level), instead of expected inflation, the nominal interest rate will be greater than the real interest rate. 
D) The nominal interest rate is determined by the demand for credit and the supply of credit, or by the demand for loanable funds and the supply of loanable funds. 
E) If there is expected deflation, the nominal interest rate will necessarily be negative.

Question 14

Which of the following statements 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 15

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

Accepted Answer

A) True 
 B)False

Question 16

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 17

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 18

If the return on capital is 12 percent and the price for loanable funds is 14 percent, then

Accepted Answer

A) currently businesses will not borrow loanable funds to invest in capital goods. 
B) eventually the return on capital will decrease to the point where businesses will find it profitable to borrow loanable funds. 
C) the return on capital will fall as the supply of capital decreases over time, and simultaneously, the price for loanable funds will increase as savers make even more savings available. 
D) a and b 
A) currently businesses will not borrow loanable funds to invest in capital goods. 
B) eventually the return on capital will decrease to the point where businesses will find it profitable to borrow loanable funds. 
C) the return on capital will fall as the supply of capital decreases over time, and simultaneously, the price for loanable funds will increase as savers make even more savings available. 
D) a and b

Question 19

Approximately how much money would you need to place in a savings account today to accumulate $5,000 five years from now if the savings account pays an interest rate of 3.5 percent per year?

Accepted Answer

A) $4,210 
B) $4,831 
C) $5,937 
D) $3,411 
E) $3,887 
A) $4,210 
B) $4,831 
C) $5,937 
D) $3,411 
E) $3,887

Question 20

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.

Exam 29: Interest Rent and Profit

Uncertainty

Which of the following statements is false?

As interest rates decrease, present values __________, and firms will buy __________ capital goods.

If the interest rate increases, then

Profits differ from the other factor payments in that they

The supply curve for land is __________ when the total supply is in question and __________ when subparcels are in question.

Which of the following statements is true?

Suppose that if Madison Bumgarner, the major league baseball player, weren't playing baseball he would be coaching a college baseball team. It follows that

What does it mean if a woman has a positive rate of time preference?

Suppose you borrow $1,000 today with the promise to pay back $1,070 one year from today. Based upon this information, the interest rate is __________, and the interest is __________.

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 from working at that job rather than job A is

Which of the following statements is true?

Which of the following statements is true?

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

Loanable funds are

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

If the return on capital is 12 percent and the price for loanable funds is 14 percent, then

Approximately how much money would you need to place in a savings account today to accumulate $5,000 five years from now if the savings account pays an interest rate of 3.5 percent per year?

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand Theory

Prices Free Controlled and Relative

Supply Demand and Price Applications

Macroeconomic Measurements Part I Prices and Unemployment

Macroeconomic Measurements Part II 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

Debates in Macroeconomics Over the Role and Effects of Government

Elasticity

Consumer Choice 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

The Economic Case for and Against Government Five Topics Considered

Stocks Bonds Futures and Options

Filters

As interest rates decrease, present values , and firms will buy capital goods.

The supply curve for land is when the total supply is in question and when subparcels are in question.

Suppose you borrow $1,000 today with the promise to pay back $1,070 one year from today. Based upon this information, the interest rate is , and the interest is .