Question 1

The supply of factor X is perfectly inelastic and it receives a price of $100. It follows that

Accepted Answer

A) the entire $100 is pure economic rent. 
B) part of the $100 is pure economic rent. 
C) factor X does not receive any economic rent. 
D) any payment above the price of $100 is economic rent. 
E) none of the above 
A) the entire $100 is pure economic rent. 
B) part of the $100 is pure economic rent. 
C) factor X does not receive any economic rent. 
D) any payment above the price of $100 is economic rent. 
E) none of the above

Question 2

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 3

What is the approximate 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 5 percent?

Accepted Answer

A) $864 
B) $1,633 
C) $2,723 
D) $5,062 
A) $864 
B) $1,633 
C) $2,723 
D) $5,062

Question 4

Ceteris paribus, the nominal rate of interest will increase when the

Accepted Answer

A) real rate of interest falls. 
B) expected rate of inflation increases. 
C) expected rate of inflation falls. 
D) a and b 
E) a and c 
A) real rate of interest falls. 
B) expected rate of inflation increases. 
C) expected rate of inflation falls. 
D) a and b 
E) a and c

Question 5

The present value of $10,000 one year in the future at a 6 percent interest rate is approximately

Accepted Answer

A) $9,585. 
B) $9,434. 
C) $1,667. 
D) $10,060. 
A) $9,585. 
B) $9,434. 
C) $1,667. 
D) $10,060.

Question 6

The nominal interest rate will rise if the

Accepted Answer

A) expected inflation rate falls. 
B) real interest rate rises. 
C) expected inflation rate rises. 
D) a and b 
E) b and c 
A) expected inflation rate falls. 
B) real interest rate rises. 
C) expected inflation rate rises. 
D) a and b 
E) b and c

Question 7

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 8

If the demand for investment loans rises, this could be the result of

Accepted Answer

A) the discovery of new and better roundabout methods of production. 
B) a lower rate of time preference in society. 
C) a lower interest rate. 
D) a higher interest rate. 
E) a and c 
A) the discovery of new and better roundabout methods of production. 
B) a lower rate of time preference in society. 
C) a lower interest rate. 
D) a higher interest rate. 
E) a and c

Question 9

Profits are income to

Accepted Answer

A) owners of capital. 
B) all factors of production in a profitable firm. 
C) owners of land. 
D) entrepreneurs who bear the risks of production. 
E) owners of a highly productive resource. 
A) owners of capital. 
B) all factors of production in a profitable firm. 
C) owners of land. 
D) entrepreneurs who bear the risks of production. 
E) owners of a highly productive resource.

Question 10

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 11

The quantity demanded of loanable funds is inversely related to the rate of interest.

Accepted Answer

A) True 
 B)False

Question 12

What is the approximate present value of $500 four years from now if the interest rate is 2 percent?

Accepted Answer

A) $462 
B) $508 
C) $510 
D) $541 
E) $485 
A) $462 
B) $508 
C) $510 
D) $541 
E) $485

Question 13

Which of the following statements is true?

Accepted Answer

A) Nominal interest rate = real interest rate - expected inflation rate. 
B) Nominal interest rate = real interest rate + expected inflation rate. 
C) Real interest rate = nominal interest rate + expected inflation rate. 
D) Expected inflation rate = nominal interest rate + real interest rate. 
A) Nominal interest rate = real interest rate - expected inflation rate. 
B) Nominal interest rate = real interest rate + expected inflation rate. 
C) Real interest rate = nominal interest rate + expected inflation rate. 
D) Expected inflation rate = nominal interest rate + real interest rate.

Question 14

Exhibit 29-4
​
  
-Refer to Exhibit 29-4. 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

Question 15

A vertical supply curve of a factor indicates that

Accepted Answer

A) the demand for the factor will vary directly with the price of the factor. 
B) the supply of the factor is perfectly elastic. 
C) the factor has zero opportunity cost. 
D) a government restriction has been imposed on the purchase of the factor. 
A) the demand for the factor will vary directly with the price of the factor. 
B) the supply of the factor is perfectly elastic. 
C) the factor has zero opportunity cost. 
D) a government restriction has been imposed on the purchase of the factor.

Question 16

If there is an increase in the expected inflation rate, then,

Accepted Answer

A) the supply and demand for loanable funds will decrease. 
B) the supply and demand for loanable funds will increase. 
C) the supply of loanable funds will decrease, and the demand for loanable funds will increase. 
D) the supply of loanable funds will increase, and the demand for loanable funds will decrease. 
A) the supply and demand for loanable funds will decrease. 
B) the supply and demand for loanable funds will increase. 
C) the supply of loanable funds will decrease, and the demand for loanable funds will increase. 
D) the supply of loanable funds will increase, and the demand for loanable funds will decrease.

Question 17

Which of the following is not a theory of the source of profit as discussed in the textbook?

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) Profit is the return to those who are fortunate enough to own resources. 
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) Profit is the return to those who are fortunate enough to own resources.

Question 18

"Pure economic rent" is a payment

Accepted Answer

A) in excess of opportunity costs. 
B) in excess of opportunity costs when opportunity costs are zero. 
C) for the use of land. 
D) in excess of opportunity costs when opportunity costs are positive. 
E) to a pure monopolist for the monopolist's product. 
A) in excess of opportunity costs. 
B) in excess of opportunity costs when opportunity costs are zero. 
C) for the use of land. 
D) in excess of opportunity costs when opportunity costs are positive. 
E) to a pure monopolist for the monopolist's product.

Exam 29: Interest Rent and Profit

The supply of factor X is perfectly inelastic and it receives a price of $100. It follows that

Risk

What is the approximate 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 5 percent?

Ceteris paribus, the nominal rate of interest will increase when the

The present value of $10,000 one year in the future at a 6 percent interest rate is approximately

The nominal interest rate will rise if the

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

If the demand for investment loans rises, this could be the result of

Profits are income to

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

The quantity demanded of loanable funds is inversely related to the rate of interest.

What is the approximate present value of $500 four years from now if the interest rate is 2 percent?

Which of the following statements is true?

Exhibit 29-4 ​ -Refer to Exhibit 29-4. At the equilibrium point shown, what is the pure economic rent on land?

A vertical supply curve of a factor indicates that

If there is an increase in the expected inflation rate, then,

Which of the following is not a theory of the source of profit as discussed in the textbook?

"Pure economic rent" is a payment

What Economics Is About

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Exhibit 29-4 -Refer to Exhibit 29-4. At the equilibrium point shown, what is the pure economic rent on land?