Question 1

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 2

Exhibit 29-4
​
  
-Refer to Exhibit 29-4. If a per acre tax, T, is imposed on land use, the pure economic rent on land will

Accepted Answer

A) increase. 
B) decrease. 
C) not be affected. 
D) None of the above, because pure economic rent does not apply to land. 
A) increase. 
B) decrease. 
C) not be affected. 
D) None of the above, because pure economic rent does not apply to land.

Question 3

The demand for loanable funds curve is

Accepted Answer

A) upward sloping. 
B) downward sloping. 
C) perfectly elastic. 
D) perfectly inelastic. 
A) upward sloping. 
B) downward sloping. 
C) perfectly elastic. 
D) perfectly inelastic.

Question 4

Land rents are high in both New York City and in London. It follows that

Accepted Answer

A) because land rents are high in both cities, prices (of goods and services) will be high in both cities. 
B) because land rents are high in both cities, we can expect prices (of goods and services) to be low in order to counter the high land rents. 
C) landowners must be more greedy in New York City and London than in cities or towns where land rents are lower. 
D) b and c 
E) none of the above 
A) because land rents are high in both cities, prices (of goods and services) will be high in both cities. 
B) because land rents are high in both cities, we can expect prices (of goods and services) to be low in order to counter the high land rents. 
C) landowners must be more greedy in New York City and London than in cities or towns where land rents are lower. 
D) b and c 
E) none of the above

Question 5

Ceteris paribus, the more risk associated with a loan,

Accepted Answer

A) the lower the interest rate. 
B) the higher the interest rate. 
C) the more likely the loan will be granted. 
D) the bigger the loan. 
A) the lower the interest rate. 
B) the higher the interest rate. 
C) the more likely the loan will be granted. 
D) the bigger the loan.

Question 6

"Economic rent" is

Accepted Answer

A) what an individual pays for the use of land or buildings. 
B) a payment in excess of the producer's explicit costs of production. 
C) a payment in excess of opportunity costs. 
D) a payment for capital goods. 
E) none of the above 
A) what an individual pays for the use of land or buildings. 
B) a payment in excess of the producer's explicit costs of production. 
C) a payment in excess of opportunity costs. 
D) a payment for capital goods. 
E) none of the above

Question 7

Which of the following statements is true?

Accepted Answer

A) A major corporation would tend to pay a higher interest rate for a $10,000 loan than a single parent working for a fast food restaurant. 
B) The more risky the loan, the higher the interest rate charged, ceteris paribus. 
C) The less risky the loan, the higher the interest rate charged, ceteris paribus. 
D) The duration (length) of a loan is unrelated to the interest rate charged for the loan. 
E) c and d 
A) A major corporation would tend to pay a higher interest rate for a $10,000 loan than a single parent working for a fast food restaurant. 
B) The more risky the loan, the higher the interest rate charged, ceteris paribus. 
C) The less risky the loan, the higher the interest rate charged, ceteris paribus. 
D) The duration (length) of a loan is unrelated to the interest rate charged for the loan. 
E) c and d

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

Suppose you are thinking about buying a car. The market price of the car (including all associated taxes and fees) is $18,200 which you will pay for in cash if you buy the car. You anticipate that you will receive $3,000 (above and beyond any costs associated with running and maintaining the car) worth of services from the car each year for the next eight years, after which time the car will be scrapped and will have no scrap value. If the interest rate is 6%, determine if the present value of the car is more than, less than, or equal to the market value of the car and specify whether or not it makes economic sense to purchase this car. Does the interest rate need to rise or fall in order for you to reach the opposite conclusion about buying the car? Explain your answer and support it using present value calculations.

Accepted Answer

The present value of the future stream o

Question 10

If roundabout methods of production did not ultimately __________, they would probably not be employed.

Accepted Answer

A) decrease taxes 
B) increase consumption 
C) decrease interest rates 
D) lower inflation 
E) increase the number of persons working 
A) decrease taxes 
B) increase consumption 
C) decrease interest rates 
D) lower inflation 
E) increase the number of persons working

Question 11

"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 12

If there is a decrease in the expected inflation rate, then,

Accepted Answer

A) the nominal interest rate will increase. 
B) the nominal interest rate will decrease. 
C) the real interest rate will increase. 
D) a and c 
E) b and c 
A) the nominal interest rate will increase. 
B) the nominal interest rate will decrease. 
C) the real interest rate will increase. 
D) a and c 
E) b and c

Question 13

Interest can be regarded as the

Accepted Answer

A) payment to entrepreneurs for incurring risk in the production of new goods. 
B) rate that a lender receives for the use of the lender's loanable funds. 
C) return earned by capital as an input in the production process. 
D) dollar amount of loanable funds that a person borrows to invest in a capital good. 
A) payment to entrepreneurs for incurring risk in the production of new goods. 
B) rate that a lender receives for the use of the lender's loanable funds. 
C) return earned by capital as an input in the production process. 
D) dollar amount of loanable funds that a person borrows to invest in a capital good.

Question 14

The nominal interest rate is determined

Accepted Answer

A) by the Federal Reserve system. 
B) in the loanable funds market. 
C) by the U.S.Treasury. 
D) by the average rate of change in the price of capital goods. 
A) by the Federal Reserve system. 
B) in the loanable funds market. 
C) by the U.S.Treasury. 
D) by the average rate of change in the price of capital goods.

Question 15

Exhibit 29-2
  
-Refer to Exhibit 29-2. The interest and interest rate for loan 4 are, respectively,

Accepted Answer

A) $11,200 and 12.0 percent. 
B) $1,200 and 12.0 percent. 
C) $11,200 and 11.2 percent. 
D) $1,200 and 11.2 percent. 
E) none of the above 
A) $11,200 and 12.0 percent. 
B) $1,200 and 12.0 percent. 
C) $11,200 and 11.2 percent. 
D) $1,200 and 11.2 percent. 
E) none of the above

Question 16

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 17

Roundabout methods of production are said to be productive. What does this mean?

Accepted Answer

A) Goods are best produced by many people working together-as in a circle. 
B) If you go round and round thinking about something, you will usually come up with the right way to do it-so you minimize on mistakes. 
C) If you take the most direct route to producing a good, you will save time, and time is something that producers want to save since "time is money." 
D) If you take time out to produce a capital good, with that capital good you can produce more than you could produce without it. 
A) Goods are best produced by many people working together-as in a circle. 
B) If you go round and round thinking about something, you will usually come up with the right way to do it-so you minimize on mistakes. 
C) If you take the most direct route to producing a good, you will save time, and time is something that producers want to save since "time is money." 
D) If you take time out to produce a capital good, with that capital good you can produce more than you could produce without it.

Question 18

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 19

Prices in stores and restaurants in Tokyo are high because

Accepted Answer

A) land rents are high in Tokyo. 
B) the supply of land is high in Tokyo. 
C) the demand for living, visiting, and shopping in Tokyo is high. 
D) a and b 
E) all of the above 
A) land rents are high in Tokyo. 
B) the supply of land is high in Tokyo. 
C) the demand for living, visiting, and shopping in Tokyo is high. 
D) a and b 
E) all of the above

Question 20

Suppose there are no barriers to competing for real rents. It follows that if real rents exist, people will compete for them

Accepted Answer

A) and in the process produce less of the good or service that is connected with the real rents. 
B) and in the process produce more of the good or service that is connected with the real rents. 
C) only if the real rents can be turned into artificial rents and therefore maintained over a long period of time. 
D) only if the real rents are pure economic rents and not simply economic rents. 
E) There is not enough information to answer the question. 
A) and in the process produce less of the good or service that is connected with the real rents. 
B) and in the process produce more of the good or service that is connected with the real rents. 
C) only if the real rents can be turned into artificial rents and therefore maintained over a long period of time. 
D) only if the real rents are pure economic rents and not simply economic rents. 
E) There is not enough information to answer the question.

Exam 29: Interest Rent and Profit

Which of the following statements is false?

Exhibit 29-4 ​ -Refer to Exhibit 29-4. If a per acre tax, T, is imposed on land use, the pure economic rent on land will

The demand for loanable funds curve is

Land rents are high in both New York City and in London. It follows that

Ceteris paribus, the more risk associated with a loan,

"Economic rent" is

Which of the following statements is true?

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?

If roundabout methods of production did not ultimately __________, they would probably not be employed.

"Present value" refers to the

If there is a decrease in the expected inflation rate, then,

Interest can be regarded as the

The nominal interest rate is determined

Exhibit 29-2 -Refer to Exhibit 29-2. The interest and interest rate for loan 4 are, respectively,

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

Roundabout methods of production are said to be productive. What does this mean?

As the interest rate falls,

Prices in stores and restaurants in Tokyo are high because

Suppose there are no barriers to competing for real rents. It follows that if real rents exist, people will compete for them

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

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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

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The Economic Case for and Against Government Five Topics Considered

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Exhibit 29-4 -Refer to Exhibit 29-4. If a per acre tax, T, is imposed on land use, the pure economic rent on land will