Question 1

Interest rates differ because of differences in

Accepted Answer

A) risk. 
B) the term of the loan. 
C) the cost of making the loan. 
D) a and b 
E) all of the above 
A) risk. 
B) the term of the loan. 
C) the cost of making the loan. 
D) a and b 
E) all of the above

Question 2

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 3

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 4

Jaime has an old car that he expects will last for only three more years. He says he derives $1,000 worth of services from the car each year. He expects the scrap value of the car to be so low that it is not worth considering. If the interest rate is 7 percent, it is not likely that he will sell the car unless he is paid more than

Accepted Answer

A) $763. 
B) $2,800. 
C) $1,562. 
D) $1,925. 
E) $2,624. 
A) $763. 
B) $2,800. 
C) $1,562. 
D) $1,925. 
E) $2,624.

Question 5

If a person pays back $23,000 on a one-year loan of $19,000, the interest is __________ and the interest rate is approximately __________ .

Accepted Answer

A) $4,000; 21.05 percent 
B) 21.05 percent; $4,000 
C) $400; 17.4 percent 
D) $4,000; 11.4 percent 
E) 17.4 percent; $5,000 
A) $4,000; 21.05 percent 
B) 21.05 percent; $4,000 
C) $400; 17.4 percent 
D) $4,000; 11.4 percent 
E) 17.4 percent; $5,000

Question 6

The producers of good X are earning (positive) economic profits and the producers of good Z are receiving economic losses. A likely consequence is that (in time) resources will be shifted out of producing good Z and into producing good X. Here profit and loss are most closely serving as

Accepted Answer

A) signals-telling entrepreneurs where resources should be moved. 
B) signals-telling entrepreneurs who is a success and who isn't. 
C) an accounting device-observed by those who have to pay taxes and those who do not have to pay taxes. 
D) signals-telling tax collectors from whom to collect taxes and from whom not to collect taxes. 
A) signals-telling entrepreneurs where resources should be moved. 
B) signals-telling entrepreneurs who is a success and who isn't. 
C) an accounting device-observed by those who have to pay taxes and those who do not have to pay taxes. 
D) signals-telling tax collectors from whom to collect taxes and from whom not to collect taxes.

Question 7

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 for working at job C rather than job B 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 8

The demand curve for loanable funds is

Accepted Answer

A) upward sloping, indicating that lower interest rates are associated with a lower demand for loanable funds. 
B) downward sloping, indicating that businesses will increase their demand at lower interest rates, but that consumers will probably decrease the supply of loanable funds at lower interest rates. 
C) downward sloping, indicating that both businesses and consumers will increase the quantity demanded of loanable funds as the interest rate decreases. 
D) horizontal at the equilibrium interest rate. 
A) upward sloping, indicating that lower interest rates are associated with a lower demand for loanable funds. 
B) downward sloping, indicating that businesses will increase their demand at lower interest rates, but that consumers will probably decrease the supply of loanable funds at lower interest rates. 
C) downward sloping, indicating that both businesses and consumers will increase the quantity demanded of loanable funds as the interest rate decreases. 
D) horizontal at the equilibrium interest rate.

Question 9

The difference between artificial rents and real rents is that

Accepted Answer

A) artificial rents are contrived by government and real rents are not. 
B) real rents are usually bigger than artificial rents. 
C) artificial rents occur only if the supply curve for the good in question is perfectly inelastic. 
D) artificial rents are subject to rent seeking and real rents are not. 
A) artificial rents are contrived by government and real rents are not. 
B) real rents are usually bigger than artificial rents. 
C) artificial rents occur only if the supply curve for the good in question is perfectly inelastic. 
D) artificial rents are subject to rent seeking and real rents are not.

Question 10

Which of the following statements is false?

Accepted Answer

A) The quantity supplied of loanable funds and the interest rate are inversely related. 
B) The supply curve of loanable funds is upward sloping. 
C) One of the reasons the federal government demands loanable funds is that it needs to finance budget deficits. 
D) Savers are people who consume less than their current income. 
A) The quantity supplied of loanable funds and the interest rate are inversely related. 
B) The supply curve of loanable funds is upward sloping. 
C) One of the reasons the federal government demands loanable funds is that it needs to finance budget deficits. 
D) Savers are people who consume less than their current income.

Question 11

Is there a difference between the terms interest and interest rate?

Accepted Answer

A) No.Interest is simply a shorthand version of interest rate. 
B) Yes.Interest refers to the return that capital earns, whereas interest rate is the payment to someone who lends money to someone else. 
C) Yes.Interest is what one earns by placing funds in a savings account, whereas interest rate is the rate that the U.S.Treasury pays for borrowed funds when the government incurs a deficit. 
D) Yes.Interest is a dollar payment for the use of funds, whereas interest rate is the ratio of that dollar amount to the total amount of funds borrowed. 
A) No.Interest is simply a shorthand version of interest rate. 
B) Yes.Interest refers to the return that capital earns, whereas interest rate is the payment to someone who lends money to someone else. 
C) Yes.Interest is what one earns by placing funds in a savings account, whereas interest rate is the rate that the U.S.Treasury pays for borrowed funds when the government incurs a deficit. 
D) Yes.Interest is a dollar payment for the use of funds, whereas interest rate is the ratio of that dollar amount to the total amount of funds borrowed.

Question 12

If you have a low rate of time preference, then you

Accepted Answer

A) buy goods right now because "you just can't wait." 
B) are willing to save a larger percentage of your income than a person who has a high rate of time preference. 
C) find it difficult to save much of your income because money "just sitting around" is worthless to you. 
D) are willing to borrow money to buy goods now. 
E) a, c, and d 
A) buy goods right now because "you just can't wait." 
B) are willing to save a larger percentage of your income than a person who has a high rate of time preference. 
C) find it difficult to save much of your income because money "just sitting around" is worthless to you. 
D) are willing to borrow money to buy goods now. 
E) a, c, and d

Question 13

The current real interest rate is 8 percent. It follows the nominal interest rate is __________ percent if the expected inflation rate is __________ percent.

Accepted Answer

A) 8; 6 
B) 10; 2 
C) -2; 4 
D) 6; 2 
E) There is not enough information to answer the question. 
A) 8; 6 
B) 10; 2 
C) -2; 4 
D) 6; 2 
E) There is not enough information to answer the question.

Question 14

Which of the following statements is true?

Accepted Answer

A) When rents are real, competing for them uses resources in a socially unproductive way. 
B) The competition for real rents often increases supply and lowers price. 
C) If Firm A is receiving artificial rents and Firm B is receiving real rents, then Firm B is larger than Firm A. 
D) If Firm A is receiving artificial rents and Firm B is receiving real rents, then Firm B is smaller than Firm A. 
A) When rents are real, competing for them uses resources in a socially unproductive way. 
B) The competition for real rents often increases supply and lowers price. 
C) If Firm A is receiving artificial rents and Firm B is receiving real rents, then Firm B is larger than Firm A. 
D) If Firm A is receiving artificial rents and Firm B is receiving real rents, then Firm B is smaller than Firm A.

Question 15

If suddenly a 4 percent inflation rate (instead of a zero percent inflation rate) is expected by both suppliers and demanders in the loanable funds market, then

Accepted Answer

A) the demand for loanable funds curve will shift rightward, and the supply of loanable funds curve will shift leftward. 
B) the demand for loanable funds curve will shift leftward, and the supply of loanable funds curve will shift rightward. 
C) both the demand for loanable funds curve and the supply of loanable funds curve will shift leftward. 
D) both the demand for loanable funds curve and the supply of loanable funds curve will shift rightward. 
A) the demand for loanable funds curve will shift rightward, and the supply of loanable funds curve will shift leftward. 
B) the demand for loanable funds curve will shift leftward, and the supply of loanable funds curve will shift rightward. 
C) both the demand for loanable funds curve and the supply of loanable funds curve will shift leftward. 
D) both the demand for loanable funds curve and the supply of loanable funds curve will shift rightward.

Question 16

Which of the following statements is false?

Accepted Answer

A) Interest would not exist in a barter (moneyless) economy because there is no money in a barter economy. 
B) The real interest rate is equal to the nominal interest rate minus the expected inflation rate. 
C) The source of monopoly profits is often high barriers to entry. 
D) The nominal interest rate will equal the real interest rate only when the expected inflation rate is zero. 
A) Interest would not exist in a barter (moneyless) economy because there is no money in a barter economy. 
B) The real interest rate is equal to the nominal interest rate minus the expected inflation rate. 
C) The source of monopoly profits is often high barriers to entry. 
D) The nominal interest rate will equal the real interest rate only when the expected inflation rate is zero.

Question 17

In what sense are profit and loss signals?

Accepted Answer

A) They signal resources where to move. 
B) They signal what goods consumers may want to buy and what goods they may not want to buy. 
C) They are important for government and business accounting procedures. 
D) a and b 
A) They signal resources where to move. 
B) They signal what goods consumers may want to buy and what goods they may not want to buy. 
C) They are important for government and business accounting procedures. 
D) a and b

Question 18

The people most likely to save are those with a

Accepted Answer

A) low rate of time preference since they only slightly prefer present consumption to future consumption. 
B) high rate of time preference since they greatly prefer present consumption to future consumption. 
C) low rate of time preference since they greatly prefer present consumption to future consumption. 
D) efficient rate of time preference since they do not prefer consuming luxury goods to necessities. 
E) roundabout rate of time preference since they don't really care about consuming. 
A) low rate of time preference since they only slightly prefer present consumption to future consumption. 
B) high rate of time preference since they greatly prefer present consumption to future consumption. 
C) low rate of time preference since they greatly prefer present consumption to future consumption. 
D) efficient rate of time preference since they do not prefer consuming luxury goods to necessities. 
E) roundabout rate of time preference since they don't really care about consuming.

Question 19

The term "positive rate of time preference" suggests that

Accepted Answer

A) people prefer more time to do something than less time. 
B) people prefer goods to be available at an earlier time period than at a later time period. 
C) some people are irrational because they would rather have something now than wait to consume it later when they can enjoy it more. 
D) interest rates tend to increase over time. 
E) businesses know that if they invest in capital goods, they will earn profits. 
A) people prefer more time to do something than less time. 
B) people prefer goods to be available at an earlier time period than at a later time period. 
C) some people are irrational because they would rather have something now than wait to consume it later when they can enjoy it more. 
D) interest rates tend to increase over time. 
E) businesses know that if they invest in capital goods, they will earn profits.

Question 20

Economic rent is

Accepted Answer

A) the payment a renter pays his or her landlord. 
B) payment in excess of fixed costs. 
C) payment in excess of opportunity costs. 
D) the same as interest if we are discussing a capital good purchase. 
E) none of the above 
A) the payment a renter pays his or her landlord. 
B) payment in excess of fixed costs. 
C) payment in excess of opportunity costs. 
D) the same as interest if we are discussing a capital good purchase. 
E) none of the above

Exam 29: Interest Rent and Profit

Interest rates differ because of differences in

In economics, the word "interest" refers to the

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

If a person pays back $23,000 on a one-year loan of $19,000, the interest is __________ and the interest rate is approximately __________ .

The producers of good X are earning (positive) economic profits and the producers of good Z are receiving economic losses. A likely consequence is that (in time) resources will be shifted out of producing good Z and into producing good X. Here profit and loss are most closely serving as

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 for working at job C rather than job B is

The demand curve for loanable funds is

The difference between artificial rents and real rents is that

Which of the following statements is false?

Is there a difference between the terms interest and interest rate?

If you have a low rate of time preference, then you

The current real interest rate is 8 percent. It follows the nominal interest rate is __________ percent if the expected inflation rate is __________ percent.

Which of the following statements is true?

If suddenly a 4 percent inflation rate (instead of a zero percent inflation rate) is expected by both suppliers and demanders in the loanable funds market, then

Which of the following statements is false?

In what sense are profit and loss signals?

The people most likely to save are those with a

The term "positive rate of time preference" suggests that

Economic rent is

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

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Keynesian Macroeconomics and Economic Instability a Critique of the Self Regulating Economy

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If a person pays back $23,000 on a one-year loan of $19,000, the interest is and the interest rate is approximately .

The current real interest rate is 8 percent. It follows the nominal interest rate is percent if the expected inflation rate is percent.