Exam 29: Interest Rent and Profit

A new delivery van will cost a catering firm $40,000 (including all associated taxes and fees). The catering firm plans to pay cash for this van and the van will generate $8,000 (net of any costs associated with maintaining the van) worth of services each year for five years. At the end of the fifth year, the van can be sold for an estimated value of $10,000. If the interest rate is 6 percent, should the catering firm buy the new delivery van? If the interest rate were to suddenly rise to 8 percent, would this change the firm's decision? Explain your answer, using present value calculations to support your conclusions.

Economists generally agree that land rents are

If X is the actual amount of income or receipts and i is the interest rate (in decimals) that could be earned on alternative uses of money that face the same risk, the present value of X in t years from now is computed by

Exhibit 29-1 ​ -Refer to Exhibit 29-1. Suppose the supply curve is S₁ and the price is A. Pure economic rent equals area

The term "roundabout methods of production" refers to

The English economist David Ricardo argued that

If the demand for living in and visiting New York City were to decrease, then the following would happen in this order:

A decrease in the expected rate of inflation will shift the demand for loanable funds curve __________, while shifting the supply of loanable funds curve __________.

Which of the following statements is true?

Exhibit 29-1 ​ -Refer to Exhibit 29-1. Suppose the supply curve is S₂ and the price is A. Economic rent equals area

If you place $10,000 in a savings account that pays 3 percent interest per year and you leave all the money, principal plus interest earned, in the account for three years, approximately how much money will you have at the end of the three years?

What is the difference between uncertainty and risk?

Professor Simpson earns $80,000 per year teaching at the local college. Due to budget cutbacks, the college cuts her annual salary to $50,000 per year. Professor Simpson remains at the college and her behavior at work is not affected by the salary cut.Based upon this information, which of the following is most likely?

As the interest rate (price for loanable funds) decreases, businesses will

The return on capital is greater than the price of loanable funds. It follows that firms will

A firm is considering the purchase of a capital good that will generate an additional $40,000 income each year for 4 years (after which time the capital good is useless and has no scrap value). The interest rate is 4 percent. It follows that the firm should not purchase the capital good if its price is greater than (approximately)

Many years ago someone developed an item that was simply a small rock inside a box with holes. The person earned large profits from selling "pet rocks." Which of the following theories on the source of profits best describes the reason behind this success?

If the nominal interest rate is 5.2 percent and expected inflation rate is 2 percent, the real interest rate equals

If the price for loanable funds is less than the return on capital, then firms will

There are two societies, A and B, that are alike in every way but one. In society A, people have a high rate of time preference, and in society B, people have a low rate of time preference. It follows that