Question 1

Exhibit 29-3
  
-Refer to Exhibit 29-3. The real interest rate in year 2 is

Accepted Answer

A) 25 percent. 
B) 5 percent. 
C) 15 percent. 
D) -25 percent. 
E) -15 percent. 
A) 25 percent. 
B) 5 percent. 
C) 15 percent. 
D) -25 percent. 
E) -15 percent.

Question 2

Which of the following would increase the economic rent of a factor, the supply curve of which is perfectly inelastic?

Accepted Answer

A) an increase in quantity demanded 
B) a decrease in quantity demanded 
C) an increase in demand 
D) a decrease in demand 
E) none of the above 
A) an increase in quantity demanded 
B) a decrease in quantity demanded 
C) an increase in demand 
D) a decrease in demand 
E) none of the above

Question 3

Jim Smith made his fortune by buying and selling real estate. Which of the following theories on the source of profits best describes the reason behind his success?

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) Land is always a source of economic rent and profit. 
E) If one works hard enough, one will be rewarded. 
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) Land is always a source of economic rent and profit. 
E) If one works hard enough, one will be rewarded.

Question 4

If medical research were to find that grain consumption lowers human life expectancy, agricultural land rents would

Accepted Answer

A) increase. 
B) decrease. 
C) not be affected. 
D) increase in the short run and decrease in the long run. 
A) increase. 
B) decrease. 
C) not be affected. 
D) increase in the short run and decrease in the long run.

Question 5

People such as Henry Ford and Thomas Edison most likely earned profit as a result of "innovative genius."

Accepted Answer

A) True 
 B)False

Question 6

Bill Brown commands $2 million a year as either a professional basketball player or a professional baseball player. His next best alternative is a coaching job at a high school that pays $60,000 a year. If Bill chooses to play professional basketball, then his economic rent from working at that job rather than working as a professional baseball player is

Accepted Answer

A) $0. 
B) $60,000. 
C) $1 million. 
D) $1,930,000. 
E) $2 million. 
A) $0. 
B) $60,000. 
C) $1 million. 
D) $1,930,000. 
E) $2 million.

Question 7

Exhibit 29-3
  
-Refer to Exhibit 29-3. The real interest rate in year 3 is

Accepted Answer

A) 5 percent. 
B) -5 percent. 
C) 0 percent. 
D) -10 percent. 
E) 10 percent. 
A) 5 percent. 
B) -5 percent. 
C) 0 percent. 
D) -10 percent. 
E) 10 percent.

Question 8

Which of the following statements is false?

Accepted Answer

A) Capital depreciates over time. 
B) As the capital stock decreases, the marginal physical product of capital rises. 
C) If the return on capital is less than the price of credit, a firm will not borrow funds to invest in capital. 
D) If the return on capital is greater than the price of credit, then the price of credit must be greater than the price for loanable funds. 
A) Capital depreciates over time. 
B) As the capital stock decreases, the marginal physical product of capital rises. 
C) If the return on capital is less than the price of credit, a firm will not borrow funds to invest in capital. 
D) If the return on capital is greater than the price of credit, then the price of credit must be greater than the price for loanable funds.

Question 9

If the nominal interest rate is 8 percent and expected inflation rate is 9 percent, the real interest rate

Accepted Answer

A) is 1 percent. 
B) is -1 percent. 
C) is 9 percent. 
D) cannot be calculated. 
E) none of the above 
A) is 1 percent. 
B) is -1 percent. 
C) is 9 percent. 
D) cannot be calculated. 
E) none of the above

Question 10

Describe how nineteenth-century economist David Ricardo viewed the relationship between rents and grain prices in England. How did his perspective differ from that of the prevailing view on this situation?

Accepted Answer

Ricardo contended that land rents were h

Question 11

The supply curve for land will be upward sloping as long as

Accepted Answer

A) there is unimproved land ready for development. 
B) the money price of land is greater than zero. 
C) land has alternative uses. 
D) the demand for land is variable. 
A) there is unimproved land ready for development. 
B) the money price of land is greater than zero. 
C) land has alternative uses. 
D) the demand for land is variable.

Question 12

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

Accepted Answer

A) rightward; rightward 
B) rightward; leftward 
C) leftward; rightward 
D) leftward; leftward 
A) rightward; rightward 
B) rightward; leftward 
C) leftward; rightward 
D) leftward; leftward

Question 13

What is the approximate present value of $8,000 received four years from today if the interest rate is 12 percent?

Accepted Answer

A) $12,588 
B) $4,882 
C) $10,837 
D) $5,084 
E) $6,908 
A) $12,588 
B) $4,882 
C) $10,837 
D) $5,084 
E) $6,908

Question 14

The present value of $2,000 one year in the future at a 6.5 percent interest rate is approximately

Accepted Answer

A) $4,045 
B) $1,300. 
C) $2,130. 
D) $1,878. 
A) $4,045 
B) $1,300. 
C) $2,130. 
D) $1,878.

Question 15

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

Accepted Answer

A) decrease 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) decrease 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 16

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

Accepted Answer

A) the discovery of new roundabout methods of production. 
B) a higher rate of time preference in society. 
C) an increase in (people) saving. 
D) a higher interest rate. 
E) a and c 
A) the discovery of new roundabout methods of production. 
B) a higher rate of time preference in society. 
C) an increase in (people) saving. 
D) a higher interest rate. 
E) a and c

Question 17

The terms interest and interest rate are synonyms.

Accepted Answer

A) True 
 B)False

Question 18

If consumers prefer earlier availability of goods to later availability, they are said to have a __________ rate of time preference.

Accepted Answer

A) positive 
B) negative 
C) rational 
D) roundabout 
E) none of the above 
A) positive 
B) negative 
C) rational 
D) roundabout 
E) none of the above

Question 19

Which of the following statements is true?

Accepted Answer

A) The nominal interest rate is always higher than the real interest rate since the nominal interest rate equals the real interest rate plus the expected inflation rate. 
B) The nominal interest rate is always lower than the real interest rate since the nominal interest rate equals the real interest rate minus the expected inflation rate. 
C) The nominal interest rate can equal the real interest rate, but to do so the expected inflation rate must be zero percent. 
D) It is the nominal interest rate-not the real interest rate-that matters to borrowers. 
A) The nominal interest rate is always higher than the real interest rate since the nominal interest rate equals the real interest rate plus the expected inflation rate. 
B) The nominal interest rate is always lower than the real interest rate since the nominal interest rate equals the real interest rate minus the expected inflation rate. 
C) The nominal interest rate can equal the real interest rate, but to do so the expected inflation rate must be zero percent. 
D) It is the nominal interest rate-not the real interest rate-that matters to borrowers.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 29: Interest Rent and Profit

Exhibit 29-3 -Refer to Exhibit 29-3. The real interest rate in year 2 is

Which of the following would increase the economic rent of a factor, the supply curve of which is perfectly inelastic?

Jim Smith made his fortune by buying and selling real estate. Which of the following theories on the source of profits best describes the reason behind his success?

If medical research were to find that grain consumption lowers human life expectancy, agricultural land rents would

People such as Henry Ford and Thomas Edison most likely earned profit as a result of "innovative genius."

Exhibit 29-3 -Refer to Exhibit 29-3. The real interest rate in year 3 is

Which of the following statements is false?

If the nominal interest rate is 8 percent and expected inflation rate is 9 percent, the real interest rate

Describe how nineteenth-century economist David Ricardo viewed the relationship between rents and grain prices in England. How did his perspective differ from that of the prevailing view on this situation?

The supply curve for land will be upward sloping as long as

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

What is the approximate present value of $8,000 received four years from today if the interest rate is 12 percent?

The present value of $2,000 one year in the future at a 6.5 percent interest rate is approximately

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

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

The terms interest and interest rate are synonyms.

If consumers prefer earlier availability of goods to later availability, they are said to have a __________ rate of time preference.

Which of the following statements is true?

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

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

An increase in the expected rate of inflation will shift the demand for loanable funds curve , while shifting the supply of loanable funds curve .