Question 1

What is a roundabout method of production?

Accepted Answer

A) It refers to an inefficient way of producing goods. 
B) It refers to the production of capital goods that are used to enhance productive capabilities. 
C) It refers to hiring more workers and using fewer capital goods. 
D) It refers to producing more consumer goods and fewer capital goods. 
E) none of the above 
A) It refers to an inefficient way of producing goods. 
B) It refers to the production of capital goods that are used to enhance productive capabilities. 
C) It refers to hiring more workers and using fewer capital goods. 
D) It refers to producing more consumer goods and fewer capital goods. 
E) none of the above

Question 2

The higher the cost of processing a loan, the __________ the interest rate charged for the loan; the lower the expected inflation rate, the __________ the nominal interest rate.

Accepted Answer

A) higher; lower 
B) lower; higher 
C) higher; higher 
D) lower; lower 
A) higher; lower 
B) lower; higher 
C) higher; higher 
D) lower; lower

Question 3

When someone wins a lottery jackpot they are often given the choice between receiving their winnings over some period of time or receiving less money but receiving it all at once. It makes the most economic sense to

Accepted Answer

A) receive the money over time because the amount received will be greater. 
B) receive the reduced amount of money in one lump sum because it is always better to have money sooner rather than later. 
C) receive whichever option yields the greatest present value. 
D) none of the above 
A) receive the money over time because the amount received will be greater. 
B) receive the reduced amount of money in one lump sum because it is always better to have money sooner rather than later. 
C) receive whichever option yields the greatest present value. 
D) none of the above

Question 4

Land can earn economic rent, and so can

Accepted Answer

A) labor and capital. 
B) labor. 
C) capital. 
D) none of the above 
A) labor and capital. 
B) labor. 
C) capital. 
D) none of the above

Question 5

When the expected inflation rate is zero, then it follows that the

Accepted Answer

A) real interest rate is greater than the nominal interest rate. 
B) demand for loanable funds is equal to the supply of loanable funds. 
C) demand for loanable funds is greater than the supply of loanable funds. 
D) real interest rate is less than the nominal interest rate. 
E) none of the above 
A) real interest rate is greater than the nominal interest rate. 
B) demand for loanable funds is equal to the supply of loanable funds. 
C) demand for loanable funds is greater than the supply of loanable funds. 
D) real interest rate is less than the nominal interest rate. 
E) none of the above

Question 6

Pure economic rent exists only when

Accepted Answer

A) opportunity costs are negative. 
B) opportunity costs are zero. 
C) opportunity costs are positive. 
D) explicit costs are zero. 
E) b and d 
A) opportunity costs are negative. 
B) opportunity costs are zero. 
C) opportunity costs are positive. 
D) explicit costs are zero. 
E) b and d

Question 7

Without savers, there would be no supply of loanable funds.

Accepted Answer

A) True 
 B)False

Question 8

Jimmy borrowed $50,000 to add a room to his house. He financed the loan over 3 years at 7 percent per year. He expects a 2 percent inflation rate each year for the next 3 years. It follows that he expects to pay an annual real interest rate of

Accepted Answer

A) 8 percent. 
B) 9 percent. 
C) 4.5 percent. 
D) 5 percent. 
A) 8 percent. 
B) 9 percent. 
C) 4.5 percent. 
D) 5 percent.

Question 9

Karen earned a large income by buying houses when they were selling for relatively low prices, and selling them at a later time when they were selling for relatively high prices. Which of the following theories of profit best describes the reason behind her success?

Accepted Answer

A) Uncertainty is the 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 profit. 
E) If you work hard enough, you will be rewarded. 
A) Uncertainty is the 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 profit. 
E) If you work hard enough, you will be rewarded.

Question 10

Which of the following statements is true?

Accepted Answer

A) All persons have a high rate of time preference. 
B) People with a high rate of time preference are more likely to be borrowers than people with a low rate of time preference. 
C) People with a high rate of time preference are more likely to be lenders than people with a low rate of time preference. 
D) A high interest rate is the cause of a high rate of time preference. 
E) none of the above 
A) All persons have a high rate of time preference. 
B) People with a high rate of time preference are more likely to be borrowers than people with a low rate of time preference. 
C) People with a high rate of time preference are more likely to be lenders than people with a low rate of time preference. 
D) A high interest rate is the cause of a high rate of time preference. 
E) none of the above

Question 11

The supply curve of loanable funds is __________ sloping, which implies that as the interest rate __________, the __________ loanable funds will increase.

Accepted Answer

A) downward; decreases; demand for 
B) upward; increases; supply of 
C) upward; decreases; supply of 
D) downward; decreases; quantity demanded of 
E) upward; increases; quantity supplied of 
A) downward; decreases; demand for 
B) upward; increases; supply of 
C) upward; decreases; supply of 
D) downward; decreases; quantity demanded of 
E) upward; increases; quantity supplied of

Question 12

The current nominal interest rate is 9 percent. If the expected inflation rate changes from 2 to 3 percent (ceteris paribus), it follows that the demand for loanable funds will

Accepted Answer

A) rise by more than the supply of loanable funds will rise. 
B) will rise by less than the supply of loanable funds will fall. 
C) will fall by more than the supply of loanable funds will rise. 
D) rise by the same amount that the supply of loanable funds will rise. 
E) none of the above 
A) rise by more than the supply of loanable funds will rise. 
B) will rise by less than the supply of loanable funds will fall. 
C) will fall by more than the supply of loanable funds will rise. 
D) rise by the same amount that the supply of loanable funds will rise. 
E) none of the above

Question 13

Pure economic rent is

Accepted Answer

A) the payment to factors owned by entrepreneurs. 
B) economic profits. 
C) the payment to factors whose supply is perfectly elastic. 
D) a payment made to land. 
E) the payment to factors whose supply is perfectly inelastic. 
A) the payment to factors owned by entrepreneurs. 
B) economic profits. 
C) the payment to factors whose supply is perfectly elastic. 
D) a payment made to land. 
E) the payment to factors whose supply is perfectly inelastic.

Question 14

The equilibrium interest rate is determined

Accepted Answer

A) by the demand for loanable funds. 
B) by the supply of loanable funds. 
C) by the demand for and supply of loanable funds. 
D) independently of the demand for and supply of loanable funds. 
A) by the demand for loanable funds. 
B) by the supply of loanable funds. 
C) by the demand for and supply of loanable funds. 
D) independently of the demand for and supply of loanable funds.

Question 15

If a firm is incurring a loss, the loss is a signal that

Accepted Answer

A) the firm is not a monopolist. 
B) the firm has never enjoyed profits. 
C) consumers would rather have some of the resources used by the loss maker be used to produce other goods. 
D) the government has withdrawn its "protection" of the firm. 
A) the firm is not a monopolist. 
B) the firm has never enjoyed profits. 
C) consumers would rather have some of the resources used by the loss maker be used to produce other goods. 
D) the government has withdrawn its "protection" of the firm.

Question 16

Firms demand credit so that they can invest in capital goods and finance roundabout methods of production.

Accepted Answer

A) True 
 B)False

Question 17

Exhibit 29-2
  
-Refer to Exhibit 29-2. The interest and interest rate on loan 1 are, respectively,

Accepted Answer

A) $1,100 and 100 percent. 
B) $1,100 and 10 percent. 
C) 10 percent and $100. 
D) $100 and 10 percent. 
A) $1,100 and 100 percent. 
B) $1,100 and 10 percent. 
C) 10 percent and $100. 
D) $100 and 10 percent.

Question 18

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 one year from now is computed by

Accepted Answer

A) X/(1-i). 
B) X/(1+i). 
C) i/(1+X). 
D) (X)(1 + i). 
E) (i)(1 + X). 
A) X/(1-i). 
B) X/(1+i). 
C) i/(1+X). 
D) (X)(1 + i). 
E) (i)(1 + X).

Question 19

The interest rate will be higher,

Accepted Answer

A) the longer the term of the loan. 
B) the less risk associated with the loan. 
C) the lower the processing costs of the loan. 
D) the lower the administrative costs of the loan. 
E) none of the above 
A) the longer the term of the loan. 
B) the less risk associated with the loan. 
C) the lower the processing costs of the loan. 
D) the lower the administrative costs of the loan. 
E) none of the above

Question 20

Which of the following statements is true?

Accepted Answer

A) The supply curve for land is upward sloping in the short run, but is perfectly inelastic in the long run. 
B) The supply curve for land is upward sloping in the short run, but is perfectly elastic in the long run. 
C) The supply curve for land is upward sloping when considering a small portion of the total amount of land, but is perfectly inelastic when considering the total amount. 
D) The supply curve for land is upward sloping when considering the total amount of land, but is perfectly inelastic when considering a small portion of the total amount. 
A) The supply curve for land is upward sloping in the short run, but is perfectly inelastic in the long run. 
B) The supply curve for land is upward sloping in the short run, but is perfectly elastic in the long run. 
C) The supply curve for land is upward sloping when considering a small portion of the total amount of land, but is perfectly inelastic when considering the total amount. 
D) The supply curve for land is upward sloping when considering the total amount of land, but is perfectly inelastic when considering a small portion of the total amount.

Exam 29: Interest Rent and Profit

What is a roundabout method of production?

The higher the cost of processing a loan, the __________ the interest rate charged for the loan; the lower the expected inflation rate, the __________ the nominal interest rate.

When someone wins a lottery jackpot they are often given the choice between receiving their winnings over some period of time or receiving less money but receiving it all at once. It makes the most economic sense to

Land can earn economic rent, and so can

When the expected inflation rate is zero, then it follows that the

Pure economic rent exists only when

Without savers, there would be no supply of loanable funds.

Jimmy borrowed $50,000 to add a room to his house. He financed the loan over 3 years at 7 percent per year. He expects a 2 percent inflation rate each year for the next 3 years. It follows that he expects to pay an annual real interest rate of

Karen earned a large income by buying houses when they were selling for relatively low prices, and selling them at a later time when they were selling for relatively high prices. Which of the following theories of profit best describes the reason behind her success?

Which of the following statements is true?

The supply curve of loanable funds is __________ sloping, which implies that as the interest rate __________, the __________ loanable funds will increase.

The current nominal interest rate is 9 percent. If the expected inflation rate changes from 2 to 3 percent (ceteris paribus), it follows that the demand for loanable funds will

Pure economic rent is

The equilibrium interest rate is determined

If a firm is incurring a loss, the loss is a signal that

Firms demand credit so that they can invest in capital goods and finance roundabout methods of production.

Exhibit 29-2 -Refer to Exhibit 29-2. The interest and interest rate on loan 1 are, respectively,

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 one year from now is computed by

The interest rate will be higher,

Which of the following statements is true?

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

The higher the cost of processing a loan, the the interest rate charged for the loan; the lower the expected inflation rate, the the nominal interest rate.

The supply curve of loanable funds is sloping, which implies that as the interest rate , the __ loanable funds will increase.