Question 1

In making an investment decision, a business firm is most interested in the

Accepted Answer

A) nominal interest rate. 
B) real interest rate. 
C) nominal interest rate minus the real interest rate. 
D) future supply of loanable funds. 
A) nominal interest rate. 
B) real interest rate. 
C) nominal interest rate minus the real interest rate. 
D) future supply of loanable funds. B

Question 2

Rent performs an incentive function, but no rationing function.

Accepted Answer

A) True 
 B)False  False

Question 3

Which of the following was not a belief of Henry George and the single-tax movement?

Accepted Answer

A) Rental income is unfair because landlords do not really earn it from any productive effort. 
B) Rental income should be taxed heavily and should be the primary source of revenues for the government. 
C) Taxing rental income would adversely affect allocative efficiency because the tax would change how landlords use their land. 
D) The single tax on rent would not adversely affect society's productive efficiency. 
A) Rental income is unfair because landlords do not really earn it from any productive effort. 
B) Rental income should be taxed heavily and should be the primary source of revenues for the government. 
C) Taxing rental income would adversely affect allocative efficiency because the tax would change how landlords use their land. 
D) The single tax on rent would not adversely affect society's productive efficiency. C

Question 4

If you pay $1,980 annually on an $18,000 loan and the rate of inflation is 3 percent, then the

Accepted Answer

A) real rate of interest is 8 percent 
B) nominal rate of interest is 8 percent. 
C) real rate of interest is 11 percent. 
D) nominal rate of interest is 14 percent. 
A) real rate of interest is 8 percent 
B) nominal rate of interest is 8 percent. 
C) real rate of interest is 11 percent. 
D) nominal rate of interest is 14 percent.

Question 5

The demand for farmland will increase if

Accepted Answer

A) the demand for food decreases. 
B) technological advances make land more productive. 
C) the price of farm labor increases and the output effect exceeds the substitution effect. 
D) the supply of farmland increases. 
A) the demand for food decreases. 
B) technological advances make land more productive. 
C) the price of farm labor increases and the output effect exceeds the substitution effect. 
D) the supply of farmland increases.

Question 6

Which of the following interest rates is usually the highest?

Accepted Answer

A) 30-year mortgage rate 
B) 20-year Treasury bond rate 
C) consumer credit-card rate 
D) prime rate of banks 
A) 30-year mortgage rate 
B) 20-year Treasury bond rate 
C) consumer credit-card rate 
D) prime rate of banks

Question 7

Suppose many businesses want to increase their stock of capital goods and decide to borrow funds to do it.Which would be the likely result of this event?

Accepted Answer

A) Interest rates would increase. 
B) Interest rates would decrease. 
C) The equilibrium quantity of loanable funds would decrease. 
D) The equilibrium quantity of loanable funds would remain unchanged.Difficulty: 01 Easy 
A) Interest rates would increase. 
B) Interest rates would decrease. 
C) The equilibrium quantity of loanable funds would decrease. 
D) The equilibrium quantity of loanable funds would remain unchanged.Difficulty: 01 Easy

Question 8

If the desired real rate of interest is 5 percent and the expected rate of inflation is 15 percent, what is the nominal rate of interest?

Accepted Answer

A) 5 percent 
B) 10 percent 
C) 15 percent 
D) 20 percent 
A) 5 percent 
B) 10 percent 
C) 15 percent 
D) 20 percent

Question 9

Other things equal, short-term loans usually have lower rates of interest than do long-term loans.

Accepted Answer

A) True 
 B)False

Question 10

Reducing the payment of rent to landowners will decrease the quantity of land supplied.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following factors is not a typical cause of changes in land rent?

Accepted Answer

A) demand for land 
B) supply of land 
C) prices of the products produced from the land 
D) prices of other resources employed along with land 
A) demand for land 
B) supply of land 
C) prices of the products produced from the land 
D) prices of other resources employed along with land

Question 12

(Last Word) Suppose you borrow $500 and agree to pay this $500 plus $75 of interest at the end of a year.The interest rate is

Accepted Answer

A) 10 percent. 
B) 15 percent. 
C) 12.5 percent. 
D) 7.5 percent. 
A) 10 percent. 
B) 15 percent. 
C) 12.5 percent. 
D) 7.5 percent.

Question 13

The equilibrium interest rate equates

Accepted Answer

A) nominal and real interest rates. 
B) the quantities demanded and supplied of loanable funds. 
C) consumption and saving. 
D) taxes and government spending. 
A) nominal and real interest rates. 
B) the quantities demanded and supplied of loanable funds. 
C) consumption and saving. 
D) taxes and government spending.

Question 14

If the payment to an input is pure economic rent, then reducing that payment will

Accepted Answer

A) not influence the availability of the input. 
B) increase the quantity supplied of the input. 
C) decrease the quantity supplied of the input. 
D) decrease the demand for the input. 
A) not influence the availability of the input. 
B) increase the quantity supplied of the input. 
C) decrease the quantity supplied of the input. 
D) decrease the demand for the input.

Question 15

The marginal revenue product (MRP) of land declines as more land is brought into production because

Accepted Answer

A) land is a "free and nonreproducible gift of nature." 
B) of diminishing returns. 
C) land rent has no incentive function. 
D) the supply of land is fixed. 
A) land is a "free and nonreproducible gift of nature." 
B) of diminishing returns. 
C) land rent has no incentive function. 
D) the supply of land is fixed.

Question 16

Normal profit is considered an economic cost.

Accepted Answer

A) True 
 B)False

Question 17

If you pay $10,625 annually on a $125,000 loan and the rate of inflation is 3 percent, then the

Accepted Answer

A) real rate of interest is 4.5 percent. 
B) nominal rate of interest is 8.5 percent. 
C) real rate of interest is 6.5 percent. 
D) nominal rate of interest is 11.5 percent. 
A) real rate of interest is 4.5 percent. 
B) nominal rate of interest is 8.5 percent. 
C) real rate of interest is 6.5 percent. 
D) nominal rate of interest is 11.5 percent.

Question 18

In Progress and Poverty (1879), Henry George argued for

Accepted Answer

A) a progressive income tax. 
B) a heavy tax on land-rent income. 
C) a flat tax. 
D) a subsidy for land. 
A) a progressive income tax. 
B) a heavy tax on land-rent income. 
C) a flat tax. 
D) a subsidy for land.

Question 19

Which factor will decrease the demand for loanable funds?

Accepted Answer

A) a change in the tax law to exempt savings from taxation 
B) expansion of social insurance to cover more fully the cost of retirement 
C) a general business recession that produces high rates of unemployment 
D) a technological advance that increases returns on investments 
A) a change in the tax law to exempt savings from taxation 
B) expansion of social insurance to cover more fully the cost of retirement 
C) a general business recession that produces high rates of unemployment 
D) a technological advance that increases returns on investments

Question 20

A major purpose of usury laws is to make more funds available to low-income borrowers.Economic analysis suggests that usury laws

Accepted Answer

A) are effective in achieving this goal. 
B) allocate available funds to high-income borrowers. 
C) have no impact on the allocation of funds between high-income and low-income people. 
D) help low-income people only when the legal interest rate is above the market rate. 
A) are effective in achieving this goal. 
B) allocate available funds to high-income borrowers. 
C) have no impact on the allocation of funds between high-income and low-income people. 
D) help low-income people only when the legal interest rate is above the market rate.

Exam 18: Rent, Interest, and Profit

In making an investment decision, a business firm is most interested in the

Rent performs an incentive function, but no rationing function.

Which of the following was not a belief of Henry George and the single-tax movement?

If you pay $1,980 annually on an $18,000 loan and the rate of inflation is 3 percent, then the

The demand for farmland will increase if

Which of the following interest rates is usually the highest?

Suppose many businesses want to increase their stock of capital goods and decide to borrow funds to do it.Which would be the likely result of this event?

If the desired real rate of interest is 5 percent and the expected rate of inflation is 15 percent, what is the nominal rate of interest?

Other things equal, short-term loans usually have lower rates of interest than do long-term loans.

Reducing the payment of rent to landowners will decrease the quantity of land supplied.

Which of the following factors is not a typical cause of changes in land rent?

(Last Word) Suppose you borrow $500 and agree to pay this $500 plus $75 of interest at the end of a year.The interest rate is

The equilibrium interest rate equates

If the payment to an input is pure economic rent, then reducing that payment will

The marginal revenue product (MRP) of land declines as more land is brought into production because

Normal profit is considered an economic cost.

If you pay $10,625 annually on a $125,000 loan and the rate of inflation is 3 percent, then the

In Progress and Poverty (1879), Henry George argued for

Which factor will decrease the demand for loanable funds?

A major purpose of usury laws is to make more funds available to low-income borrowers.Economic analysis suggests that usury laws

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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