Question 1

For a usury law to be effective, the interest rate must be

Accepted Answer

A) determined by borrowing and lending. 
B) set at the market equilibrium interest rate. 
C) set above the market equilibrium interest rate. 
D) set below the market equilibrium interest rate. 
A) determined by borrowing and lending. 
B) set at the market equilibrium interest rate. 
C) set above the market equilibrium interest rate. 
D) set below the market equilibrium interest rate.

Question 2

Which of the following resource payments is considered by economists as surplus payments?

Accepted Answer

A) wages for labor 
B) rent for land 
C) interest for capital 
D) profits for entrepreneurship 
A) wages for labor 
B) rent for land 
C) interest for capital 
D) profits for entrepreneurship

Question 3

David Ricardo, a nineteenth-century economist, wrote, "The price of corn is high not because a rent is paid, but a rent is paid because the price of the corn is high." Which of the following correctly explains Ricardo's assertion?

Accepted Answer

A) The high rents landowners charge tenant farmers cause high corn prices. 
B) If landowners weren't so greedy and lowered the rents they charge tenant farmers, the price of corn would fall. 
C) If the price of corn rises because of increased demand for corn, land rents will rise to absorb most of the extra revenue received by tenant corn farmers. 
D) If the price of corn rises, all other things being equal, increases in rent will cause some tenant farmers to stop growing corn. 
A) The high rents landowners charge tenant farmers cause high corn prices. 
B) If landowners weren't so greedy and lowered the rents they charge tenant farmers, the price of corn would fall. 
C) If the price of corn rises because of increased demand for corn, land rents will rise to absorb most of the extra revenue received by tenant corn farmers. 
D) If the price of corn rises, all other things being equal, increases in rent will cause some tenant farmers to stop growing corn.

Question 4

A lower equilibrium interest rate

Accepted Answer

A) increases saving, reduces total spending, and increases total output. 
B) decreases saving, increases total spending, and decreases total output. 
C) increases investment, increases total spending, and increases total output. 
D) decreases investment, decreases total spending, and increases total output. 
A) increases saving, reduces total spending, and increases total output. 
B) decreases saving, increases total spending, and decreases total output. 
C) increases investment, increases total spending, and increases total output. 
D) decreases investment, decreases total spending, and increases total output.

Question 5

A firm considering whether to borrow money to purchase a capital good will compare the rate of interest for the loan with the

Accepted Answer

A) opportunity cost of the capital good. 
B) rate of return on the investment. 
C) length of the investment. 
D) Treasury bill rate. 
A) opportunity cost of the capital good. 
B) rate of return on the investment. 
C) length of the investment. 
D) Treasury bill rate.

Question 6

Usury laws are a special case of "price floors" applied to the loanable funds market.

Accepted Answer

A) True 
 B)False

Question 7

The total supply of land is

Accepted Answer

A) upsloping. 
B) perfectly elastic. 
C) perfectly inelastic. 
D) greater in the short run than in the long run. 
A) upsloping. 
B) perfectly elastic. 
C) perfectly inelastic. 
D) greater in the short run than in the long run.

Question 8

A firm wants to borrow funds to purchase a new piece of equipment that costs $20,000 and has a useful life of one year.The investment is expected to produce an additional $1,500 in total revenue.The firm will most likely make the investment if the interest rate is

Accepted Answer

A) 6 percent. 
B) 8 percent. 
C) 10 percent. 
D) 12 percent. 
A) 6 percent. 
B) 8 percent. 
C) 10 percent. 
D) 12 percent.

Question 9

Which would usually not be an entrepreneurial function?

Accepted Answer

A) introducing a new product in a business 
B) assuming uninsurable risks of owning a business 
C) combining and directing resources in an uncertain business environment 
D) managing the accounting department of a Fortune 500 corporation 
A) introducing a new product in a business 
B) assuming uninsurable risks of owning a business 
C) combining and directing resources in an uncertain business environment 
D) managing the accounting department of a Fortune 500 corporation

Question 10

Unlike most demand curves, the demand curve for loanable funds is upsloping.

Accepted Answer

A) True 
 B)False

Question 11

The interest rate is the price paid for the use of money.

Accepted Answer

A) True 
 B)False

Question 12

Economic profits are the entrepreneur's reward for taking on the insurable risks of running a business.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following represents an uninsurable risk to a business firm?

Accepted Answer

A) the possibility that its warehouse will burn down 
B) the possibility that several of its workers will be injured at work 
C) the possibility that an adverse change in consumer tastes will decrease the demand for the firm's product 
D) the possibility that a tornado will damage the plant and stop production for a month 
A) the possibility that its warehouse will burn down 
B) the possibility that several of its workers will be injured at work 
C) the possibility that an adverse change in consumer tastes will decrease the demand for the firm's product 
D) the possibility that a tornado will damage the plant and stop production for a month

Question 14

If the interest rate is 5 percent, what is the present value of $10,000 received three years from now?

Accepted Answer

A) $8,638 
B) $9,000 
C) $11,600 
D) $11,000 
A) $8,638 
B) $9,000 
C) $11,600 
D) $11,000

Question 15

If the expected rates of return on investments increased, the loanable funds theory predicts that the equilibrium interest rate would decrease.

Accepted Answer

A) True 
 B)False

Question 16

Interest represents a cost to the borrower, but an income to the lender.

Accepted Answer

A) True 
 B)False

Question 17

Economic rent, or pure rent, is

Accepted Answer

A) a payment made for the use of housing, factory buildings, or capital goods. 
B) a payment for resources used in the production of "free goods." 
C) a payment for the use of those resources whose supply is perfectly elastic. 
D) the price paid for the use of land and other nonreproducible resources. 
A) a payment made for the use of housing, factory buildings, or capital goods. 
B) a payment for resources used in the production of "free goods." 
C) a payment for the use of those resources whose supply is perfectly elastic. 
D) the price paid for the use of land and other nonreproducible resources.

Question 18

The payment earned for taking uninsurable risks in owning and running a business is called profit.

Accepted Answer

A) True 
 B)False

Question 19

A firm will undertake investments as long as the expected rate of return is less than the interest rate.

Accepted Answer

A) True 
 B)False

Question 20

Broadly defined, labor's share of national income has been remarkably stable since 1900.

Accepted Answer

A) True 
 B)False

Exam 18: Rent, Interest, and Profit

For a usury law to be effective, the interest rate must be

Which of the following resource payments is considered by economists as surplus payments?

David Ricardo, a nineteenth-century economist, wrote, "The price of corn is high not because a rent is paid, but a rent is paid because the price of the corn is high." Which of the following correctly explains Ricardo's assertion?

A lower equilibrium interest rate

A firm considering whether to borrow money to purchase a capital good will compare the rate of interest for the loan with the

Usury laws are a special case of "price floors" applied to the loanable funds market.

The total supply of land is

A firm wants to borrow funds to purchase a new piece of equipment that costs $20,000 and has a useful life of one year.The investment is expected to produce an additional $1,500 in total revenue.The firm will most likely make the investment if the interest rate is

Which would usually not be an entrepreneurial function?

Unlike most demand curves, the demand curve for loanable funds is upsloping.

The interest rate is the price paid for the use of money.

Economic profits are the entrepreneur's reward for taking on the insurable risks of running a business.

Which of the following represents an uninsurable risk to a business firm?

If the interest rate is 5 percent, what is the present value of $10,000 received three years from now?

If the expected rates of return on investments increased, the loanable funds theory predicts that the equilibrium interest rate would decrease.

Interest represents a cost to the borrower, but an income to the lender.

Economic rent, or pure rent, is

The payment earned for taking uninsurable risks in owning and running a business is called profit.

A firm will undertake investments as long as the expected rate of return is less than the interest rate.

Broadly defined, labor's share of national income has been remarkably stable since 1900.

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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