Question 1

If Congress were to pass a law exempting interest on saving from taxation, the

Accepted Answer

A) supply of loanable funds would decrease and the equilibrium interest rate would rise. 
B) supply of loanable funds would increase and the equilibrium interest rate would fall. 
C) demand for loanable funds would increase and the equilibrium interest rate would rise. 
D) equilibrium interest rate would be unaffected. 
A) supply of loanable funds would decrease and the equilibrium interest rate would rise. 
B) supply of loanable funds would increase and the equilibrium interest rate would fall. 
C) demand for loanable funds would increase and the equilibrium interest rate would rise. 
D) equilibrium interest rate would be unaffected.

Question 2

Other things equal, the interest rate on a loan will be smaller,

Accepted Answer

A) the greater the risk involved. 
B) the smaller the amount of the loan. 
C) the longer the length of the loan. 
D) if the loan interest is exempt from taxation. 
A) the greater the risk involved. 
B) the smaller the amount of the loan. 
C) the longer the length of the loan. 
D) if the loan interest is exempt from taxation.

Question 3

The free-land era of U.S.history reflected a situation in which the quantity of land available at a zero price exceeded the quantity of land demanded.

Accepted Answer

A) True 
 B)False

Question 4

If the inflation rate is 10 percent, what is a bank's real rate of return on a loan of $100 at 10 percent interest?

Accepted Answer

A) $100 
B) $10 
C) 10 percent 
D) 0 percent 
A) $100 
B) $10 
C) 10 percent 
D) 0 percent

Question 5

Which of the following statements is correct?

Accepted Answer

A) Rent performs an incentive function, but not a rationing function. 
B) Wage rate does not perform an incentive function in the supply of labor. 
C) Profits are payments to capital resource owners. 
D) Demand is the "active," and supply the "passive," determinant of land rent. 
A) Rent performs an incentive function, but not a rationing function. 
B) Wage rate does not perform an incentive function in the supply of labor. 
C) Profits are payments to capital resource owners. 
D) Demand is the "active," and supply the "passive," determinant of land rent.

Question 6

(Last Word) Late payment fees and overdraft protection

Accepted Answer

A) are illegal under the Truth in Lending Act. 
B) do not have to be reported under the provisions of the Truth in Savings Act. 
C) effectively charge high rates of interest on loans to bank customers. 
D) are unrelated to interest rates because they are fees. 
A) are illegal under the Truth in Lending Act. 
B) do not have to be reported under the provisions of the Truth in Savings Act. 
C) effectively charge high rates of interest on loans to bank customers. 
D) are unrelated to interest rates because they are fees.

Question 7

Labor's share of income earned by Americans is smaller than the share of capital.

Accepted Answer

A) True 
 B)False

Question 8

Since 1900, the relative share of "wages & salaries, plus proprietors' income" in the total income earned by Americans in a typical year has been about

Accepted Answer

A) 20 percent. 
B) 50 percent. 
C) 80 percent. 
D) 95 percent. 
A) 20 percent. 
B) 50 percent. 
C) 80 percent. 
D) 95 percent.

Question 9

It is most likely that a firm would borrow funds to expand its capital facilities when the

Accepted Answer

A) pure rate of interest is greater than the real rate of interest. 
B) expected rate of return is greater than the interest rate. 
C) demand for money is greater than the supply of money. 
D) real rate of interest is greater than the nominal rate of interest. 
A) pure rate of interest is greater than the real rate of interest. 
B) expected rate of return is greater than the interest rate. 
C) demand for money is greater than the supply of money. 
D) real rate of interest is greater than the nominal rate of interest.

Question 10

The price paid for the use of money is called

Accepted Answer

A) commission. 
B) royalty. 
C) interest. 
D) rent. 
A) commission. 
B) royalty. 
C) interest. 
D) rent.

Question 11

The core concept that is central to understanding the time-value of money is

Accepted Answer

A) GDP growth. 
B) inflation. 
C) interest rate. 
D) exchange rate. 
A) GDP growth. 
B) inflation. 
C) interest rate. 
D) exchange rate.

Question 12

If an economic expansion in the economy caused an increase in the demand for loanable funds, what would be the effect on the interest rate and the quantity of funds loaned in the credit market?

Accepted Answer

A) Interest rates would increase and the quantity of funds loaned would decrease. 
B) Interest rates would decrease and the quantity of funds loaned would increase. 
C) Interest rates and the quantity of funds loaned would decrease. 
D) Interest rates and the quantity of funds loaned would increase. 
A) Interest rates would increase and the quantity of funds loaned would decrease. 
B) Interest rates would decrease and the quantity of funds loaned would increase. 
C) Interest rates and the quantity of funds loaned would decrease. 
D) Interest rates and the quantity of funds loaned would increase.

Question 13

Other things equal, an increase in the equilibrium interest rate will

Accepted Answer

A) increase R&D spending. 
B) rise when the supply of loanable funds increases. 
C) decrease purchases of capital goods and reduce R&D spending. 
D) increase bank lending. 
A) increase R&D spending. 
B) rise when the supply of loanable funds increases. 
C) decrease purchases of capital goods and reduce R&D spending. 
D) increase bank lending.

Question 14

The risk that the firm's employees might get hurt while working is an example of the uninsurable risks faced by an entrepreneur.

Accepted Answer

A) True 
 B)False

Question 15

The quantity of loanable funds supplied is inversely related to the interest rate.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following would cause an increase in interest rates in credit markets?

Accepted Answer

A) a decrease in business demand for credit 
B) an increase in the supply of consumer saving 
C) an increase in the supply of business saving 
D) an increase in consumer demand for credit 
A) a decrease in business demand for credit 
B) an increase in the supply of consumer saving 
C) an increase in the supply of business saving 
D) an increase in consumer demand for credit

Question 17

Which expression is used to calculate the future value of an amount of money?

Accepted Answer

A) Present Value × (1 + interest rate)time 
B) Present Value/(1 + interest rate)time 
C) Present Value × (1 + time)interest rate 
D) (1 + interest rate)time/Present Value 
A) Present Value × (1 + interest rate)time 
B) Present Value/(1 + interest rate)time 
C) Present Value × (1 + time)interest rate 
D) (1 + interest rate)time/Present Value

Question 18

A decrease in saving that leads to an increase in the interest rate will

Accepted Answer

A) decrease the amount of investment spending. 
B) only result in a surplus of loanable funds. 
C) shift the demand for loanable funds to the right, increasing net investment. 
D) shift the demand for loanable funds to the left, causing a decrease in investment. 
A) decrease the amount of investment spending. 
B) only result in a surplus of loanable funds. 
C) shift the demand for loanable funds to the right, increasing net investment. 
D) shift the demand for loanable funds to the left, causing a decrease in investment.

Question 19

The "time-value of money" refers to the fact that

Accepted Answer

A) a given amount of money becomes more valuable over time. 
B) a given amount of money is more valuable the sooner it is obtained. 
C) people expect monetary compensation for their labor time. 
D) a given amount of money today is equivalent to a smaller amount of money in the future. 
A) a given amount of money becomes more valuable over time. 
B) a given amount of money is more valuable the sooner it is obtained. 
C) people expect monetary compensation for their labor time. 
D) a given amount of money today is equivalent to a smaller amount of money in the future.

Question 20

The demand curve for loanable funds represents the behavior of

Accepted Answer

A) lenders. 
B) savers. 
C) borrowers. 
D) bankers. 
A) lenders. 
B) savers. 
C) borrowers. 
D) bankers.

Exam 18: Rent, Interest, and Profit

If Congress were to pass a law exempting interest on saving from taxation, the

Other things equal, the interest rate on a loan will be smaller,

The free-land era of U.S.history reflected a situation in which the quantity of land available at a zero price exceeded the quantity of land demanded.

If the inflation rate is 10 percent, what is a bank's real rate of return on a loan of $100 at 10 percent interest?

Which of the following statements is correct?

(Last Word) Late payment fees and overdraft protection

Labor's share of income earned by Americans is smaller than the share of capital.

Since 1900, the relative share of "wages & salaries, plus proprietors' income" in the total income earned by Americans in a typical year has been about

It is most likely that a firm would borrow funds to expand its capital facilities when the

The price paid for the use of money is called

The core concept that is central to understanding the time-value of money is

If an economic expansion in the economy caused an increase in the demand for loanable funds, what would be the effect on the interest rate and the quantity of funds loaned in the credit market?

Other things equal, an increase in the equilibrium interest rate will

The risk that the firm's employees might get hurt while working is an example of the uninsurable risks faced by an entrepreneur.

The quantity of loanable funds supplied is inversely related to the interest rate.

Which of the following would cause an increase in interest rates in credit markets?

Which expression is used to calculate the future value of an amount of money?

A decrease in saving that leads to an increase in the interest rate will

The "time-value of money" refers to the fact that

The demand curve for loanable funds represents the behavior of

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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