Question 1

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 2

The equilibrium interest rate

Accepted Answer

A) affects both the size of total output and its composition. 
B) falls when the demand for loanable funds increases. 
C) determines the composition of R&D spending but not its total amount. 
D) increases when the expected rate of return on R&D spending falls. 
A) affects both the size of total output and its composition. 
B) falls when the demand for loanable funds increases. 
C) determines the composition of R&D spending but not its total amount. 
D) increases when the expected rate of return on R&D spending falls.

Question 3

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 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

Refer to the table representing Darcy's bank account. If she deposited the $2,000 into her account at the beginning of year 1 and made no further deposits or withdrawals, how much interest would Darcy receive in Year 2 only?

Accepted Answer

A) $100 
B) $105.00 
C) $200 
D) $205.00 
A) $100 
B) $105.00 
C) $200 
D) $205.00

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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 8

The future value of $3,000 deposited today at 5 percent interest is $3,646.52 four years from now.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Critics of a single tax on land oppose the idea because

Accepted Answer

A) it would overtax the population. 
B) changes in land ownership would cause the tax burden to fall unfairly on people who did not receive economic rents. 
C) it would disproportionately tax the richest members of society. 
D) it would cause too much land to be brought out of production. 
A) it would overtax the population. 
B) changes in land ownership would cause the tax burden to fall unfairly on people who did not receive economic rents. 
C) it would disproportionately tax the richest members of society. 
D) it would cause too much land to be brought out of production.

Question 11

Opponents of land nationalization argue that private ownership

Accepted Answer

A) allows rent to function as an efficient allocation mechanism. 
B) is fair in terms of equalizing income distribution. 
C) follows the natural order of things in society. 
D) is consistent with detailed government planning for land use. 
A) allows rent to function as an efficient allocation mechanism. 
B) is fair in terms of equalizing income distribution. 
C) follows the natural order of things in society. 
D) is consistent with detailed government planning for land use.

Question 12

Henry George claimed that land-rent taxes would not impair economic efficiency because

Accepted Answer

A) they do not result in a change in the amount of land available. 
B) landowners are, as a group, financially secure and able to pay the taxes. 
C) the supply of land is infinitely elastic. 
D) rents represent a small part of income paid to American resource suppliers, so taxes on wages and salaries are more disruptive. 
A) they do not result in a change in the amount of land available. 
B) landowners are, as a group, financially secure and able to pay the taxes. 
C) the supply of land is infinitely elastic. 
D) rents represent a small part of income paid to American resource suppliers, so taxes on wages and salaries are more disruptive.

Question 13

Suppose a firm is considering the purchase of a machine which would increase its total revenues by $10,000 for the year. The machine costs $8,000 and has a useful life of one year. The interest rate is 20 percent. This investment should

Accepted Answer

A) be undertaken because the rate of return is 2 percent greater than the interest rate. 
B) be undertaken because the rate of return is 5 percent greater than the interest rate. 
C) be undertaken because the rate of return is 7 percent greater than the interest rate. 
D) not be undertaken, because the rate of return is 7 percent less than the interest rate. 
A) be undertaken because the rate of return is 2 percent greater than the interest rate. 
B) be undertaken because the rate of return is 5 percent greater than the interest rate. 
C) be undertaken because the rate of return is 7 percent greater than the interest rate. 
D) not be undertaken, because the rate of return is 7 percent less than the interest rate.

Question 14

Capitalist income (corporate profits, interest, and rent)has

Accepted Answer

A) declined sharply since 1900 because of the growing strength of labor unions. 
B) remained approximately constant since 1900. 
C) increased significantly because of rising rents. 
D) fallen since 1900 because of the declining importance of corporations. 
A) declined sharply since 1900 because of the growing strength of labor unions. 
B) remained approximately constant since 1900. 
C) increased significantly because of rising rents. 
D) fallen since 1900 because of the declining importance of corporations.

Question 15

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.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Refer to the table representing Darcy's bank account. If she deposited $2,500 into her account at the beginning of year 1 and made no further deposits or withdrawals, the $3,149 value at the end of year 3 represents the

Accepted Answer

A) discounted value of the $2,500 deposit made at the beginning of year 1. 
B) present value of the $2,500 deposit made at the beginning of year 1. 
C) future value of the $2,500 deposit made at the beginning of year 1. 
D) present value of the interest earned over the three-year period. 
A) discounted value of the $2,500 deposit made at the beginning of year 1. 
B) present value of the $2,500 deposit made at the beginning of year 1. 
C) future value of the $2,500 deposit made at the beginning of year 1. 
D) present value of the interest earned over the three-year period.

Question 18

The reason why socialists favor the nationalization of land is that

Accepted Answer

A) land is a scarce resource. 
B) the rent received by landowners does not represent anything they produced. 
C) there is a fixed total supply of land. 
D) land is not a productive resource. 
A) land is a scarce resource. 
B) the rent received by landowners does not represent anything they produced. 
C) there is a fixed total supply of land. 
D) land is not a productive resource.

Question 19

As interest rates decrease, the

Accepted Answer

A) cost of current relative to future consumption increases. 
B) cost of current relative to future consumption decreases. 
C) cost of current consumption relative to future consumption remains the same. 
D) desire of many individuals to save increases. 
A) cost of current relative to future consumption increases. 
B) cost of current relative to future consumption decreases. 
C) cost of current consumption relative to future consumption remains the same. 
D) desire of many individuals to save increases.

Question 20

Refer to the table representing Darcy's bank account. If she deposited $2,000 into her account at the beginning of year 1 and made no further deposits or withdrawals, which cell(s)represents the future value(s)of the initial deposit if the money remains in the account for three years?

Accepted Answer

A) cell B only 
B) cell A only 
C) cells A and D 
D) cells B and C 
A) cell B only 
B) cell A only 
C) cells A and D 
D) cells B and C

Exam 18: Rent, Interest, and Profit

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

The equilibrium interest rate

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?

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

Refer to the table representing Darcy's bank account. If she deposited the $2,000 into her account at the beginning of year 1 and made no further deposits or withdrawals, how much interest would Darcy receive in Year 2 only?

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

Late payment fees and overdraft protection

The future value of $3,000 deposited today at 5 percent interest is $3,646.52 four years from now.

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

Critics of a single tax on land oppose the idea because

Opponents of land nationalization argue that private ownership

Henry George claimed that land-rent taxes would not impair economic efficiency because

Suppose a firm is considering the purchase of a machine which would increase its total revenues by $10,000 for the year. The machine costs $8,000 and has a useful life of one year. The interest rate is 20 percent. This investment should

Capitalist income (corporate profits, interest, and rent)has

The demand curve for loanable funds represents the behavior of

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

Refer to the table representing Darcy's bank account. If she deposited $2,500 into her account at the beginning of year 1 and made no further deposits or withdrawals, the $3,149 value at the end of year 3 represents the

The reason why socialists favor the nationalization of land is that

As interest rates decrease, the

Refer to the table representing Darcy's bank account. If she deposited $2,000 into her account at the beginning of year 1 and made no further deposits or withdrawals, which cell(s)represents the future value(s)of the initial deposit if the money remains in the account for three years?

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, 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

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters