Question 1

A usury law is a law that sets the

Accepted Answer

A) federal funds rate. 
B) maximum interest rate at which loans can be made. 
C) spread between the prime rate of interest and credit card rates. 
D) interest paid on 90-day Treasury bills and 30-year bonds of the U.S. government. 
A) federal funds rate. 
B) maximum interest rate at which loans can be made. 
C) spread between the prime rate of interest and credit card rates. 
D) interest paid on 90-day Treasury bills and 30-year bonds of the U.S. government.

Question 2

The equilibrium interest rate

Accepted Answer

A) allocates the available supply of loanable funds to investment projects that have high enough rates of return to justify the borrowing. 
B) rises when the supply of loanable funds increases. 
C) is the price paid for the use of any resource. 
D) affects the size of total output but not the composition of that output. 
A) allocates the available supply of loanable funds to investment projects that have high enough rates of return to justify the borrowing. 
B) rises when the supply of loanable funds increases. 
C) is the price paid for the use of any resource. 
D) affects the size of total output but not the composition of that output.

Question 3

The pure rate of interest in economic models is best approximated by the

Accepted Answer

A) 1-month Treasury bills. 
B) prime interest rate. 
C) federal funds rate. 
D) 20-year Treasury bond rate. 
A) 1-month Treasury bills. 
B) prime interest rate. 
C) federal funds rate. 
D) 20-year Treasury bond rate.

Question 4

Refer to the table, in which the values for columns (2)through (5)are in acres. If the relevant columns are (1), (2), and (3), land rent will be

Accepted Answer

A) $100 per acre. 
B) $400 per acre. 
C) $200 per acre. 
D) $300 per acre. 
A) $100 per acre. 
B) $400 per acre. 
C) $200 per acre. 
D) $300 per acre.

Question 5

Why does an entrepreneur deserve to be compensated with profit?

Accepted Answer

Economists consider entrepreneurship as

Question 6

The schedule shows various interest rates, the associated quantity demanded of loanable funds, and the quantity supplied of loanable funds in billions of dollars at those interest rates. If changes in tax laws made households save more by $140 billion at each interest rate, then the new equilibrium interest rate would be

Accepted Answer

A) 2 percent. 
B) 4 percent. 
C) 8 percent. 
D) 10 percent. 
A) 2 percent. 
B) 4 percent. 
C) 8 percent. 
D) 10 percent.

Question 7

Refer to the market for loanable funds, as shown in the graph. A decline in the interest rate is likely to

Accepted Answer

A) lower capital investment. 
B) increase the quantity of loanable funds demanded. 
C) come about when there is a shortage of loanable funds. 
D) result from an increase in the desire of firms to borrow funds. 
A) lower capital investment. 
B) increase the quantity of loanable funds demanded. 
C) come about when there is a shortage of loanable funds. 
D) result from an increase in the desire of firms to borrow funds.

Question 8

Refer to the diagram. Suppose that the demand for loanable funds is D₀ and the supply of loanable funds initially is S₀ . If the supply of loanable funds declines to S₁, the equilibrium interest rate will

Accepted Answer

A) decrease from G to F. 
B) increase from E to F. 
C) increase from B to C. 
D) increase from F to G. 
A) decrease from G to F. 
B) increase from E to F. 
C) increase from B to C. 
D) increase from F to G.

Question 9

Economic rent is the payment made to a resource that has a perfectly inelastic demand curve.

Accepted Answer

A) True 
 B)False

Question 10

Other things equal, an increase in the productivity of capital goods will

Accepted Answer

A) increase the demand for loanable funds and decrease the equilibrium interest rate. 
B) increase the demand for loanable funds and increase the equilibrium interest rate. 
C) increase the supply of loanable funds and decrease the equilibrium interest rate. 
D) increase the supply of loanable funds and increase the equilibrium interest rate. 
A) increase the demand for loanable funds and decrease the equilibrium interest rate. 
B) increase the demand for loanable funds and increase the equilibrium interest rate. 
C) increase the supply of loanable funds and decrease the equilibrium interest rate. 
D) increase the supply of loanable funds and increase the equilibrium interest rate.

Question 11

Suppose you deposit $3,000 in a bank that pays 5 percent interest compounded twice a year. The actual annual interest rate you receive is

Accepted Answer

A) 5 percent. 
B) 5.06 percent. 
C) 5.18 percent. 
D) 6 percent. 
A) 5 percent. 
B) 5.06 percent. 
C) 5.18 percent. 
D) 6 percent.

Question 12

To an individual firm or landowner, land rents do not appear to be a surplus because

Accepted Answer

A) land is a productive resource, like the other resources. 
B) a given parcel of land has alternative uses, and rent represents a real cost of production. 
C) they do not understand that the supply of land, in total, is perfectly inelastic. 
D) landowners are, politically and economically, a powerful and well-organized group. 
A) land is a productive resource, like the other resources. 
B) a given parcel of land has alternative uses, and rent represents a real cost of production. 
C) they do not understand that the supply of land, in total, is perfectly inelastic. 
D) landowners are, politically and economically, a powerful and well-organized group.

Question 13

Which of the following is correct?

Accepted Answer

A) Although land has no production cost from society's viewpoint, rental payments are costs to individual producers. 
B) Land rent is not a cost to either society or individual producers. 
C) Although land rent is a cost from society's viewpoint, it is not a cost to individual producers. 
D) Land rent is a cost to both society and individual producers. 
A) Although land has no production cost from society's viewpoint, rental payments are costs to individual producers. 
B) Land rent is not a cost to either society or individual producers. 
C) Although land rent is a cost from society's viewpoint, it is not a cost to individual producers. 
D) Land rent is a cost to both society and individual producers.

Question 14

Entrepreneurs' singular focus on profit

Accepted Answer

A) often comes at the expense of efficiency. 
B) encourages efficiency. 
C) causes them to neglect other aspects of the business. 
D) discourages use of the MB = MC rule. 
A) often comes at the expense of efficiency. 
B) encourages efficiency. 
C) causes them to neglect other aspects of the business. 
D) discourages use of the MB = MC rule.

Question 15

Profit-maximizing businesses will buy more new machinery only if

Accepted Answer

A) the interest rate increases. 
B) labor costs are low and expected to fall. 
C) the expected rate of return of the new machinery is greater than the interest rate. 
D) the present value of the new machinery is lower than its purchase price. 
A) the interest rate increases. 
B) labor costs are low and expected to fall. 
C) the expected rate of return of the new machinery is greater than the interest rate. 
D) the present value of the new machinery is lower than its purchase price.

Question 16

Refer to the diagram. If the supply of loanable funds is S ₀ and the demand for loanable funds is D ₀ , the equilibrium interest rate and quantity of funds borrowed will be

Accepted Answer

A) G and A. 
B) F and A. 
C) F and C. 
D) E and A. 
A) G and A. 
B) F and A. 
C) F and C. 
D) E and A.

Question 17

Answer the question using the table. Figures are in billions of dollars. A usury law that sets the interest rate 4 percent below the market rate of interest will result in a shortage of loanable funds of

Accepted Answer

A) $10 billion. 
B) $14 billion. 
C) $20 billion. 
D) $30 billion. 
A) $10 billion. 
B) $14 billion. 
C) $20 billion. 
D) $30 billion.

Question 18

Economic profits are the salaries received by the hired managers of business corporations.

Accepted Answer

A) True 
 B)False

Question 19

In his book Progress and Poverty, Henry George argued that

Accepted Answer

A) poverty is associated with the personal characteristics of individuals and therefore cannot be remedied by government antipoverty programs. 
B) economic rent could be heavily taxed without impairing the supply of land or, therefore, the productive capacity of the economy. 
C) rents should not be taxed, because rental income is the basic source of saving, which ultimately permits a high level of investment and economic growth. 
D) taxes on rents are undesirable because they have a severe disincentive effect on landlords. 
A) poverty is associated with the personal characteristics of individuals and therefore cannot be remedied by government antipoverty programs. 
B) economic rent could be heavily taxed without impairing the supply of land or, therefore, the productive capacity of the economy. 
C) rents should not be taxed, because rental income is the basic source of saving, which ultimately permits a high level of investment and economic growth. 
D) taxes on rents are undesirable because they have a severe disincentive effect on landlords.

Question 20

The table applies to a loan with an interest rate of 5 percent per period. What value goes in the cell labeled Z?

Accepted Answer

A) $2,200 
B) $2,315.25 
C) $2,210 
D) $2,205 
A) $2,200 
B) $2,315.25 
C) $2,210 
D) $2,205

Exam 18: Rent, Interest, and Profit

A usury law is a law that sets the

The equilibrium interest rate

The pure rate of interest in economic models is best approximated by the

Refer to the table, in which the values for columns (2)through (5)are in acres. If the relevant columns are (1), (2), and (3), land rent will be

Why does an entrepreneur deserve to be compensated with profit?

Refer to the market for loanable funds, as shown in the graph. A decline in the interest rate is likely to

Refer to the diagram. Suppose that the demand for loanable funds is D₀ and the supply of loanable funds initially is S₀ . If the supply of loanable funds declines to S₁, the equilibrium interest rate will

Economic rent is the payment made to a resource that has a perfectly inelastic demand curve.

Other things equal, an increase in the productivity of capital goods will

Suppose you deposit $3,000 in a bank that pays 5 percent interest compounded twice a year. The actual annual interest rate you receive is

To an individual firm or landowner, land rents do not appear to be a surplus because

Which of the following is correct?

Entrepreneurs' singular focus on profit

Profit-maximizing businesses will buy more new machinery only if

Refer to the diagram. If the supply of loanable funds is S ₀ and the demand for loanable funds is D ₀ , the equilibrium interest rate and quantity of funds borrowed will be

Answer the question using the table. Figures are in billions of dollars. A usury law that sets the interest rate 4 percent below the market rate of interest will result in a shortage of loanable funds of

Economic profits are the salaries received by the hired managers of business corporations.

In his book Progress and Poverty, Henry George argued that

The table applies to a loan with an interest rate of 5 percent per period. What value goes in the cell labeled Z?

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

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