Question 1

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

Accepted Answer

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

Question 2

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

Accepted Answer

A) the higher the risk involved. 
B) the larger the amount of the loan. 
C) the shorter the length of the loan. 
D) if loan interest is exempt from taxation. 
A) the higher the risk involved. 
B) the larger the amount of the loan. 
C) the shorter the length of the loan. 
D) if loan interest is exempt from taxation.

Question 3

For a given future value, the higher the interest rate is, the higher the present value will be.

Accepted Answer

A) True 
 B)False

Question 4

Answer the question using the table. Figures are in billions of dollars. If the government passes a usury law that sets the interest rate 4 percent below the market equilibrium, the interest rate will be

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 5

The loanable funds theory of interest shows that interest rates on loans are determined by

Accepted Answer

A) the amount of money supply that the government has pumped into the economy. 
B) agreement, explicit or tacit, among the bank lending officers. 
C) supply and demand for funds available for lending. 
D) government analysts and government regulation. 
A) the amount of money supply that the government has pumped into the economy. 
B) agreement, explicit or tacit, among the bank lending officers. 
C) supply and demand for funds available for lending. 
D) government analysts and government regulation.

Question 6

Effective usury laws cause

Accepted Answer

A) a surplus in the market for loanable funds. 
B) the quantity of loanable funds demanded to be brought into balance with the quantity supplied. 
C) the quantity of loanable funds demanded to exceed the quantity supplied. 
D) the quantity of loanable funds supplied to exceed the quantity demanded. 
A) a surplus in the market for loanable funds. 
B) the quantity of loanable funds demanded to be brought into balance with the quantity supplied. 
C) the quantity of loanable funds demanded to exceed the quantity supplied. 
D) the quantity of loanable funds supplied to exceed the quantity demanded.

Question 7

In year 1 the price level is constant and the nominal rate of interest is 10 percent. But in year 2 the inflation rate is 6 percent. If the real rate of interest is to remain at the same level in year 2 as it was in year 1, then in year 2 the nominal interest rate must

Accepted Answer

A) rise by 16 percentage points. 
B) rise by 6 percentage points. 
C) fall by 6 percentage points. 
D) rise by 12 percentage points. 
A) rise by 16 percentage points. 
B) rise by 6 percentage points. 
C) fall by 6 percentage points. 
D) rise by 12 percentage points.

Question 8

The amount to which some current amount of money will grow as interest compounds over time is known as

Accepted Answer

A) the future value of that sum of money. 
B) the present value of that sum of money. 
C) compound interest. 
D) the time-value of money. 
A) the future value of that sum of money. 
B) the present value of that sum of money. 
C) compound interest. 
D) the time-value of money.

Question 9

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 technology improved and the demand for loanable funds increased by $140 billion at each interest rate, 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 10

On January 1, 2019, Alex deposited $3,500 into a savings account that pays interest of 8 percent, compounded annually. If he makes no further deposits or withdrawals, how much will Alex have in his account on December 31, 2021 (3 years later)?

Accepted Answer

A) $4,340. 
B) $4,409. 
C) $3,780. 
D) $4,478. 
A) $4,340. 
B) $4,409. 
C) $3,780. 
D) $4,478.

Question 11

On January 1, 2019, Alex deposited $5,000 into a savings account that pays interest of 5 percent, compounded annually. If he makes no further deposits or withdrawals, how much will Alex have in his account on December 31, 2021 (3 years later)?

Accepted Answer

A) $5,750. 
B) $5,788. 
C) $5,813. 
D) $5,825. 
A) $5,750. 
B) $5,788. 
C) $5,813. 
D) $5,825.

Question 12

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 13

Refer to the table representing Darcy's bank account. If she deposited the $4,500 into her account at the beginning of year 1 and made no further deposits or withdrawals, what interest rate is being paid on Darcy's account?

Accepted Answer

A) 2.30 percent 
B) 2 percent 
C) 6.10 percent 
D) 4 percent 
A) 2.30 percent 
B) 2 percent 
C) 6.10 percent 
D) 4 percent

Question 14

Economic rent refers to the price paid for land and other natural resources that

Accepted Answer

A) are fixed in total supply. 
B) vary directly with their market prices. 
C) vary inversely with their market prices. 
D) are available in nearly unlimited quantities. 
A) are fixed in total supply. 
B) vary directly with their market prices. 
C) vary inversely with their market prices. 
D) are available in nearly unlimited quantities.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

An increase in the demand for loanable funds may be caused by a(n)

Accepted Answer

A) increase in the availability of loanable funds. 
B) increase in consumers' willingness to save. 
C) increase in business borrowing. 
D) decrease in the interest rate. 
A) increase in the availability of loanable funds. 
B) increase in consumers' willingness to save. 
C) increase in business borrowing. 
D) decrease in the interest rate.

Question 17

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 18

Refer to the table representing Kara's bank account. If the $2,000 was deposited into her account at the beginning of year 1 and no further deposits or withdrawals were made, the value for cell E.

Accepted Answer

A) cannot be determined. 
B) is $2,662.00. 
C) is $2242.00. 
D) is $2420.00. 
A) cannot be determined. 
B) is $2,662.00. 
C) is $2242.00. 
D) is $2420.00.

Question 19

Which of the following is not a major criticism of the single-tax movement?

Accepted Answer

A) It is impractical because most income payments are a mixture of interest, rent, wages, and profits. 
B) It is inefficient because the land-rent tax will distort the use of land resources, thereby preventing allocative efficiency. 
C) It is unfair because there are other "unearned" incomes besides land rent, such as capital-gains income. 
D) It is inadequate because current levels of government spending are too big to be sufficiently funded by rent tax alone. 
A) It is impractical because most income payments are a mixture of interest, rent, wages, and profits. 
B) It is inefficient because the land-rent tax will distort the use of land resources, thereby preventing allocative efficiency. 
C) It is unfair because there are other "unearned" incomes besides land rent, such as capital-gains income. 
D) It is inadequate because current levels of government spending are too big to be sufficiently funded by rent tax alone.

Question 20

Henry George advocated a single tax on

Accepted Answer

A) real capital. 
B) entrepreneurial profits. 
C) land. 
D) labor income. 
A) real capital. 
B) entrepreneurial profits. 
C) land. 
D) labor income.

Exam 18: Rent, Interest, and Profit

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

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

For a given future value, the higher the interest rate is, the higher the present value will be.

Answer the question using the table. Figures are in billions of dollars. If the government passes a usury law that sets the interest rate 4 percent below the market equilibrium, the interest rate will be

The loanable funds theory of interest shows that interest rates on loans are determined by

Effective usury laws cause

In year 1 the price level is constant and the nominal rate of interest is 10 percent. But in year 2 the inflation rate is 6 percent. If the real rate of interest is to remain at the same level in year 2 as it was in year 1, then in year 2 the nominal interest rate must

The amount to which some current amount of money will grow as interest compounds over time is known as

On January 1, 2019, Alex deposited $3,500 into a savings account that pays interest of 8 percent, compounded annually. If he makes no further deposits or withdrawals, how much will Alex have in his account on December 31, 2021 (3 years later)?

On January 1, 2019, Alex deposited $5,000 into a savings account that pays interest of 5 percent, compounded annually. If he makes no further deposits or withdrawals, how much will Alex have in his account on December 31, 2021 (3 years later)?

The demand for farmland will increase if

Refer to the table representing Darcy's bank account. If she deposited the $4,500 into her account at the beginning of year 1 and made no further deposits or withdrawals, what interest rate is being paid on Darcy's account?

Economic rent refers to the price paid for land and other natural resources that

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

An increase in the demand for loanable funds may be caused by a(n)

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

Refer to the table representing Kara's bank account. If the $2,000 was deposited into her account at the beginning of year 1 and no further deposits or withdrawals were made, the value for cell E.

Which of the following is not a major criticism of the single-tax movement?

Henry George advocated a single tax on

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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