Question 1

Profits from innovation represent greater than normal returns to capital,because in the case of innovation

Accepted Answer

A)  it is extremely difficult to calculate an expected rate of return. 
B)  borrowers are often taken advantage of by lenders. 
C)  no one wants to lend innovators any money to finance their businesses. 
D)  it leads to the formation of a natural monopoly. 
E)  the rate of return generally exceeds the interest rate. 
A)  it is extremely difficult to calculate an expected rate of return. 
B)  borrowers are often taken advantage of by lenders. 
C)  no one wants to lend innovators any money to finance their businesses. 
D)  it leads to the formation of a natural monopoly. 
E)  the rate of return generally exceeds the interest rate.

Question 2

To shift the supply of loanable funds to the right,a society must be willing to

Accepted Answer

A)  eliminate risk. 
B)  cease saving. 
C)  postpone present consumption. 
D)  pursue tight money policies. 
E)  jail money lenders. 
A)  eliminate risk. 
B)  cease saving. 
C)  postpone present consumption. 
D)  pursue tight money policies. 
E)  jail money lenders.

Question 3

An increase in interest rates will cause

Accepted Answer

A)  present values to rise. 
B)  a dollar received today to be worth less than a dollar received a year from today. 
C)  no changes in the capitalized worth of an asset. 
D)  firms to undertake more projects whose rates of return are below the interest rate. 
E)  bond prices to fall. 
A)  present values to rise. 
B)  a dollar received today to be worth less than a dollar received a year from today. 
C)  no changes in the capitalized worth of an asset. 
D)  firms to undertake more projects whose rates of return are below the interest rate. 
E)  bond prices to fall.

Question 4

According to Schumpeter,the large profits often realized from innovation tend to be transitory because

Accepted Answer

A)  interest rates rise, causing the value of the innovator's assets to fall. 
B)  the state taxes away most of these excess earnings. 
C)  innovators sell their businesses by going public, and stock prices are very unpredictable and unstable. 
D)  rival firms are induced to copy the innovations, and thus entry of new firms drives down profits. 
E)  they result from contrived scarcities resulting from the use of monopoly power. 
A)  interest rates rise, causing the value of the innovator's assets to fall. 
B)  the state taxes away most of these excess earnings. 
C)  innovators sell their businesses by going public, and stock prices are very unpredictable and unstable. 
D)  rival firms are induced to copy the innovations, and thus entry of new firms drives down profits. 
E)  they result from contrived scarcities resulting from the use of monopoly power.

Question 5

Among the factors giving rise to profits are

Accepted Answer

A)  innovation, uncertainty, and monopoly power. 
B)  perfect competition and perfect knowledge of the future. 
C)  the absence of risk and uncertainty. 
D)  the need to reward labor in excess of its contribution to production. 
E)  business efforts to avoid forms of income that can be taxed fully. 
A)  innovation, uncertainty, and monopoly power. 
B)  perfect competition and perfect knowledge of the future. 
C)  the absence of risk and uncertainty. 
D)  the need to reward labor in excess of its contribution to production. 
E)  business efforts to avoid forms of income that can be taxed fully.

Question 6

The rate of return on an asset that costs $6,000 and yields a permanent return of $540 per year is ________ percent.

Accepted Answer

A)  11 
B)  9 
C)  6 
D)  5.4 
E)  0.6 
A)  11 
B)  9 
C)  6 
D)  5.4 
E)  0.6

Question 7

Profits as a reward to risk and uncertainty is a theory closely associated with

Accepted Answer

A)  Karl Marx. 
B)  Henry George. 
C)  Frank Knight. 
D)  Thomas Malthus. 
E)  Joseph Schumpeter. 
A)  Karl Marx. 
B)  Henry George. 
C)  Frank Knight. 
D)  Thomas Malthus. 
E)  Joseph Schumpeter.

Question 8

Henry George is best known for his view that

Accepted Answer

A)  profits arise as a result of labor exploitation. 
B)  capital budgeting is an important activity for a corporation. 
C)  the rate of interest is determined by the liquidity preference theory. 
D)  all economic profit is the result of uncertainty. 
E)  land rent is unearned income that should be taxed away. 
A)  profits arise as a result of labor exploitation. 
B)  capital budgeting is an important activity for a corporation. 
C)  the rate of interest is determined by the liquidity preference theory. 
D)  all economic profit is the result of uncertainty. 
E)  land rent is unearned income that should be taxed away.

Question 9

Star athletes often receive incomes significantly above what they would be willing to accept to continue playing.In the context of economic analysis,it would be reasonable to consider this additional income a form of

Accepted Answer

A)  wage. 
B)  profit. 
C)  rent. 
D)  interest. 
E)  merit pay. 
A)  wage. 
B)  profit. 
C)  rent. 
D)  interest. 
E)  merit pay.

Question 10

The value of an asset such as a bond will rise when

Accepted Answer

A)  interest rates rise. 
B)  interest rates fall. 
C)  the price of bonds falls. 
D)  the supply of loanable funds decreases. 
E)  the demand for loanable funds increases. 
A)  interest rates rise. 
B)  interest rates fall. 
C)  the price of bonds falls. 
D)  the supply of loanable funds decreases. 
E)  the demand for loanable funds increases.

Question 11

If the supply of an input is fixed,its supply curve is a(n)

Accepted Answer

A)  upward-sloping line. 
B)  vertical line. 
C)  downward-sloping line. 
D)  horizontal line. 
E)  single point. 
A)  upward-sloping line. 
B)  vertical line. 
C)  downward-sloping line. 
D)  horizontal line. 
E)  single point.

Question 12

If a surge of new inventions results in many profitable investment opportunities,the demand for loanable funds will

Accepted Answer

A)  shift to the left, causing the interest rate to fall. 
B)  shift to the left, causing the interest rate to rise. 
C)  shift to the right, causing the interest rate to rise. 
D)  shift to the right, causing the interest rate to fall. 
E)  be unaffected, but the supply of loanable funds will rise. 
A)  shift to the left, causing the interest rate to fall. 
B)  shift to the left, causing the interest rate to rise. 
C)  shift to the right, causing the interest rate to rise. 
D)  shift to the right, causing the interest rate to fall. 
E)  be unaffected, but the supply of loanable funds will rise.

Question 13

If the government imposes a tax on rents

Accepted Answer

A)  government revenues will decline. 
B)  accounting profits will more closely approximate economic profits. 
C)  there will be no effect on the supply of resources to the economy. 
D)  land will be less productive. 
E)  the demand for land will fall. 
A)  government revenues will decline. 
B)  accounting profits will more closely approximate economic profits. 
C)  there will be no effect on the supply of resources to the economy. 
D)  land will be less productive. 
E)  the demand for land will fall.

Question 14

The following question are based on the following rates of return for five independent investment projects:
  
-If the rate of interest is 12 percent,the number of projects that would be undertaken is

Accepted Answer

A)  1. 
B)  2. 
C)  3. 
D)  4. 
E)  5. 
A)  1. 
B)  2. 
C)  3. 
D)  4. 
E)  5.

Question 15

Profits

Accepted Answer

A)  are the largest component of GDP. 
B)  are a reward for the productivity of land. 
C)  have no useful function in a capitalistic economy. 
D)  primarily result from the exploitation of labor. 
E)  vary greatly from year to year and behave more erratically than wages. 
A)  are the largest component of GDP. 
B)  are a reward for the productivity of land. 
C)  have no useful function in a capitalistic economy. 
D)  primarily result from the exploitation of labor. 
E)  vary greatly from year to year and behave more erratically than wages.

Question 16

The following question are based on the following diagram, representing the supply and demand curves for an input:
  
-The price of this input is called

Accepted Answer

A)  wage. 
B)  the pure interest rate. 
C)  profit. 
D)  rent. 
E)  a risk premium. 
A)  wage. 
B)  the pure interest rate. 
C)  profit. 
D)  rent. 
E)  a risk premium.

Question 17

In a capitalistic system,the signal for entry into and exit from an industry is provided by

Accepted Answer

A)  wages and salaries. 
B)  rent and interest. 
C)  spending and saving. 
D)  liquidity and rigidity. 
E)  profits and losses. 
A)  wages and salaries. 
B)  rent and interest. 
C)  spending and saving. 
D)  liquidity and rigidity. 
E)  profits and losses.

Question 18

Interest rates

Accepted Answer

A)  help ensure that only those projects with the greatest expected productivity will be undertaken. 
B)  are not really needed in a modern planned economy. 
C)  arise solely because investment projects entail risk. 
D)  vary directly with the capitalized value of an asset. 
E)  are synonymous with the concept of expected rates of return. 
A)  help ensure that only those projects with the greatest expected productivity will be undertaken. 
B)  are not really needed in a modern planned economy. 
C)  arise solely because investment projects entail risk. 
D)  vary directly with the capitalized value of an asset. 
E)  are synonymous with the concept of expected rates of return.

Question 19

Which of the following reasons for the existence of profits is LEAST socially justifiable?

Accepted Answer

A)  Profits serve as an incentive for risk taking. 
B)  Profits serve to signal entry and exit of resources in an economic system. 
C)  Profits reward economically efficient producers. 
D)  Profits appear where there are contrived scarcities in product or resource markets. 
E)  Profits accrue to successful innovators. 
A)  Profits serve as an incentive for risk taking. 
B)  Profits serve to signal entry and exit of resources in an economic system. 
C)  Profits reward economically efficient producers. 
D)  Profits appear where there are contrived scarcities in product or resource markets. 
E)  Profits accrue to successful innovators.

Question 20

Usury laws stemmed from the idea that

Accepted Answer

A)  interest represents labor surplus appropriated by business. 
B)  interest rates are not prices and therefore are not subject to the laws of supply and demand. 
C)  money is a medium of exchange and not a store of value. 
D)  money is an asset that is fixed in supply. 
E)  charging someone for the use of money is sinful. 
A)  interest represents labor surplus appropriated by business. 
B)  interest rates are not prices and therefore are not subject to the laws of supply and demand. 
C)  money is a medium of exchange and not a store of value. 
D)  money is an asset that is fixed in supply. 
E)  charging someone for the use of money is sinful.

Exam 11: Interest,rent,and Profit

Profits from innovation represent greater than normal returns to capital,because in the case of innovation

To shift the supply of loanable funds to the right,a society must be willing to

An increase in interest rates will cause

According to Schumpeter,the large profits often realized from innovation tend to be transitory because

Among the factors giving rise to profits are

The rate of return on an asset that costs $6,000 and yields a permanent return of $540 per year is ________ percent.

Profits as a reward to risk and uncertainty is a theory closely associated with

Henry George is best known for his view that

Star athletes often receive incomes significantly above what they would be willing to accept to continue playing.In the context of economic analysis,it would be reasonable to consider this additional income a form of

The value of an asset such as a bond will rise when

If the supply of an input is fixed,its supply curve is a(n)

If a surge of new inventions results in many profitable investment opportunities,the demand for loanable funds will

If the government imposes a tax on rents

The following question are based on the following rates of return for five independent investment projects: -If the rate of interest is 12 percent,the number of projects that would be undertaken is

Profits

The following question are based on the following diagram, representing the supply and demand curves for an input: -The price of this input is called

In a capitalistic system,the signal for entry into and exit from an industry is provided by

Interest rates

Which of the following reasons for the existence of profits is LEAST socially justifiable?

Usury laws stemmed from the idea that

What is Economics

Markets and Prices

The Business Firm: Organization,motivation,and Optimal Input Decisions

Getting Behind the Demand and Supply Curves

Market Demand and Price Elasticity

Economic Efficiency,market Supply,and Perfect Competition

Monopoly and Its Regulation

Monopolistic Competition,oligopoly,and Antitrust Policy

Pollution and the Environment

The Supply and Demand for Labor

Poverty,income Inequality,and Discrimination

Economic Growth

Public Goods and the Role of the Government

National Income and Product

Business Fluctuations and Unemployment

The Determination of National Output and the Keynesian Multiplier

Fiscal Policy and National Output

Inflation

Money and the Banking System

The Federal Reserve and Monetary Policy

Supply Shocks and Inflation

Productivity,growth,and Technology Policy

Surpluses,deficits,public Debt,and the Federal Budget

Monetary Policy,interest Rates,and Economic Activity

Controversies Over Stabilization Policy

International Trade

Exchange Rates and the Balance of Payments

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