Question 1

Utility is a measure of ________.

Accepted Answer

A)  income 
B)  savings 
C)  satisfaction 
D)  expenditure 
A)  income 
B)  savings 
C)  satisfaction 
D)  expenditure

Question 2

Scenario: Trinity deposits $8,000 in a bank at an interest rate of 8 percent per year compounded annually.
-Refer to the scenario above.What will be the future value of the deposit after 1 year?

Accepted Answer

A)  $8,420 
B)  $8,480 
C)  $8,640 
D)  $8,820 
A)  $8,420 
B)  $8,480 
C)  $8,640 
D)  $8,820

Question 3

In the context of a roulette wheel,gambler's fallacy refers to the belief that ________.

Accepted Answer

A)  outcomes of a gamble are mostly repetitive 
B)  winners in a gamble lose the next round 
C)  outcomes of a gamble tend to avoid repeats 
D)  winners in a gamble continue to win in streaks 
A)  outcomes of a gamble are mostly repetitive 
B)  winners in a gamble lose the next round 
C)  outcomes of a gamble tend to avoid repeats 
D)  winners in a gamble continue to win in streaks

Question 4

Kevin deposits a certain sum in a bank at an annual compound rate of interest for 2 years.Interest in the second year will be calculated on ________.

Accepted Answer

A)  the principal amount only 
B)  the amount in the account after 1 year 
C)  the sum of the principal amount and the amount in the account after 1 year 
D)  the difference between the principal amount and the amount in the account after 1 year 
A)  the principal amount only 
B)  the amount in the account after 1 year 
C)  the sum of the principal amount and the amount in the account after 1 year 
D)  the difference between the principal amount and the amount in the account after 1 year

Question 5

Scenario: An investment of $20,000 offers a return of $15,000 in 10 years and another return of $15,000 after 15 years. The market rate of interest is 6 percent per year.
-Refer to the scenario above.What is the sum of the present values of the returns from this investment?

Accepted Answer

A)  $12,887.64 
B)  $14,634.90 
C)  $19,524.69 
D)  $29,524.19 
A)  $12,887.64 
B)  $14,634.90 
C)  $19,524.69 
D)  $29,524.19

Question 6

The equation that calculates the future value of an investment with the interest rate and leaves all interest payments in the account until the final withdrawal is referred to as the ________ equation.

Accepted Answer

A)  simple interest 
B)  present value 
C)  compound interest 
D)  exponential interest 
A)  simple interest 
B)  present value 
C)  compound interest 
D)  exponential interest

Question 7

Empirical studies have shown that in most situations,people are ________.

Accepted Answer

A)  risk averse 
B)  risk neutral 
C)  risk seeking 
D)  either risk neutral or risk seeking but not risk averse 
A)  risk averse 
B)  risk neutral 
C)  risk seeking 
D)  either risk neutral or risk seeking but not risk averse

Question 8

Scenario: Trinity deposits $8,000 in a bank at an interest rate of 8 percent per year compounded annually.
-Refer to the scenario above.What will be the future value of the deposit after 2 years?

Accepted Answer

A)  $8,761.20 
B)  $8,990.40 
C)  $9,000 
D)  $9331.20 
A)  $8,761.20 
B)  $8,990.40 
C)  $9,000 
D)  $9331.20

Question 9

Scenario: Tom has two investment options. He can either invest $3,000 in a friend's project or he can deposit the same amount in a bank that offers him an annual rate of interest of 6 percent. If he invests in his friend's project, he will receive $3,400 after 5 years.
-Refer to the scenario above.Which of the following statements is true?

Accepted Answer

A)  The discounted value of $3,400 to be received after 5 years is $3,000. 
B)  Tom's return from investing in his friend's project is higher than the amount he would receive from the bank after 5 years. 
C)  Tom's return from investing in the bank is higher than the amount he would receive from his friend's project after 5 years. 
D)  The returns on both investments are likely to be similar, and Tom should be indifferent about investing in either option. 
A)  The discounted value of $3,400 to be received after 5 years is $3,000. 
B)  Tom's return from investing in his friend's project is higher than the amount he would receive from the bank after 5 years. 
C)  Tom's return from investing in the bank is higher than the amount he would receive from his friend's project after 5 years. 
D)  The returns on both investments are likely to be similar, and Tom should be indifferent about investing in either option.

Question 10

Scenario: John is planning to buy a cell phone. The market price of the cell phone is $200. While making the purchase, along with the regular replacement warranty for a year, he is also offered an extended warranty for 2 more years at a price of $50. The probability of the phone malfunctioning each year is 20 percent. It is also expected that a similar phone will cost $150 after the end of the first year and $100 after the end of the second year. The current market rate of interest is 10 percent.
-Refer to the scenario above.What is the net present value of buying the warranty?

Accepted Answer

A)  $3.75 
B)  ‒$10.18 
C)  $15.54 
D)  ‒$30 
A)  $3.75 
B)  ‒$10.18 
C)  $15.54 
D)  ‒$30

Question 11

Present bias implies that ________.

Accepted Answer

A)  a consumer gives much more weight to the future than to the present 
B)  a consumer gives much more weight to the present than to the future 
C)  discount weights for delayed consumptions will always equal 1 
D)  discount weights for delayed consumptions will always be greater than 1 
A)  a consumer gives much more weight to the future than to the present 
B)  a consumer gives much more weight to the present than to the future 
C)  discount weights for delayed consumptions will always equal 1 
D)  discount weights for delayed consumptions will always be greater than 1

Question 12

The transfer of resources through time by economic agents is referred to as a ________ transformation.

Accepted Answer

A)  clockwise 
B)  time-wise 
C)  chronological 
D)  intertemporal 
A)  clockwise 
B)  time-wise 
C)  chronological 
D)  intertemporal

Question 13

An investment of $10,000 promises a payment of $13,000 after 6 years.If the annual rate of interest is 8 percent,what is the net present value of the investment?

Accepted Answer

The present value of the payme

Question 14

Scenario: A friend approaches you with four different investment plans that offer you the following returns on an investment of $10,000.
Plan 1: promises a return of $20,000 in 5 years
Plan 2: promises you a return of $5,000 in 2 years and $2,000 in 3 years
Plan 3: promises you a return of $20,000 in 20 years
Plan 4: promises you a return of $15,000 in 10 years
The market rate of interest is 5 percent.
-Refer to the scenario above.The net present value of the investment in Plan 4 is equal to ________.

Accepted Answer

A)  ‒$8,001 
B)  ‒$556 
C)  ‒$791 
D)  ‒$3,737 
A)  ‒$8,001 
B)  ‒$556 
C)  ‒$791 
D)  ‒$3,737

Question 15

Which of the following statements is true?

Accepted Answer

A)  An individual's current spending increases when he lends money. 
B)  An individual's current spending decreases when he borrows money. 
C)  An economic agent lends to move his spending from the future to the present. 
D)  An economic agent lends to earn a return. 
A)  An individual's current spending increases when he lends money. 
B)  An individual's current spending decreases when he borrows money. 
C)  An economic agent lends to move his spending from the future to the present. 
D)  An economic agent lends to earn a return.

Question 16

What is the discounted value of $60,000 to be received after 6 years if the ongoing rate of interest is 6 percent per year?

Accepted Answer

A)  $41,212.84 
B)  $42,297.63 
C)  $44,666.95 
D)  $51,220.64 
A)  $41,212.84 
B)  $42,297.63 
C)  $44,666.95 
D)  $51,220.64

Question 17

Consider two individuals,Wendy and Jenny,who discount delayed utilities with a weight of $ \frac{1}{4} $  and$ \frac{7}{8} $ ,respectively.Consuming one hamburger gives both Wendy and Jenny benefits worth 16 utils instantly,and it has delayed costs of 20 utils.
a)If the nearby hamburger shop is closed for a week,comment on whether both individuals will consume hamburgers after a week.
b)If a new shop is opened nearby and hamburgers are available for consumption today,comment on whether both individuals will consume hamburgers.

Accepted Answer

a)If the consumption of hamburgers is de

Question 18

Scenario: Susan discounts delayed utility with a weight of $ \frac{1}{2} $ , and Jim discounts delayed utility with a weight of 1/4. Both individuals win gift vouchers, which can be used after a year. Both Susan and Jim estimate the utility of the gift vouchers at 90 utils.
-Refer to the scenario above.What is the present value of the gift voucher to Susan?

Accepted Answer

A)  30 utils 
B)  45 utils 
C)  90 utils 
D)  180 utils 
A)  30 utils 
B)  45 utils 
C)  90 utils 
D)  180 utils

Question 19

If a sum of $15,000 is borrowed at 13 percent for 1 year,the interest paid by the borrower is ________.

Accepted Answer

A)  $750 
B)  $1,000 
C)  $1,950 
D)  $5,500 
A)  $750 
B)  $1,000 
C)  $1,950 
D)  $5,500

Question 20

Scenario: The rules of a roulette game with pockets numbered from 1 to 100 are such that if the ball ends in a pocket with an even number, the player wins $300. However, if the ball ends in a pocket with an odd number, he loses $200.
-Refer to the scenario above.What is the expected value of the game?

Accepted Answer

A)  $20 
B)  $50 
C)  $100 
D)  $300 
A)  $20 
B)  $50 
C)  $100 
D)  $300

Utility is a measure of ________.

Scenario: Trinity deposits $8,000 in a bank at an interest rate of 8 percent per year compounded annually. -Refer to the scenario above.What will be the future value of the deposit after 1 year?

In the context of a roulette wheel,gambler's fallacy refers to the belief that ________.

Kevin deposits a certain sum in a bank at an annual compound rate of interest for 2 years.Interest in the second year will be calculated on ________.

Scenario: An investment of $20,000 offers a return of $15,000 in 10 years and another return of $15,000 after 15 years. The market rate of interest is 6 percent per year. -Refer to the scenario above.What is the sum of the present values of the returns from this investment?

The equation that calculates the future value of an investment with the interest rate and leaves all interest payments in the account until the final withdrawal is referred to as the ________ equation.

Empirical studies have shown that in most situations,people are ________.

Scenario: Trinity deposits $8,000 in a bank at an interest rate of 8 percent per year compounded annually. -Refer to the scenario above.What will be the future value of the deposit after 2 years?

Present bias implies that ________.

The transfer of resources through time by economic agents is referred to as a ________ transformation.

An investment of $10,000 promises a payment of $13,000 after 6 years.If the annual rate of interest is 8 percent,what is the net present value of the investment?

Which of the following statements is true?

What is the discounted value of $60,000 to be received after 6 years if the ongoing rate of interest is 6 percent per year?

If a sum of $15,000 is borrowed at 13 percent for 1 year,the interest paid by the borrower is ________.

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, supply, and Equilibrium

Consumers and Incentives

Sellers and Incentives

Perfect Competition and the Invisible Hand

Trade

Externalities and Public Goods

The Government in the Economy: Taxation and Regulation

Markets for Factors of Production

Monopoly

Game Theory and Strategic Play

Oligopoly and Monopolistic Competition

The Economics of Information

Auctions and Bargaining

Social Economics

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Exam 15: Trade-Offs Involving Time and Risk

Utility is a measure of ________.

Scenario: Trinity deposits $8,000 in a bank at an interest rate of 8 percent per year compounded annually. -Refer to the scenario above.What will be the future value of the deposit after 1 year?

In the context of a roulette wheel,gambler's fallacy refers to the belief that ________.

Kevin deposits a certain sum in a bank at an annual compound rate of interest for 2 years.Interest in the second year will be calculated on ________.

Scenario: An investment of $20,000 offers a return of $15,000 in 10 years and another return of $15,000 after 15 years. The market rate of interest is 6 percent per year. -Refer to the scenario above.What is the sum of the present values of the returns from this investment?

The equation that calculates the future value of an investment with the interest rate and leaves all interest payments in the account until the final withdrawal is referred to as the ________ equation.

Empirical studies have shown that in most situations,people are ________.

Scenario: Trinity deposits $8,000 in a bank at an interest rate of 8 percent per year compounded annually. -Refer to the scenario above.What will be the future value of the deposit after 2 years?

Present bias implies that ________.

The transfer of resources through time by economic agents is referred to as a ________ transformation.

An investment of $10,000 promises a payment of $13,000 after 6 years.If the annual rate of interest is 8 percent,what is the net present value of the investment?

Which of the following statements is true?

What is the discounted value of $60,000 to be received after 6 years if the ongoing rate of interest is 6 percent per year?

If a sum of $15,000 is borrowed at 13 percent for 1 year,the interest paid by the borrower is ________.

The Principles and Practice of Economics

Economic Methods and Economic Questions

Optimization: Doing the Best You Can

Demand, supply, and Equilibrium

Consumers and Incentives

Sellers and Incentives

Perfect Competition and the Invisible Hand

Trade

Externalities and Public Goods

The Government in the Economy: Taxation and Regulation

Markets for Factors of Production

Monopoly

Game Theory and Strategic Play

Oligopoly and Monopolistic Competition

The Economics of Information

Auctions and Bargaining

Social Economics

Filters