Question 1

If savers require a 2% return and inflation is expected to be 3%,what approximate rate will banks offer savers?

Accepted Answer

A)  1% 
B)  3.2% 
C)  5% 
D)  6% 
A)  1% 
B)  3.2% 
C)  5% 
D)  6%

Question 2

Billy is considering the purchase of a rental house.The house costs $240,000 and it will generate annual revenues of $15,000 and annual expenses of $3,000.Nevertheless,Billy will need to borrow $240,000 at an interest rate of 7% per year in case he decides to make this investment.Should Billy purchase this house?

Accepted Answer

A)  No, he will lose money. 
B)  Yes, his profits will be zero. 
C)  No, his profits will be positive but close to zero. 
D)  Yes, he will profit from this investment. 
A)  No, he will lose money. 
B)  Yes, his profits will be zero. 
C)  No, his profits will be positive but close to zero. 
D)  Yes, he will profit from this investment.

Question 3

Why is the price of a scarce exhaustible resource in a competitive market above the marginal cost of providing a unit of the resource?

Accepted Answer

Because the resource is scarce

Question 4

Today John says: "I will start working out tomorrow." Yet,as tomorrow arrives he doesn't.This is an example of

Accepted Answer

A)  time inconsistent preferences. 
B)  time consistent preferences. 
C)  exponential discounting. 
D)  future-biased preferences. 
A)  time inconsistent preferences. 
B)  time consistent preferences. 
C)  exponential discounting. 
D)  future-biased preferences.

Question 5

If you agree to a long-term loan at a specified nominal rate of interest and inflation turns out to be higher than was anticipated,

Accepted Answer

A)  the nominal rate of interest falls. 
B)  the nominal rate of interest rises. 
C)  the real rate of interest falls. 
D)  the real rate of interest rises. 
A)  the nominal rate of interest falls. 
B)  the nominal rate of interest rises. 
C)  the real rate of interest falls. 
D)  the real rate of interest rises.

Question 6

If inflation turns out to be higher than was anticipated,debtors are helped because

Accepted Answer

A)  the real present value of their payments increases. 
B)  the real present value of their payments decreases. 
C)  the nominal present value of their payments increases. 
D)  the nominal present value of their payments decreases. 
A)  the real present value of their payments increases. 
B)  the real present value of their payments decreases. 
C)  the nominal present value of their payments increases. 
D)  the nominal present value of their payments decreases.

Question 7

Using the Internal Rate of Return approach to investment,one would undertake an investment if the internal rate of return

Accepted Answer

A)  equals zero. 
B)  equals the interest rate. 
C)  exceeds the interest rate. 
D)  is less than the interest rate. 
A)  equals zero. 
B)  equals the interest rate. 
C)  exceeds the interest rate. 
D)  is less than the interest rate.

Question 8

If you invest $500 today,and the value one year from today is $1000,then the annual interest rate must be

Accepted Answer

A)  10%. 
B)  50%. 
C)  100%. 
D)  200%. 
A)  10%. 
B)  50%. 
C)  100%. 
D)  200%.

Question 9

Which of the following is most likely to cause the demand curve in the capital market to shift leftward?

Accepted Answer

A)  Government borrows to finance a war. 
B)  All firms project higher future revenue streams for all of their projects. 
C)  All firms project lower future revenue streams for all of their projects. 
D)  Government institutes a high tax on savings. 
A)  Government borrows to finance a war. 
B)  All firms project higher future revenue streams for all of their projects. 
C)  All firms project lower future revenue streams for all of their projects. 
D)  Government institutes a high tax on savings.

Question 10

Investment demand is downward sloping because

Accepted Answer

A)  an increase in investment demand causes interest rates to fall. 
B)  at lower interest rates, firms will undertake more investment. 
C)  at lower interest rates, firms will undertake less investment. 
D)  None of the above. 
A)  an increase in investment demand causes interest rates to fall. 
B)  at lower interest rates, firms will undertake more investment. 
C)  at lower interest rates, firms will undertake less investment. 
D)  None of the above.

Question 11

Billy is considering the purchase of a rental house.The house costs $240,000 and it will generate annual revenues of $15,000 and annual expenses of $3,000.What is the internal rate of return of this investment?

Accepted Answer

A)  5% 
B)  7.5% 
C)  3.75% 
D)  24% 
A)  5% 
B)  7.5% 
C)  3.75% 
D)  24%

Question 12

Suppose a person has a discount rate of zero.This implies she

Accepted Answer

A)  places no value on the future. 
B)  places no value on the present. 
C)  values the present and the future equally. 
D)  would not lend money at any positive interest rate. 
A)  places no value on the future. 
B)  places no value on the present. 
C)  values the present and the future equally. 
D)  would not lend money at any positive interest rate.

Question 13

As the baby boomer generation retires and takes money out of their retirement accounts,what is expected to happen to the interest rate,ceteris paribus?

Accepted Answer

A)  It will increase. 
B)  It will not change. 
C)  It will decrease. 
D)  It will decrease because of demand-side shocks. 
A)  It will increase. 
B)  It will not change. 
C)  It will decrease. 
D)  It will decrease because of demand-side shocks.

Question 14

The question "What are you going to do with that major?" implicitly questions

Accepted Answer

A)  how much you learn in that major. 
B)  whether the major should be offered on campus. 
C)  how much the market values the human capital developed in the major. 
D)  western bias. 
A)  how much you learn in that major. 
B)  whether the major should be offered on campus. 
C)  how much the market values the human capital developed in the major. 
D)  western bias.

Question 15

If the interest rate received in Mexico is greater than that obtained in the United States,

Accepted Answer

A)  the demand for loans will increase in Mexico. 
B)  the supply of loans will decrease in the United States. 
C)  the supply of loans will decrease in Mexico. 
D)  the demand for loans will decrease in the United States. 
A)  the demand for loans will increase in Mexico. 
B)  the supply of loans will decrease in the United States. 
C)  the supply of loans will decrease in Mexico. 
D)  the demand for loans will decrease in the United States.

Question 16

How does a n increase in the contribution limits of Individual Retirement Accounts (IRA)is represented in the loanable funds model?

Accepted Answer

A)  The supply of funds curve shifts to the left. 
B)  The supply of funds curve shifts to the right. 
C)  The demand for funds curve shifts to the left. 
D)  The demand for funds curve shifts to the right. 
A)  The supply of funds curve shifts to the left. 
B)  The supply of funds curve shifts to the right. 
C)  The demand for funds curve shifts to the left. 
D)  The demand for funds curve shifts to the right.

Question 17

Suppose an exhaustible resource can be sold only this period or in the next period.The marginal cost of extraction is constant and equal to $10.The next year price of the resource is $115,respectively.The interest rate is 5%.What is the minimum current price required to make the sale of the resource profitable in the current period?

Accepted Answer

A)  $95 
B)  $100 
C)  $110 
D)  $125 
A)  $95 
B)  $100 
C)  $110 
D)  $125

Question 18

In reality,prices of non-renewable resources have not increased continually according to the model developed in Section 16.3 because of

Accepted Answer

A)  abundance of the resource. 
B)  technological progress changing marginal cost. 
C)  changing market power of producers. 
D)  All of the above. 
A)  abundance of the resource. 
B)  technological progress changing marginal cost. 
C)  changing market power of producers. 
D)  All of the above.

Question 19

A capital gains tax acts to

Accepted Answer

A)  reduce the interest rate received by loan demanders. 
B)  increase the interest rate received by loan demanders. 
C)  increase the interest rate received by loan suppliers. 
D)  reduce the interest rate received by loan suppliers. 
A)  reduce the interest rate received by loan demanders. 
B)  increase the interest rate received by loan demanders. 
C)  increase the interest rate received by loan suppliers. 
D)  reduce the interest rate received by loan suppliers.

Question 20

The growth over time in the spread between price and marginal cost of an exhaustible resource is equal to

Accepted Answer

A)  zero. 
B)  one. 
C)  the interest rate. 
D)  the present value of the reserves. 
A)  zero. 
B)  one. 
C)  the interest rate. 
D)  the present value of the reserves.

If savers require a 2% return and inflation is expected to be 3%,what approximate rate will banks offer savers?

Why is the price of a scarce exhaustible resource in a competitive market above the marginal cost of providing a unit of the resource?

Today John says: "I will start working out tomorrow." Yet,as tomorrow arrives he doesn't.This is an example of

If you agree to a long-term loan at a specified nominal rate of interest and inflation turns out to be higher than was anticipated,

If inflation turns out to be higher than was anticipated,debtors are helped because

Using the Internal Rate of Return approach to investment,one would undertake an investment if the internal rate of return

If you invest $500 today,and the value one year from today is $1000,then the annual interest rate must be

Which of the following is most likely to cause the demand curve in the capital market to shift leftward?

Investment demand is downward sloping because

Billy is considering the purchase of a rental house.The house costs $240,000 and it will generate annual revenues of $15,000 and annual expenses of $3,000.What is the internal rate of return of this investment?

Suppose a person has a discount rate of zero.This implies she

As the baby boomer generation retires and takes money out of their retirement accounts,what is expected to happen to the interest rate,ceteris paribus?

The question "What are you going to do with that major?" implicitly questions

If the interest rate received in Mexico is greater than that obtained in the United States,

How does a n increase in the contribution limits of Individual Retirement Accounts (IRA)is represented in the loanable funds model?

In reality,prices of non-renewable resources have not increased continually according to the model developed in Section 16.3 because of

A capital gains tax acts to

The growth over time in the spread between price and marginal cost of an exhaustible resource is equal to

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 16: Interest Rates, Investments, and Capital Markets

If savers require a 2% return and inflation is expected to be 3%,what approximate rate will banks offer savers?

Why is the price of a scarce exhaustible resource in a competitive market above the marginal cost of providing a unit of the resource?

Today John says: "I will start working out tomorrow." Yet,as tomorrow arrives he doesn't.This is an example of

If you agree to a long-term loan at a specified nominal rate of interest and inflation turns out to be higher than was anticipated,

If inflation turns out to be higher than was anticipated,debtors are helped because

Using the Internal Rate of Return approach to investment,one would undertake an investment if the internal rate of return

If you invest $500 today,and the value one year from today is $1000,then the annual interest rate must be

Which of the following is most likely to cause the demand curve in the capital market to shift leftward?

Investment demand is downward sloping because

Billy is considering the purchase of a rental house.The house costs $240,000 and it will generate annual revenues of $15,000 and annual expenses of $3,000.What is the internal rate of return of this investment?

Suppose a person has a discount rate of zero.This implies she

As the baby boomer generation retires and takes money out of their retirement accounts,what is expected to happen to the interest rate,ceteris paribus?

The question "What are you going to do with that major?" implicitly questions

If the interest rate received in Mexico is greater than that obtained in the United States,

How does a n increase in the contribution limits of Individual Retirement Accounts (IRA)is represented in the loanable funds model?

In reality,prices of non-renewable resources have not increased continually according to the model developed in Section 16.3 because of

A capital gains tax acts to

The growth over time in the spread between price and marginal cost of an exhaustible resource is equal to

Introduction

Supply and Demand

Applying the Supply-And-Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Costs

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters