Question 1

Businesses demand funds because

Accepted Answer

A)  they prefer earlier consumption to later consumption. 
B)  they have deficits to cover. 
C)  they prefer to purchase capital goods in the current year. 
D)  they make investments that they believe will increase productivity and profitability. 
A)  they prefer earlier consumption to later consumption. 
B)  they have deficits to cover. 
C)  they prefer to purchase capital goods in the current year. 
D)  they make investments that they believe will increase productivity and profitability.

Question 2

When accounting profits are positive, economic profits

Accepted Answer

A)  must be positive. 
B)  will be negative. 
C)  will equal zero. 
D)  could be positive, negative or zero. 
A)  must be positive. 
B)  will be negative. 
C)  will equal zero. 
D)  could be positive, negative or zero.

Question 3

Interest is paid to

Accepted Answer

A)  all holders of stock. 
B)  individuals who own gold. 
C)  owners of capital. 
D)  borrowers of funds. 
A)  all holders of stock. 
B)  individuals who own gold. 
C)  owners of capital. 
D)  borrowers of funds.

Question 4

Inside information

Accepted Answer

A)  applies to proprietorships only. 
B)  applies to proprietorships and partnerships only. 
C)  applies to corporations only. 
D)  applies to all forms of business. 
A)  applies to proprietorships only. 
B)  applies to proprietorships and partnerships only. 
C)  applies to corporations only. 
D)  applies to all forms of business.

Question 5

By definition, a firm is

Accepted Answer

A)  a business organization that makes profits. 
B)  a business organization that utilizes resources to produce goods or services with the goal of making a profit. 
C)  a business organization that consists of more than one person. 
D)  an organization, whether private or public, that may or may not make a profit. 
A)  a business organization that makes profits. 
B)  a business organization that utilizes resources to produce goods or services with the goal of making a profit. 
C)  a business organization that consists of more than one person. 
D)  an organization, whether private or public, that may or may not make a profit.

Question 6

Of the owners of the following firms, which does not have unlimited liability for the business' debts?

Accepted Answer

A)  Roy Ray's Grocery Store, Roy Ray, proprietor 
B)  The partnership of Reese and Jones, Attorneys-at-Law 
C)  The Huber Corporation 
D)  Wren's Feed and Seed Store, a proprietorship 
A)  Roy Ray's Grocery Store, Roy Ray, proprietor 
B)  The partnership of Reese and Jones, Attorneys-at-Law 
C)  The Huber Corporation 
D)  Wren's Feed and Seed Store, a proprietorship

Question 7

A stock that has a price of $20 per share, earnings per share of $2.00, and a dividend of $1.50 will have

Accepted Answer

A)  a PE ratio of 20/1.50. 
B)  a yield of 7.5 percent. 
C)  a yield of 12 percent. 
D)  a PE ratio of 1.333. 
A)  a PE ratio of 20/1.50. 
B)  a yield of 7.5 percent. 
C)  a yield of 12 percent. 
D)  a PE ratio of 1.333.

Question 8

In which of the following ways can a corporation raise new funds for investment? I. Issuing new shares of stock
II) Having existing stock resold between two owners

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 9

When interest rates allocate capital,

Accepted Answer

A)  many worthwhile projects fail to get funded and society is worse off. 
B)  investment projects of firms tend to get funded while valuable social investments funded by the government tend not to get funded. 
C)  only investment projects are funded for which the expected benefits of the projects equal or exceed the opportunity cost of the projects. 
D)  there is an under investment in capital and overspending on durable consumer goods. 
A)  many worthwhile projects fail to get funded and society is worse off. 
B)  investment projects of firms tend to get funded while valuable social investments funded by the government tend not to get funded. 
C)  only investment projects are funded for which the expected benefits of the projects equal or exceed the opportunity cost of the projects. 
D)  there is an under investment in capital and overspending on durable consumer goods.

Question 10

If a factor of production with a fixed supply is earning $100 in its current use and its next best use would yield earnings of $80, the factor is earning a pure economic rent equal to

Accepted Answer

A)  $0. 
B)  $20. 
C)  $80. 
D)  $180. 
A)  $0. 
B)  $20. 
C)  $80. 
D)  $180.

Question 11

Which statement is FALSE considering both advantages and disadvantages of corporations as a legal business organization?

Accepted Answer

A)  Perhaps the greatest advantage of corporations is that their owners (the shareholders) enjoy limited liability-limited to the value of their shares. 
B)  Legally the corporation continues to exist even if one or more owners cease to be owners. 
C)  Corporations usually are not as well positioned as proprietorships and partnerships to raise large sums of financial capital. 
D)  Separation of ownership and control is a disadvantage of the corporate structure; owners and managers may have different incentives. 
A)  Perhaps the greatest advantage of corporations is that their owners (the shareholders) enjoy limited liability-limited to the value of their shares. 
B)  Legally the corporation continues to exist even if one or more owners cease to be owners. 
C)  Corporations usually are not as well positioned as proprietorships and partnerships to raise large sums of financial capital. 
D)  Separation of ownership and control is a disadvantage of the corporate structure; owners and managers may have different incentives.

Question 12

Suppose you own $15,000 of personal property, $5,000 of stock in ABC Corporation, a $1,000 certificate of deposit, and $10,000 of government bonds. If ABC goes bankrupt, the most you could lose is

Accepted Answer

A)  $31,000. 
B)  $26,000. 
C)  $15,000. 
D)  $5,000. 
A)  $31,000. 
B)  $26,000. 
C)  $15,000. 
D)  $5,000.

Question 13

A firm is considering an investment that will cost $2 million today and $2 million a year from now. It will generate revenues of $1 million a year for five years, beginning two years from now. If the interest rate is 10 percent, the firm should

Accepted Answer

A)  not make the investment because the present value of the net revenues is less than the present value of the investment spending. 
B)  not make the investment because the present value of the net revenues is less than $4 million. 
C)  make the investment because the present value of the net revenues is greater than the present value of the investment. 
D)  make the investment because the project will generate a net profit of $1 million. 
A)  not make the investment because the present value of the net revenues is less than the present value of the investment spending. 
B)  not make the investment because the present value of the net revenues is less than $4 million. 
C)  make the investment because the present value of the net revenues is greater than the present value of the investment. 
D)  make the investment because the project will generate a net profit of $1 million.

Question 14

One advantage of a proprietorship is that

Accepted Answer

A)  it is relatively easy to raise financial capital for a proprietorship. 
B)  a proprietorship is relatively easy to form and to dissolve. 
C)  there are limits to the possible liabilities of the owner. 
D)  depreciation rates on capital are higher. 
A)  it is relatively easy to raise financial capital for a proprietorship. 
B)  a proprietorship is relatively easy to form and to dissolve. 
C)  there are limits to the possible liabilities of the owner. 
D)  depreciation rates on capital are higher.

Question 15

What is a normal rate of return?

Accepted Answer

A normal rate of return is the

Question 16

What is the future value of $1,000 in three years if the rate of discount is equal to 5 percent?

Accepted Answer

A)  $1,150.00 
B)  $1,005.00 
C)  $1,157.63 
D)  $863.84 
A)  $1,150.00 
B)  $1,005.00 
C)  $1,157.63 
D)  $863.84

Question 17

When the supply curve of a resource is vertical, then the return to the resource owner is

Accepted Answer

A)  zero. 
B)  partly economic rent and partly opportunity costs. 
C)  partly economic rent and partly profits. 
D)  pure economic rent. 
A)  zero. 
B)  partly economic rent and partly opportunity costs. 
C)  partly economic rent and partly profits. 
D)  pure economic rent.

Question 18

Ricardo's assumption for economic rents for land was based on

Accepted Answer

A)  the supply of land being a fixed quantity. 
B)  a shortage of land. 
C)  a surplus of land. 
D)  total government control of land. 
A)  the supply of land being a fixed quantity. 
B)  a shortage of land. 
C)  a surplus of land. 
D)  total government control of land.

Question 19

Which of the following would be most likely to receive high economic rent payments?

Accepted Answer

A)  farmer 
B)  professional baseball player 
C)  factory worker 
D)  doctor 
A)  farmer 
B)  professional baseball player 
C)  factory worker 
D)  doctor

Question 20

The fundamental goal of a firm or a business is to

Accepted Answer

A)  produce the largest number of output units possible. 
B)  employ labor in the most socially responsible manner possible. 
C)  organize the factors of production and take risks. 
D)  earn the highest possible returns. 
A)  produce the largest number of output units possible. 
B)  employ labor in the most socially responsible manner possible. 
C)  organize the factors of production and take risks. 
D)  earn the highest possible returns.

Exam 21: Rents, Profits, and the Financial Environment of Business

Businesses demand funds because

When accounting profits are positive, economic profits

Interest is paid to

Inside information

By definition, a firm is

Of the owners of the following firms, which does not have unlimited liability for the business' debts?

A stock that has a price of $20 per share, earnings per share of $2.00, and a dividend of $1.50 will have

In which of the following ways can a corporation raise new funds for investment? I. Issuing new shares of stock II) Having existing stock resold between two owners

When interest rates allocate capital,

If a factor of production with a fixed supply is earning $100 in its current use and its next best use would yield earnings of $80, the factor is earning a pure economic rent equal to

Which statement is FALSE considering both advantages and disadvantages of corporations as a legal business organization?

Suppose you own $15,000 of personal property, $5,000 of stock in ABC Corporation, a $1,000 certificate of deposit, and $10,000 of government bonds. If ABC goes bankrupt, the most you could lose is

A firm is considering an investment that will cost $2 million today and $2 million a year from now. It will generate revenues of $1 million a year for five years, beginning two years from now. If the interest rate is 10 percent, the firm should

One advantage of a proprietorship is that

What is a normal rate of return?

What is the future value of $1,000 in three years if the rate of discount is equal to 5 percent?

When the supply curve of a resource is vertical, then the return to the resource owner is

Ricardo's assumption for economic rents for land was based on

Which of the following would be most likely to receive high economic rent payments?

The fundamental goal of a firm or a business is to

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Extensions of Demand and Supply Analysis

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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