Question 1

Interest represents a cost to the borrower, but an income to the lender.

Accepted Answer

A) True 
 B)False  True

Question 2

Entrepreneurs can generate economic profits by all of the following, except

Accepted Answer

A)  developing popular new products. 
B)  reducing production costs below rivals' costs. 
C)  creating and maintaining monopoly power. 
D)  laying off workers in order to cut costs. 
A)  developing popular new products. 
B)  reducing production costs below rivals' costs. 
C)  creating and maintaining monopoly power. 
D)  laying off workers in order to cut costs. D

Question 3

A decrease in saving that leads to an increase in the interest rate will

Accepted Answer

A)  decrease the amount of investment spending. 
B)  only result in a surplus of loanable funds. 
C)  shift the demand for loanable funds to the right, increasing net investment. 
D)  shift the demand for loanable funds to the left, causing a decrease in investment. 
A)  decrease the amount of investment spending. 
B)  only result in a surplus of loanable funds. 
C)  shift the demand for loanable funds to the right, increasing net investment. 
D)  shift the demand for loanable funds to the left, causing a decrease in investment. A

Question 4

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 5

Suppose a person pays $80 of annual interest on a loan that has a 5 percent annual interest rate. The loan amount is

Accepted Answer

A)  $400. 
B)  $1,600. 
C)  $160. 
D)  $85. 
A)  $400. 
B)  $1,600. 
C)  $160. 
D)  $85.

Question 6

As viewed by society, economic rent is not a cost but rather a surplus payment.

Accepted Answer

A) True 
 B)False

Question 7

The aggregate economic rent received by a productive resource will decrease, ceteris paribus, whenever the

Accepted Answer

A)  demand for the resource increases. 
B)  price of the resource decreases. 
C)  demand for the resource decreases. 
D)  supply curve shifts to the right. 
A)  demand for the resource increases. 
B)  price of the resource decreases. 
C)  demand for the resource decreases. 
D)  supply curve shifts to the right.

Question 8

The characteristic that makes economic rent distinct from wages, interest, and profit is that it is

Accepted Answer

A)  payment for a resource that is completely fixed in total supply. 
B)  always expressed in dollars, never in percent. 
C)  fixed by annual or monthly contracts. 
D)  makes the supply of the resource increase if its rent rises. 
A)  payment for a resource that is completely fixed in total supply. 
B)  always expressed in dollars, never in percent. 
C)  fixed by annual or monthly contracts. 
D)  makes the supply of the resource increase if its rent rises.

Question 9

Which of the following was not a belief of Henry George and the single-tax movement?

Accepted Answer

A)  Rental income is unfair because landlords do not really earn it from any productive effort. 
B)  Rental income should be taxed heavily and should be the primary source of revenues for the government. 
C)  Taxing rental income would adversely affect allocative efficiency because the tax would change how landlords use their land. 
D)  The single tax on rent would not adversely affect society's productive efficiency. 
A)  Rental income is unfair because landlords do not really earn it from any productive effort. 
B)  Rental income should be taxed heavily and should be the primary source of revenues for the government. 
C)  Taxing rental income would adversely affect allocative efficiency because the tax would change how landlords use their land. 
D)  The single tax on rent would not adversely affect society's productive efficiency.

Question 10

"Pure rate of interest" refers to the interest rate that

Accepted Answer

A)  borrowers pay to lenders in their own family or circle of close friends. 
B)  serves solely as payment to lenders for giving up current use of their funds. 
C)  is the difference between the actual rate and the theoretical rate. 
D)  measures the compensation to lenders for taking on the risks involved. 
A)  borrowers pay to lenders in their own family or circle of close friends. 
B)  serves solely as payment to lenders for giving up current use of their funds. 
C)  is the difference between the actual rate and the theoretical rate. 
D)  measures the compensation to lenders for taking on the risks involved.

Question 11

The demand for loanable funds is downsloping

Accepted Answer

A)  because businesses find that more investments are profitable at low interest rates than at high interest rates. 
B)  because households are willing to save more at high interest rates than at low interest rates. 
C)  only when the nominal interest rate exceeds the real interest rate. 
D)  because the amount of profitable business investment varies directly with the interest rate. 
A)  because businesses find that more investments are profitable at low interest rates than at high interest rates. 
B)  because households are willing to save more at high interest rates than at low interest rates. 
C)  only when the nominal interest rate exceeds the real interest rate. 
D)  because the amount of profitable business investment varies directly with the interest rate.

Question 12

A major purpose of usury laws is to make more funds available to low-income borrowers. Economic analysis suggests that usury laws

Accepted Answer

A)  are effective in achieving this goal. 
B)  allocate available funds to high-income borrowers. 
C)  have no impact on the allocation of funds between high-income and low-income people. 
D)  help low-income people only when the legal interest rate is above the market rate. 
A)  are effective in achieving this goal. 
B)  allocate available funds to high-income borrowers. 
C)  have no impact on the allocation of funds between high-income and low-income people. 
D)  help low-income people only when the legal interest rate is above the market rate.

Question 13

Profit-maximizing businesses will buy more new machinery only if

Accepted Answer

A)  the interest rate increases. 
B)  labor costs are low and expected to fall. 
C)  the expected rate of return of the new machinery is greater than the interest rate. 
D)  the present value of the new machinery is lower than its purchase price. 
A)  the interest rate increases. 
B)  labor costs are low and expected to fall. 
C)  the expected rate of return of the new machinery is greater than the interest rate. 
D)  the present value of the new machinery is lower than its purchase price.

Question 14

Demand is the active and supply the passive determinant of land rent.

Accepted Answer

A) True 
 B)False

Question 15

Usury laws

Accepted Answer

A)  allocate funds from low-productivity to high-productivity investments. 
B)  establish a legal ceiling on interest rates. 
C)  make more funds available to low-income borrowers. 
D)  create a surplus of loanable funds. 
A)  allocate funds from low-productivity to high-productivity investments. 
B)  establish a legal ceiling on interest rates. 
C)  make more funds available to low-income borrowers. 
D)  create a surplus of loanable funds.

Question 16

The fact that people prefer present consumption to future consumption results in

Accepted Answer

A)  an upsloping supply of loanable funds curve. 
B)  a downsloping demand for loanable funds curve. 
C)  a downsloping supply of loanable funds curve. 
D)  an upsloping demand for loanable funds curve. 
A)  an upsloping supply of loanable funds curve. 
B)  a downsloping demand for loanable funds curve. 
C)  a downsloping supply of loanable funds curve. 
D)  an upsloping demand for loanable funds curve.

Question 17

The marginal revenue product (MRP) of land declines as more land is brought into use. As a result, the

Accepted Answer

A)  demand curve for land is downsloping. 
B)  demand curve for land is upsloping. 
C)  supply curve for land is downsloping. 
D)  supply curve for land is upsloping. 
A)  demand curve for land is downsloping. 
B)  demand curve for land is upsloping. 
C)  supply curve for land is downsloping. 
D)  supply curve for land is upsloping.

Question 18

The equilibrium interest rate equates

Accepted Answer

A)  nominal and real interest rates. 
B)  the quantities demanded and supplied of loanable funds. 
C)  consumption and saving. 
D)  taxes and government spending. 
A)  nominal and real interest rates. 
B)  the quantities demanded and supplied of loanable funds. 
C)  consumption and saving. 
D)  taxes and government spending.

Question 19

Economists would not consider which one of the following to be a productive economic resource?

Accepted Answer

A)  land 
B)  capital goods 
C)  money 
D)  entrepreneurship 
A)  land 
B)  capital goods 
C)  money 
D)  entrepreneurship

Question 20

The marginal revenue product (MRP) of land declines as more land is brought into production because

Accepted Answer

A)  land is a "free and nonreproducible gift of nature." 
B)  of diminishing returns. 
C)  land rent has no incentive function. 
D)  the supply of land is fixed. 
A)  land is a "free and nonreproducible gift of nature." 
B)  of diminishing returns. 
C)  land rent has no incentive function. 
D)  the supply of land is fixed.

Exam 18: Rent, Interest, and Profit

Interest represents a cost to the borrower, but an income to the lender.

Entrepreneurs can generate economic profits by all of the following, except

A decrease in saving that leads to an increase in the interest rate will

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

Suppose a person pays $80 of annual interest on a loan that has a 5 percent annual interest rate. The loan amount is

As viewed by society, economic rent is not a cost but rather a surplus payment.

The aggregate economic rent received by a productive resource will decrease, ceteris paribus, whenever the

The characteristic that makes economic rent distinct from wages, interest, and profit is that it is

Which of the following was not a belief of Henry George and the single-tax movement?

"Pure rate of interest" refers to the interest rate that

The demand for loanable funds is downsloping

A major purpose of usury laws is to make more funds available to low-income borrowers. Economic analysis suggests that usury laws

Profit-maximizing businesses will buy more new machinery only if

Demand is the active and supply the passive determinant of land rent.

Usury laws

The fact that people prefer present consumption to future consumption results in

The marginal revenue product (MRP) of land declines as more land is brought into use. As a result, the

The equilibrium interest rate equates

Economists would not consider which one of the following to be a productive economic resource?

The marginal revenue product (MRP) of land declines as more land is brought into production because

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role 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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