Question 1

A lower equilibrium interest rate

Accepted Answer

A)  increases saving, reduces total spending, and increases total output. 
B)  decreases saving, increases total spending, and decreases total output. 
C)  increases investment, increases total spending, and increases total output. 
D)  decreases investment, decreases total spending, and increases total output. 
A)  increases saving, reduces total spending, and increases total output. 
B)  decreases saving, increases total spending, and decreases total output. 
C)  increases investment, increases total spending, and increases total output. 
D)  decreases investment, decreases total spending, and increases total output.

Question 2

One effect of a usury law is that it will

Accepted Answer

A)  benefit lenders. 
B)  penalize borrowers. 
C)  increase the efficiency of investment. 
D)  subsidize borrowers with high incomes. 
A)  benefit lenders. 
B)  penalize borrowers. 
C)  increase the efficiency of investment. 
D)  subsidize borrowers with high incomes.

Question 3

The supply curve for loanable funds is upward-sloping because

Accepted Answer

A)  lenders are more willing to lend at lower, rather than higher, interest rates. 
B)  lenders are more willing to lend at higher, rather than lower, interest rates. 
C)  borrowers are more willing to borrow at lower, rather than higher, interest rates. 
D)  borrowers are more willing to borrow at higher, rather than lower, interest rates. 
A)  lenders are more willing to lend at lower, rather than higher, interest rates. 
B)  lenders are more willing to lend at higher, rather than lower, interest rates. 
C)  borrowers are more willing to borrow at lower, rather than higher, interest rates. 
D)  borrowers are more willing to borrow at higher, rather than lower, interest rates.

Question 4

If people became thriftier and saved more, the loanable funds theory predicts that the equilibrium interest rate would decrease.

Accepted Answer

A) True 
 B)False

Question 5

Government monetary authorities manipulate the supply of money in the economy primarily to

Accepted Answer

A)  ensure high profits for commercial banks. 
B)  provide sufficient currency to individuals and businesses to conduct their daily business. 
C)  keep the dollar strong measured against the currencies of foreign nations. 
D)  influence the interest rate and the levels of investment, output, and prices in the economy. 
A)  ensure high profits for commercial banks. 
B)  provide sufficient currency to individuals and businesses to conduct their daily business. 
C)  keep the dollar strong measured against the currencies of foreign nations. 
D)  influence the interest rate and the levels of investment, output, and prices in the economy.

Question 6

The incentive function of prices

Accepted Answer

A)  indicates that price increases bring forth more of that resource. 
B)  is the idea that competitive markets will always clear. 
C)  applies to all resources. 
D)  only applies to land. 
A)  indicates that price increases bring forth more of that resource. 
B)  is the idea that competitive markets will always clear. 
C)  applies to all resources. 
D)  only applies to land.

Question 7

Henry George advocated a single tax on

Accepted Answer

A)  real capital. 
B)  entrepreneurial profits. 
C)  land. 
D)  labor income. 
A)  real capital. 
B)  entrepreneurial profits. 
C)  land. 
D)  labor income.

Question 8

Suppose many businesses want to increase their stock of capital goods and decide to borrow funds to do it. Which would be the likely result of this event?

Accepted Answer

A)  Interest rates would increase. 
B)  Interest rates would decrease. 
C)  The equilibrium quantity of loanable funds would decrease. 
D)  The equilibrium quantity of loanable funds would remain unchanged. 
A)  Interest rates would increase. 
B)  Interest rates would decrease. 
C)  The equilibrium quantity of loanable funds would decrease. 
D)  The equilibrium quantity of loanable funds would remain unchanged.

Question 9

If the interest rate is 5 percent, what is the future value of $5,000 three years from now?

Accepted Answer

A)  $4,310 
B)  $5,500 
C)  $5,010 
D)  $5,788 
A)  $4,310 
B)  $5,500 
C)  $5,010 
D)  $5,788

Question 10

Economic profit affects

Accepted Answer

A)  the allocation of resources but not the level of resource use. 
B)  the level of resource use but not the allocation of resources. 
C)  the allocation of resources and the level of resource use. 
D)  neither the allocation of resources nor the level of resource use. 
A)  the allocation of resources but not the level of resource use. 
B)  the level of resource use but not the allocation of resources. 
C)  the allocation of resources and the level of resource use. 
D)  neither the allocation of resources nor the level of resource use.

Question 11

Which of the following generalizations is false? Other things equal,

Accepted Answer

A)  interest rates are higher if lenders are imperfectly, rather than purely, competitive. 
B)  the interest rate is less on small loans than on larger loans. 
C)  long-term loans normally command higher interest rates than short-term loans. 
D)  the greater the risk on a loan, the greater the interest rate. 
A)  interest rates are higher if lenders are imperfectly, rather than purely, competitive. 
B)  the interest rate is less on small loans than on larger loans. 
C)  long-term loans normally command higher interest rates than short-term loans. 
D)  the greater the risk on a loan, the greater the interest rate.

Question 12

The future value of $3,000 deposited today at 5 percent interest is $3,646.52 four years from now.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements about interest rates is false?

Accepted Answer

A)  Interest rates typically reflect the risk involved in extending a loan. 
B)  Interest rates are affected by households' spending decisions. 
C)  The equilibrium interest rate is determined by the intersection of the supply and demand schedules for loanable funds. 
D)  The supply of loanable funds is independent of the rate of interest. 
A)  Interest rates typically reflect the risk involved in extending a loan. 
B)  Interest rates are affected by households' spending decisions. 
C)  The equilibrium interest rate is determined by the intersection of the supply and demand schedules for loanable funds. 
D)  The supply of loanable funds is independent of the rate of interest.

Question 14

Which expression is used to calculate the present value of an amount of money?

Accepted Answer

A)   Future Value × (1 + interest rate)time 
B)   Future Value/(1 + interest rate)time 
C)  Future Value × (1 + time)interest rate 
D)  (1 + interest rate)time/Future Value 
A)   Future Value × (1 + interest rate)time 
B)   Future Value/(1 + interest rate)time 
C)  Future Value × (1 + time)interest rate 
D)  (1 + interest rate)time/Future Value

Question 15

Economic profits

Accepted Answer

A)  are identical to accounting profits. 
B)  must be earned by every firm that continues to produce in the long run. 
C)  serve no useful economic purpose and should never occur in a competitive economy. 
D)  serve in the short run as an incentive to guide production decisions, but indicate the existence of barriers to entry in the long run. 
A)  are identical to accounting profits. 
B)  must be earned by every firm that continues to produce in the long run. 
C)  serve no useful economic purpose and should never occur in a competitive economy. 
D)  serve in the short run as an incentive to guide production decisions, but indicate the existence of barriers to entry in the long run.

Question 16

The payment earned for taking uninsurable risks in owning and running a business is called profit.

Accepted Answer

A) True 
 B)False

Question 17

(Last Word) Suppose you borrow $500 for a year and the lender discounts $75 of interest at the time the loan is made (giving the borrower only $425). The interest rate on this loan is about

Accepted Answer

A)  12.5 percent. 
B)  14.5 percent. 
C)  17.6 percent. 
D)  10 percent. 
A)  12.5 percent. 
B)  14.5 percent. 
C)  17.6 percent. 
D)  10 percent.

Question 18

Suppose that interest payments are $140 per year on a $1,000 loan and $1,188 per year on an $8,485 loan. The interest rates on the two loans are

Accepted Answer

A)  14 percent and 20 percent, respectively. 
B)  14 percent on both loans. 
C)  18.8 percent on both loans. 
D)  1.4 percent and 11.8 percent, respectively. 
A)  14 percent and 20 percent, respectively. 
B)  14 percent on both loans. 
C)  18.8 percent on both loans. 
D)  1.4 percent and 11.8 percent, respectively.

Question 19

(Consider This) The story about economist Irving Fisher's conversation with his masseuse illustrates that

Accepted Answer

A)  other things equal, interest rates are higher on smaller loans than on larger loans. 
B)  interest is a payment required for someone to give up the present use of their money. 
C)  other things equal, longer-term loans have lower interest rates than shorter-term loans. 
D)  real interest rates differ from nominal interest rates. 
A)  other things equal, interest rates are higher on smaller loans than on larger loans. 
B)  interest is a payment required for someone to give up the present use of their money. 
C)  other things equal, longer-term loans have lower interest rates than shorter-term loans. 
D)  real interest rates differ from nominal interest rates.

Question 20

In Progress and Poverty (1879), Henry George argued for

Accepted Answer

A)  a progressive income tax. 
B)  a heavy tax on land-rent income. 
C)  a flat tax. 
D)  a subsidy for land. 
A)  a progressive income tax. 
B)  a heavy tax on land-rent income. 
C)  a flat tax. 
D)  a subsidy for land.

Exam 18: Rent, Interest, and Profit

A lower equilibrium interest rate

One effect of a usury law is that it will

The supply curve for loanable funds is upward-sloping because

If people became thriftier and saved more, the loanable funds theory predicts that the equilibrium interest rate would decrease.

Government monetary authorities manipulate the supply of money in the economy primarily to

The incentive function of prices

Henry George advocated a single tax on

Suppose many businesses want to increase their stock of capital goods and decide to borrow funds to do it. Which would be the likely result of this event?

If the interest rate is 5 percent, what is the future value of $5,000 three years from now?

Economic profit affects

Which of the following generalizations is false? Other things equal,

The future value of $3,000 deposited today at 5 percent interest is $3,646.52 four years from now.

Which of the following statements about interest rates is false?

Which expression is used to calculate the present value of an amount of money?

Economic profits

The payment earned for taking uninsurable risks in owning and running a business is called profit.

(Last Word) Suppose you borrow $500 for a year and the lender discounts $75 of interest at the time the loan is made (giving the borrower only $425). The interest rate on this loan is about

Suppose that interest payments are $140 per year on a $1,000 loan and $1,188 per year on an $8,485 loan. The interest rates on the two loans are

(Consider This) The story about economist Irving Fisher's conversation with his masseuse illustrates that

In Progress and Poverty (1879), Henry George argued for

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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