Question 1

Currently, capitalist income, that is, corporate profits, interest, and rent, accounts for about what percentage of the income paid to American resource suppliers?

Accepted Answer

A)  10 percent 
B)  20 percent 
C)  50 percent 
D)  80 percent 
A)  10 percent 
B)  20 percent 
C)  50 percent 
D)  80 percent

Question 2

Which of the following would cause an increase in interest rates in credit markets?

Accepted Answer

A)  a decrease in business demand for credit 
B)  an increase in the supply of consumer saving 
C)  an increase in the supply of business saving 
D)  an increase in consumer demand for credit 
A)  a decrease in business demand for credit 
B)  an increase in the supply of consumer saving 
C)  an increase in the supply of business saving 
D)  an increase in consumer demand for credit

Question 3

Other things equal, the interest rate on a loan will be smaller,

Accepted Answer

A)  the greater the risk involved. 
B)  the smaller the amount of the loan. 
C)  the longer the length of the loan. 
D)  if the loan interest is exempt from taxation. 
A)  the greater the risk involved. 
B)  the smaller the amount of the loan. 
C)  the longer the length of the loan. 
D)  if the loan interest is exempt from taxation.

Question 4

Economic rent is the payment made to a resource that has a perfectly inelastic demand curve.

Accepted Answer

A) True 
 B)False

Question 5

If you pay $10,625 annually on a $125,000 loan and the rate of inflation is 3 percent, then the

Accepted Answer

A)  real rate of interest is 4.5 percent. 
B)  nominal rate of interest is 8.5 percent. 
C)  real rate of interest is 6.5 percent. 
D)  nominal rate of interest is 11.5 percent. 
A)  real rate of interest is 4.5 percent. 
B)  nominal rate of interest is 8.5 percent. 
C)  real rate of interest is 6.5 percent. 
D)  nominal rate of interest is 11.5 percent.

Question 6

Which would usually not be an entrepreneurial function?

Accepted Answer

A)  introducing a new product in a business 
B)  assuming uninsurable risks of owning a business 
C)  combining and directing resources in an uncertain business environment 
D)  managing the accounting department of a Fortune 500 corporation 
A)  introducing a new product in a business 
B)  assuming uninsurable risks of owning a business 
C)  combining and directing resources in an uncertain business environment 
D)  managing the accounting department of a Fortune 500 corporation

Question 7

Usury laws will result in a shortage of loanable funds and nonmarket rationing in credit markets.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following will increase the supply of loanable funds? An increase in the

Accepted Answer

A)  rates of return on potential investments. 
B)  productivity of business firms. 
C)  demand for business products. 
D)  savings of households. 
A)  rates of return on potential investments. 
B)  productivity of business firms. 
C)  demand for business products. 
D)  savings of households.

Question 9

The equilibrium interest rate

Accepted Answer

A)  allocates the available supply of loanable funds to investment projects that have high enough rates of return to justify the borrowing. 
B)  rises when the supply of loanable funds increases. 
C)  is the price paid for the use of any resource. 
D)  affects the size of total output but not the composition of that output. 
A)  allocates the available supply of loanable funds to investment projects that have high enough rates of return to justify the borrowing. 
B)  rises when the supply of loanable funds increases. 
C)  is the price paid for the use of any resource. 
D)  affects the size of total output but not the composition of that output.

Question 10

Economic rent, or pure rent, is

Accepted Answer

A)  a payment made for the use of housing, factory buildings, or capital goods. 
B)  a payment for resources used in the production of "free goods." 
C)  a payment for the use of those resources whose supply is perfectly elastic. 
D)  the price paid for the use of land and other nonreproducible resources. 
A)  a payment made for the use of housing, factory buildings, or capital goods. 
B)  a payment for resources used in the production of "free goods." 
C)  a payment for the use of those resources whose supply is perfectly elastic. 
D)  the price paid for the use of land and other nonreproducible resources.

Question 11

Investment and R&D decisions by firms are based on nominal interest rates, not real interest.

Accepted Answer

A) True 
 B)False

Question 12

Interest is the

Accepted Answer

A)  price paid for the use of money. 
B)  opportunity cost of time. 
C)  expectation of a future return on investment. 
D)  reward for consuming rather than saving. 
A)  price paid for the use of money. 
B)  opportunity cost of time. 
C)  expectation of a future return on investment. 
D)  reward for consuming rather than saving.

Question 13

If an economic expansion in the economy caused an increase in the demand for loanable funds, what would be the effect on the interest rate and the quantity of funds loaned in the credit market?

Accepted Answer

A)  Interest rates would increase and the quantity of funds loaned would decrease. 
B)  Interest rates would decrease and the quantity of funds loaned would increase. 
C)  Interest rates and the quantity of funds loaned would decrease. 
D)  Interest rates and the quantity of funds loaned would increase. 
A)  Interest rates would increase and the quantity of funds loaned would decrease. 
B)  Interest rates would decrease and the quantity of funds loaned would increase. 
C)  Interest rates and the quantity of funds loaned would decrease. 
D)  Interest rates and the quantity of funds loaned would increase.

Question 14

If Congress were to pass a law exempting interest on saving from taxation, the

Accepted Answer

A)  supply of loanable funds would decrease and the equilibrium interest rate would rise. 
B)  supply of loanable funds would increase and the equilibrium interest rate would fall. 
C)  demand for loanable funds would increase and the equilibrium interest rate would rise. 
D)  equilibrium interest rate would be unaffected. 
A)  supply of loanable funds would decrease and the equilibrium interest rate would rise. 
B)  supply of loanable funds would increase and the equilibrium interest rate would fall. 
C)  demand for loanable funds would increase and the equilibrium interest rate would rise. 
D)  equilibrium interest rate would be unaffected.

Question 15

The total supply of land is

Accepted Answer

A)  upsloping. 
B)  perfectly elastic. 
C)  perfectly inelastic. 
D)  greater in the short run than in the long run. 
A)  upsloping. 
B)  perfectly elastic. 
C)  perfectly inelastic. 
D)  greater in the short run than in the long run.

Question 16

Profits account for a smaller share of total U.S. income than interest income.

Accepted Answer

A) True 
 B)False

Question 17

The interest rate is the price paid for the use of money.

Accepted Answer

A) True 
 B)False

Question 18

The "time-value of money" refers to the fact that

Accepted Answer

A)  a given amount of money becomes more valuable over time. 
B)  a given amount of money is more valuable the sooner it is obtained. 
C)  people expect monetary compensation for their labor time. 
D)  a given amount of money today is equivalent to a smaller amount of money in the future. 
A)  a given amount of money becomes more valuable over time. 
B)  a given amount of money is more valuable the sooner it is obtained. 
C)  people expect monetary compensation for their labor time. 
D)  a given amount of money today is equivalent to a smaller amount of money in the future.

Question 19

Economists who have studied the composition of "proprietor's income" have found that this income item is made up of

Accepted Answer

A)  wages and profits, mostly wages. 
B)  interest and profits, mostly profits. 
C)  rent and interest, mostly interest. 
D)  wages and interest, mostly wages. 
A)  wages and profits, mostly wages. 
B)  interest and profits, mostly profits. 
C)  rent and interest, mostly interest. 
D)  wages and interest, mostly wages.

Question 20

Most borrowers value money for

Accepted Answer

A)  its own sake. 
B)  what it can buy. 
C)  what it can produce. 
D)  what they have to pay for it. 
A)  its own sake. 
B)  what it can buy. 
C)  what it can produce. 
D)  what they have to pay for it.

Exam 18: Rent, Interest, and Profit

Currently, capitalist income, that is, corporate profits, interest, and rent, accounts for about what percentage of the income paid to American resource suppliers?

Which of the following would cause an increase in interest rates in credit markets?

Other things equal, the interest rate on a loan will be smaller,

Economic rent is the payment made to a resource that has a perfectly inelastic demand curve.

If you pay $10,625 annually on a $125,000 loan and the rate of inflation is 3 percent, then the

Which would usually not be an entrepreneurial function?

Usury laws will result in a shortage of loanable funds and nonmarket rationing in credit markets.

Which of the following will increase the supply of loanable funds? An increase in the

The equilibrium interest rate

Economic rent, or pure rent, is

Investment and R&D decisions by firms are based on nominal interest rates, not real interest.

Interest is the

If an economic expansion in the economy caused an increase in the demand for loanable funds, what would be the effect on the interest rate and the quantity of funds loaned in the credit market?

If Congress were to pass a law exempting interest on saving from taxation, the

The total supply of land is

Profits account for a smaller share of total U.S. income than interest income.

The interest rate is the price paid for the use of money.

The "time-value of money" refers to the fact that

Economists who have studied the composition of "proprietor's income" have found that this income item is made up of

Most borrowers value money 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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