Question 1

"Present value" refers to the

Accepted Answer

A)  value today of a specific amount of money to be received in the future. 
B)  current value of money held in a bank account. 
C)  amount to which some current amount of money will grow over time. 
D)  interest rate specified when a loan contract is signed. 
A)  value today of a specific amount of money to be received in the future. 
B)  current value of money held in a bank account. 
C)  amount to which some current amount of money will grow over time. 
D)  interest rate specified when a loan contract is signed.

Question 2

The supply of loanable funds is perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 3

Which factor will increase the demand for loanable funds?

Accepted Answer

A)  a change in the tax law to exempt savings from taxation 
B)  expansion of social insurance to cover more fully the cost of retirement 
C)  a general business recession that produces high rates of unemployment 
D)  a technological advance that increases returns on investments 
A)  a change in the tax law to exempt savings from taxation 
B)  expansion of social insurance to cover more fully the cost of retirement 
C)  a general business recession that produces high rates of unemployment 
D)  a technological advance that increases returns on investments

Question 4

"Proprietor's income" refers to income received by

Accepted Answer

A)  corporate executives. 
B)  owners of small, unincorporated enterprises. 
C)  workers hired by small businesses. 
D)  interns in businesses. 
A)  corporate executives. 
B)  owners of small, unincorporated enterprises. 
C)  workers hired by small businesses. 
D)  interns in businesses.

Question 5

On January 1, 2016, Alex deposited $5,000 into a savings account that pays interest of 5 percent, compounded annually. If he makes no further deposits or withdrawals, how much will Alex have in his account on December 31, 2018 (3 years later)?

Accepted Answer

A)  $5,750. 
B)  $5,788. 
C)  $5,813. 
D)  $5,825. 
A)  $5,750. 
B)  $5,788. 
C)  $5,813. 
D)  $5,825.

Question 6

Which factor will decrease the demand for loanable funds?

Accepted Answer

A)  a change in the tax law to exempt savings from taxation 
B)  expansion of social insurance to cover more fully the cost of retirement 
C)  a general business recession that produces high rates of unemployment 
D)  a technological advance that increases returns on investments 
A)  a change in the tax law to exempt savings from taxation 
B)  expansion of social insurance to cover more fully the cost of retirement 
C)  a general business recession that produces high rates of unemployment 
D)  a technological advance that increases returns on investments

Question 7

Changes in the equilibrium interest rate will

Accepted Answer

A)  affect both the size of the domestic output and the allocation of capital goods among industries. 
B)  affect the size of the domestic output but not the allocation of capital goods among industries. 
C)  affect the allocation of capital goods among industries but not the size of the domestic output. 
D)  have no perceptible effect on either the size of the domestic output or the allocation of capital goods among industries. 
A)  affect both the size of the domestic output and the allocation of capital goods among industries. 
B)  affect the size of the domestic output but not the allocation of capital goods among industries. 
C)  affect the allocation of capital goods among industries but not the size of the domestic output. 
D)  have no perceptible effect on either the size of the domestic output or the allocation of capital goods among industries.

Question 8

(Last Word) Suppose you borrow $500 and agree to pay this $500 plus $75 of interest at the end of a year. The interest rate is

Accepted Answer

A)  10 percent. 
B)  15 percent. 
C)  12.5 percent. 
D)  7.5 percent. 
A)  10 percent. 
B)  15 percent. 
C)  12.5 percent. 
D)  7.5 percent.

Question 9

If the desired real rate of interest is 5 percent and the expected rate of inflation is 15 percent, what is the nominal rate of interest?

Accepted Answer

A)  5 percent 
B)  10 percent 
C)  15 percent 
D)  20 percent 
A)  5 percent 
B)  10 percent 
C)  15 percent 
D)  20 percent

Question 10

The share of total income for "capitalists" in America (in the form of rent, interest, and profits) has been about

Accepted Answer

A)  20 percent. 
B)  40 percent. 
C)  50 percent. 
D)  75 percent. 
A)  20 percent. 
B)  40 percent. 
C)  50 percent. 
D)  75 percent.

Question 11

Henry George's single-tax movement was based on the argument that

Accepted Answer

A)  the tax structure should consist solely of a highly progressive tax on nonwage incomes. 
B)  interest is unearned income and should be taxed away by government. 
C)  in less-developed countries the supply of and demand for land will be such that land will be a free good and therefore capable of bearing sizable taxes. 
D)  a high tax on land rent is justified because land rent performs no incentive function. 
A)  the tax structure should consist solely of a highly progressive tax on nonwage incomes. 
B)  interest is unearned income and should be taxed away by government. 
C)  in less-developed countries the supply of and demand for land will be such that land will be a free good and therefore capable of bearing sizable taxes. 
D)  a high tax on land rent is justified because land rent performs no incentive function.

Question 12

If the expected rates of return on investments increased, the loanable funds theory predicts that the equilibrium interest rate would decrease.

Accepted Answer

A) True 
 B)False

Question 13

Other things equal, an increase in the equilibrium interest rate will

Accepted Answer

A)  increase R&D spending. 
B)  rise when the supply of loanable funds increases. 
C)  decrease purchases of capital goods and reduce R&D spending. 
D)  increase bank lending. 
A)  increase R&D spending. 
B)  rise when the supply of loanable funds increases. 
C)  decrease purchases of capital goods and reduce R&D spending. 
D)  increase bank lending.

Question 14

Which of the following is incorrect?

Accepted Answer

A)  The nominal interest rate is the rate of interest expressed in terms of current dollars. 
B)  The real interest rate is the rate of interest expressed in terms of dollars of constant, or inflation-adjusted, value. 
C)  The nominal interest rate is the real interest rate less the rate of inflation. 
D)  During periods of inflation, the nominal interest rate will exceed the real interest rate. 
A)  The nominal interest rate is the rate of interest expressed in terms of current dollars. 
B)  The real interest rate is the rate of interest expressed in terms of dollars of constant, or inflation-adjusted, value. 
C)  The nominal interest rate is the real interest rate less the rate of inflation. 
D)  During periods of inflation, the nominal interest rate will exceed the real interest rate.

Question 15

Suppose a firm is considering the purchase of a machine which would increase its total revenues by $10,000 for the year. The machine costs $8,000 and has a useful life of one year. The interest rate is 20 percent. This investment should

Accepted Answer

A)  be undertaken because the rate of return is 2 percent greater than the interest rate. 
B)  be undertaken because the rate of return is 5 percent greater than the interest rate. 
C)  be undertaken because the rate of return is 7 percent greater than the interest rate. 
D)  not be undertaken, because the rate of return is 7 percent less than the interest rate. 
A)  be undertaken because the rate of return is 2 percent greater than the interest rate. 
B)  be undertaken because the rate of return is 5 percent greater than the interest rate. 
C)  be undertaken because the rate of return is 7 percent greater than the interest rate. 
D)  not be undertaken, because the rate of return is 7 percent less than the interest rate.

Question 16

If the nominal rate of interest is 8 percent and the real rate of interest is 3 percent, the inflation rate must be 11 percent.

Accepted Answer

A) True 
 B)False

Question 17

Unlike most demand curves, the demand curve for loanable funds is upsloping.

Accepted Answer

A) True 
 B)False

Question 18

For all practical purposes, the supply of land is

Accepted Answer

A)  almost perfectly inelastic. 
B)  negatively sloped. 
C)  relatively elastic. 
D)  perfectly elastic. 
A)  almost perfectly inelastic. 
B)  negatively sloped. 
C)  relatively elastic. 
D)  perfectly elastic.

Question 19

Entrepreneurs mostly focus on a single number: profits. As a result, which of the following statements tends to be true about their firms?

Accepted Answer

A)  The firms tend to do well in some aspects of their operations, but other aspects are neglected. 
B)  The firms cannot achieve a very high overall efficiency. 
C)  The firms pay close attention to every aspect of their operations. 
D)  The firms' suppliers and customers are often left behind. 
A)  The firms tend to do well in some aspects of their operations, but other aspects are neglected. 
B)  The firms cannot achieve a very high overall efficiency. 
C)  The firms pay close attention to every aspect of their operations. 
D)  The firms' suppliers and customers are often left behind.

Question 20

Other things equal, short-term loans usually have lower rates of interest than do long-term loans.

Accepted Answer

A) True 
 B)False

Exam 18: Rent, Interest, and Profit

"Present value" refers to the

The supply of loanable funds is perfectly elastic.

Which factor will increase the demand for loanable funds?

"Proprietor's income" refers to income received by

On January 1, 2016, Alex deposited $5,000 into a savings account that pays interest of 5 percent, compounded annually. If he makes no further deposits or withdrawals, how much will Alex have in his account on December 31, 2018 (3 years later)?

Which factor will decrease the demand for loanable funds?

Changes in the equilibrium interest rate will

(Last Word) Suppose you borrow $500 and agree to pay this $500 plus $75 of interest at the end of a year. The interest rate is

If the desired real rate of interest is 5 percent and the expected rate of inflation is 15 percent, what is the nominal rate of interest?

The share of total income for "capitalists" in America (in the form of rent, interest, and profits) has been about

Henry George's single-tax movement was based on the argument that

If the expected rates of return on investments increased, the loanable funds theory predicts that the equilibrium interest rate would decrease.

Other things equal, an increase in the equilibrium interest rate will

Which of the following is incorrect?

Suppose a firm is considering the purchase of a machine which would increase its total revenues by $10,000 for the year. The machine costs $8,000 and has a useful life of one year. The interest rate is 20 percent. This investment should

If the nominal rate of interest is 8 percent and the real rate of interest is 3 percent, the inflation rate must be 11 percent.

Unlike most demand curves, the demand curve for loanable funds is upsloping.

For all practical purposes, the supply of land is

Entrepreneurs mostly focus on a single number: profits. As a result, which of the following statements tends to be true about their firms?

Other things equal, short-term loans usually have lower rates of interest than do long-term loans.

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

Filters