Question 1

A disadvantage of the corporate form of business organization is

Accepted Answer

A)  double taxation. 
B)  limited access to capital. 
C)  that the corporation can only do business in the state where it was incorporated. 
D)  unlimited liability for shareholders. 
A)  double taxation. 
B)  limited access to capital. 
C)  that the corporation can only do business in the state where it was incorporated. 
D)  unlimited liability for shareholders. A

Question 2

What is the present value of $100 one year from now at an interest rate of 5%?

Accepted Answer

A)  $5 
B)  $95.24 
C)  $100 
D)  $105 
A)  $5 
B)  $95.24 
C)  $100 
D)  $105 B

Question 3

In an inflationary atmosphere that everyone anticipates will persist, lenders will

Accepted Answer

A)  desire a lower nominal interest rate to increase the real rate. 
B)  desire a higher nominal interest rate to protect against the inflation. 
C)  tend to see the real rate of interest increase, particularly if the inflation is unforeseen. 
D)  have the real rate of interest guaranteed by the Federal Reserve Board. 
A)  desire a lower nominal interest rate to increase the real rate. 
B)  desire a higher nominal interest rate to protect against the inflation. 
C)  tend to see the real rate of interest increase, particularly if the inflation is unforeseen. 
D)  have the real rate of interest guaranteed by the Federal Reserve Board. B

Question 4

Let us suppose that if Oprah Winfrey was not a superstar she would have been a judge making $100,000 per year. If she makes $63 million dollars this year, her opportunity cost is

Accepted Answer

A)  $63.0 million. 
B)  $63.1 million. 
C)  $100,000. 
D)  $62.9 million. 
A)  $63.0 million. 
B)  $63.1 million. 
C)  $100,000. 
D)  $62.9 million.

Question 5

Pure economic rent is

Accepted Answer

A)  a payment to a resource owner over and above what is necessary to keep the resource in its current use. 
B)  a payment to a resource owner just sufficient to keep its supply constant. 
C)  the inverse of economic profit. 
D)  the competitive rental rate on capital. 
A)  a payment to a resource owner over and above what is necessary to keep the resource in its current use. 
B)  a payment to a resource owner just sufficient to keep its supply constant. 
C)  the inverse of economic profit. 
D)  the competitive rental rate on capital.

Question 6

Compared to a proprietorship, an advantage of a partnership is

Accepted Answer

A)  that profits are not taxed twice. 
B)  double taxation. 
C)  the ability to take advantage of greater specialization. 
D)  the limited liability of the partners. 
A)  that profits are not taxed twice. 
B)  double taxation. 
C)  the ability to take advantage of greater specialization. 
D)  the limited liability of the partners.

Question 7

Which of the following is the most common form of business organization in the United States?

Accepted Answer

A)  proprietorship 
B)  partnership 
C)  corporation 
D)  S-corporation 
A)  proprietorship 
B)  partnership 
C)  corporation 
D)  S-corporation

Question 8

According to David Ricardo's explanation of land rent, what happens when the demand for land increases?

Accepted Answer

A)  The supply curve shifts to the right just enough to keep the price per acre constant. 
B)  Revenues to owners of land increase but economic rent declines. 
C)  The amount of economic rent stays constant, constrained by a perfectly inelastic supply curve. 
D)  Both revenues to owners of land and economic rent increase. 
A)  The supply curve shifts to the right just enough to keep the price per acre constant. 
B)  Revenues to owners of land increase but economic rent declines. 
C)  The amount of economic rent stays constant, constrained by a perfectly inelastic supply curve. 
D)  Both revenues to owners of land and economic rent increase.

Question 9

The most that someone would pay today to receive a certain sum at some point in the future is known as

Accepted Answer

A)  the interest rate. 
B)  present value. 
C)  future value. 
D)  economic profit. 
A)  the interest rate. 
B)  present value. 
C)  future value. 
D)  economic profit.

Question 10

When the anticipated rate of inflation declines, the real rate of interest

Accepted Answer

A)  increases. 
B)  decreases. 
C)  is not affected. 
D)  increases exponentially. 
A)  increases. 
B)  decreases. 
C)  is not affected. 
D)  increases exponentially.

Question 11

The price of the stock divided by the profits per share of stock is known as the

Accepted Answer

A)  price-earnings ratio. 
B)  dividend. 
C)  yield in percent per year. 
D)  number of shares traded during the day. 
A)  price-earnings ratio. 
B)  dividend. 
C)  yield in percent per year. 
D)  number of shares traded during the day.

Question 12

The interest rate used to bring future sums back to present value is

Accepted Answer

A)  always negative. 
B)  zero when there is no inflation. 
C)  the rate of discount. 
D)  the prime rate. 
A)  always negative. 
B)  zero when there is no inflation. 
C)  the rate of discount. 
D)  the prime rate.

Question 13

Tim has a toenail clipping business that is a sole proprietorship. If he is sued for a botched pedicure

Accepted Answer

A)  he has limited liability. 
B)  he has separation of ownership and control. 
C)  all of his personal assets are at risk. 
D)  he will be taxed doubly. 
A)  he has limited liability. 
B)  he has separation of ownership and control. 
C)  all of his personal assets are at risk. 
D)  he will be taxed doubly.

Question 14

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 15

The part of corporate profits that is paid to the shareholders of a corporation is

Accepted Answer

A)  retained earnings. 
B)  shareholders. 
C)  dividends. 
D)  business revenue. 
A)  retained earnings. 
B)  shareholders. 
C)  dividends. 
D)  business revenue.

Question 16

The double taxation of corporate profit in the United States refers to the fact that

Accepted Answer

A)  tax rates on partnerships are very high. 
B)  depreciation is not a deductible expense. 
C)  corporate profit is first taxed and then any dividends paid are subject to personal income tax. 
D)  proprietorships are not subject to any tax on earnings. 
A)  tax rates on partnerships are very high. 
B)  depreciation is not a deductible expense. 
C)  corporate profit is first taxed and then any dividends paid are subject to personal income tax. 
D)  proprietorships are not subject to any tax on earnings.

Question 17

The PE ratio for a stock is

Accepted Answer

A)  the predicted earnings per share of the stock divided by its current yield. 
B)  the current yield of the stock. 
C)  the price of the stock divided by its earnings per share. 
D)  the predicted volatility of the stock. 
A)  the predicted earnings per share of the stock divided by its current yield. 
B)  the current yield of the stock. 
C)  the price of the stock divided by its earnings per share. 
D)  the predicted volatility of the stock.

Question 18

If your business earns $20,000 in revenues, has explicit costs of $7,000, and implicit costs of $5,000, your accounting profit is

Accepted Answer

A)  $32,000. 
B)  -$8,000. 
C)  $8,000. 
D)  $13,000. 
A)  $32,000. 
B)  -$8,000. 
C)  $8,000. 
D)  $13,000.

Question 19

On a bar graph comparing a firm's economic profit with its accounting profit, it will always be TRUE that

Accepted Answer

A)  explicit costs will be greater in the column representing accounting profit. 
B)  explicit costs will be greater in the column representing economic profit. 
C)  total revenue will be greater in the column depicting accounting profit. 
D)  opportunity costs will be missing from the column depicting accounting profit. 
A)  explicit costs will be greater in the column representing accounting profit. 
B)  explicit costs will be greater in the column representing economic profit. 
C)  total revenue will be greater in the column depicting accounting profit. 
D)  opportunity costs will be missing from the column depicting accounting profit.

Question 20

The nominal rate of interest is

Accepted Answer

A)  the same as the price level. 
B)  the real rate of interest minus the previous year's change in the price level. 
C)  the interest rate actually paid by the borrower. 
D)  lower than the real rate in a period of inflation. 
A)  the same as the price level. 
B)  the real rate of interest minus the previous year's change in the price level. 
C)  the interest rate actually paid by the borrower. 
D)  lower than the real rate in a period of inflation.

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

A disadvantage of the corporate form of business organization is

What is the present value of $100 one year from now at an interest rate of 5%?

In an inflationary atmosphere that everyone anticipates will persist, lenders will

Let us suppose that if Oprah Winfrey was not a superstar she would have been a judge making $100,000 per year. If she makes $63 million dollars this year, her opportunity cost is

Pure economic rent is

Compared to a proprietorship, an advantage of a partnership is

Which of the following is the most common form of business organization in the United States?

According to David Ricardo's explanation of land rent, what happens when the demand for land increases?

The most that someone would pay today to receive a certain sum at some point in the future is known as

When the anticipated rate of inflation declines, the real rate of interest

The price of the stock divided by the profits per share of stock is known as the

The interest rate used to bring future sums back to present value is

Tim has a toenail clipping business that is a sole proprietorship. If he is sued for a botched pedicure

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

The part of corporate profits that is paid to the shareholders of a corporation is

The double taxation of corporate profit in the United States refers to the fact that

The PE ratio for a stock is

If your business earns $20,000 in revenues, has explicit costs of $7,000, and implicit costs of $5,000, your accounting profit is

On a bar graph comparing a firm's economic profit with its accounting profit, it will always be TRUE that

The nominal rate of interest is

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

Filters