Question 1

One role of the interest rate is to

Accepted Answer

A)  allocate capital to its most efficient uses. 
B)  redistribute income from the wealthy to the poor. 
C)  reduce the rate of inflation by encouraging government borrowing. 
D)  discourage saving and encourage current consumption. 
A)  allocate capital to its most efficient uses. 
B)  redistribute income from the wealthy to the poor. 
C)  reduce the rate of inflation by encouraging government borrowing. 
D)  discourage saving and encourage current consumption.

Question 2

Accounting profits are

Accepted Answer

A)  total revenue minus explicit costs. 
B)  total revenue minus implicit costs. 
C)  total revenue minus explicit and implicit costs. 
D)  total revenue minus normal costs. 
A)  total revenue minus explicit costs. 
B)  total revenue minus implicit costs. 
C)  total revenue minus explicit and implicit costs. 
D)  total revenue minus normal costs.

Question 3

Which of the following options is NOT a characteristic of a proprietorship?

Accepted Answer

A)  single ownership 
B)  unlimited liability 
C)  double taxation 
D)  easy to form and dissolve 
A)  single ownership 
B)  unlimited liability 
C)  double taxation 
D)  easy to form and dissolve

Question 4

What is the main purpose of an interest payment? What major factors affect interest rates?

Accepted Answer

Interest is the price paid by debtors to

Question 5

If Lady Gaga insists that tickets to her concert be sold for $100 each rather than the $500 each that could be charged as reflected by demand for those tickets, then the result will be

Accepted Answer

A)  to create an excess supply of tickets. 
B)  to eliminate $150 worth of economic rent per ticket. 
C)  that part of the economic rent will be dissipated by scalpers, radio station owners, etc. 
D)  that the demand for tickets will decrease. 
A)  to create an excess supply of tickets. 
B)  to eliminate $150 worth of economic rent per ticket. 
C)  that part of the economic rent will be dissipated by scalpers, radio station owners, etc. 
D)  that the demand for tickets will decrease.

Question 6

In economic terms, interest is the payment for

Accepted Answer

A)  current command over resources. 
B)  producers' goods. 
C)  stocks. 
D)  both consumer and capital goods. 
A)  current command over resources. 
B)  producers' goods. 
C)  stocks. 
D)  both consumer and capital goods.

Question 7

An advantage of a corporation is

Accepted Answer

A)  the ability to raise large sums of financial capital. 
B)  unlimited liability on the part of shareholders. 
C)  the fact that ownership and control are never separated. 
D)  the fact that the corporation is dissolved when one of its owners dies. 
A)  the ability to raise large sums of financial capital. 
B)  unlimited liability on the part of shareholders. 
C)  the fact that ownership and control are never separated. 
D)  the fact that the corporation is dissolved when one of its owners dies.

Question 8

The greatest advantage of a corporation is

Accepted Answer

A)  ease of setting up the business. 
B)  the double taxation of dividends. 
C)  separation of ownership and control of the business. 
D)  limited liability. 
A)  ease of setting up the business. 
B)  the double taxation of dividends. 
C)  separation of ownership and control of the business. 
D)  limited liability.

Question 9

When the Dutch East India Company was founded in 1602, it raised financial capital by issuing notes of indebtedness called

Accepted Answer

A)  stocks. 
B)  bonds. 
C)  funds. 
D)  notes. 
A)  stocks. 
B)  bonds. 
C)  funds. 
D)  notes.

Question 10

Suppose a family-owned donut shop has $80,000 in total revenues, $36,000 in rent, and $20,000 in additional operating costs. The husband and wife work in the shop and pay no wages to themselves or others. The economic profits from the donut shop are

Accepted Answer

A)  $24,000. 
B)  less than $24,000. 
C)  more than $24,000. 
D)  $80,000. 
A)  $24,000. 
B)  less than $24,000. 
C)  more than $24,000. 
D)  $80,000.

Question 11

Last year, the nominal interest rate was less than the anticipated rate of inflation.

Accepted Answer

A)  This means that not enough loans were made by banks. 
B)  This means that the real interest rate was negative. 
C)  This means that the real interest rate was very high. 
D)  This scenario is not possible. 
A)  This means that not enough loans were made by banks. 
B)  This means that the real interest rate was negative. 
C)  This means that the real interest rate was very high. 
D)  This scenario is not possible.

Question 12

An advantage of proprietorships is

Accepted Answer

A)  the ease with which they can be formed and dissolved. 
B)  their ability to raise large amounts of equity capital. 
C)  the fact that their profits are not taxed. 
D)  the breadth of management expertise that comes from having a board of directors. 
A)  the ease with which they can be formed and dissolved. 
B)  their ability to raise large amounts of equity capital. 
C)  the fact that their profits are not taxed. 
D)  the breadth of management expertise that comes from having a board of directors.

Question 13

The theory that there are no predictable trends in securities prices that can be used to "get rich quick" is the

Accepted Answer

A)  dartboard theory. 
B)  random walk theory. 
C)  Wall Street theory. 
D)  inefficient market hypothesis. 
A)  dartboard theory. 
B)  random walk theory. 
C)  Wall Street theory. 
D)  inefficient market hypothesis.

Question 14

Which of the following is NOT a legal organization of a firm?

Accepted Answer

A)  corporation 
B)  partnership 
C)  entrepreneurship 
D)  proprietorship 
A)  corporation 
B)  partnership 
C)  entrepreneurship 
D)  proprietorship

Question 15

-Refer to the above figure. Suppose demand is D2 and then increases to D3. The change in economic rent is

Accepted Answer

A)  zero. 
B)  area CIHF. 
C)  area CIGO. 
D)  area BJC. 
A)  zero. 
B)  area CIHF. 
C)  area CIGO. 
D)  area BJC.

Question 16

The most prestigious stock market in the world is the

Accepted Answer

A)  New York Stock Exchange. 
B)  Chicago Mercantile Exchange. 
C)  London Stock Exchange. 
D)  Tokyo Stock Exchange. 
A)  New York Stock Exchange. 
B)  Chicago Mercantile Exchange. 
C)  London Stock Exchange. 
D)  Tokyo Stock Exchange.

Question 17

Which of the following is considered an advantage of a sole proprietorship?

Accepted Answer

A)  easy to raise large sums of capital 
B)  limited liability for owner 
C)  profit taxed only once 
D)  permits effective specialization 
A)  easy to raise large sums of capital 
B)  limited liability for owner 
C)  profit taxed only once 
D)  permits effective specialization

Question 18

A legal claim to a percentage of a company's future profits and assets is known as a

Accepted Answer

A)  share of stock. 
B)  bond. 
C)  dividend. 
D)  random walk. 
A)  share of stock. 
B)  bond. 
C)  dividend. 
D)  random walk.

Question 19

In the market for land, if the supply of land is perfectly inelastic, an increase in the demand for land will result in a(n)

Accepted Answer

A)  increase in the real interest rate. 
B)  increase in economic rent. 
C)  decrease in the equilibrium price. 
D)  increase in the quantity supplied of land. 
A)  increase in the real interest rate. 
B)  increase in economic rent. 
C)  decrease in the equilibrium price. 
D)  increase in the quantity supplied of land.

Question 20

You have received your advanced degree in biochemistry with a specialty in recombinant DNA technology. Your colleagues wish to form a partnership to research adenovirus vectors. Your legal counsel advises you on the following aspects of a partnership, yet you tell her, based on your knowledge of economics, that you think one of the following points is INCORRECT.

Accepted Answer

A)  An advantage of the partnership would be that it is relatively easy to form, almost as easy as forming a proprietorship. 
B)  The income of the partnership is treated as personal income and is subject only to personal taxation rates. 
C)  The personal assets of each partner should be safe and would not necessarily be at risk due to claims by financial institutions. 
D)  Partnerships often help reduce the costs of monitoring job performance in situations in which it is difficult to measure objectively. 
A)  An advantage of the partnership would be that it is relatively easy to form, almost as easy as forming a proprietorship. 
B)  The income of the partnership is treated as personal income and is subject only to personal taxation rates. 
C)  The personal assets of each partner should be safe and would not necessarily be at risk due to claims by financial institutions. 
D)  Partnerships often help reduce the costs of monitoring job performance in situations in which it is difficult to measure objectively.

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

One role of the interest rate is to

Accounting profits are

Which of the following options is NOT a characteristic of a proprietorship?

What is the main purpose of an interest payment? What major factors affect interest rates?

If Lady Gaga insists that tickets to her concert be sold for $100 each rather than the $500 each that could be charged as reflected by demand for those tickets, then the result will be

In economic terms, interest is the payment for

An advantage of a corporation is

The greatest advantage of a corporation is

When the Dutch East India Company was founded in 1602, it raised financial capital by issuing notes of indebtedness called

Suppose a family-owned donut shop has $80,000 in total revenues, $36,000 in rent, and $20,000 in additional operating costs. The husband and wife work in the shop and pay no wages to themselves or others. The economic profits from the donut shop are

Last year, the nominal interest rate was less than the anticipated rate of inflation.

An advantage of proprietorships is

The theory that there are no predictable trends in securities prices that can be used to "get rich quick" is the

Which of the following is NOT a legal organization of a firm?

-Refer to the above figure. Suppose demand is D2 and then increases to D3. The change in economic rent is

The most prestigious stock market in the world is the

Which of the following is considered an advantage of a sole proprietorship?

A legal claim to a percentage of a company's future profits and assets is known as a

In the market for land, if the supply of land is perfectly inelastic, an increase in the demand for land will result in a(n)

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

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