Question 1

How is inflation related to interest rates?

Accepted Answer

People base their decisions on borrowing

Question 2

A disadvantage of the proprietorship form of business organization is

Accepted Answer

A)  its limited access to capital. 
B)  its limited liability. 
C)  that it can issue only one class of stock. 
D)  that the owner must fight a lot of red tape to form the firm. 
A)  its limited access to capital. 
B)  its limited liability. 
C)  that it can issue only one class of stock. 
D)  that the owner must fight a lot of red tape to form the firm.

Question 3

An organization that brings together the factors of production is called

Accepted Answer

A)  an industry. 
B)  a conglomerate. 
C)  a plant. 
D)  a firm. 
A)  an industry. 
B)  a conglomerate. 
C)  a plant. 
D)  a firm.

Question 4

A dedicated professor loves being in the classroom and would teach for $70,000 per year, but he is actually paid $80,000 per year. This individual

Accepted Answer

A)  receives economic rent of $150,000. 
B)  has an opportunity cost of $80,000. 
C)  has an opportunity cost of $70,000. 
D)  receives economic rent of $10,000. 
A)  receives economic rent of $150,000. 
B)  has an opportunity cost of $80,000. 
C)  has an opportunity cost of $70,000. 
D)  receives economic rent of $10,000.

Question 5

The most important source of financial capital for firms today is

Accepted Answer

A)  sale of bonds. 
B)  sale of new issues of stock. 
C)  trade of previously issued stock. 
D)  reinvestment of profits. 
A)  sale of bonds. 
B)  sale of new issues of stock. 
C)  trade of previously issued stock. 
D)  reinvestment of profits.

Question 6

Economic profits are

Accepted Answer

A)  the same as accounting profits when firms do not own capital equipment. 
B)  always greater than accounting profits. 
C)  equal to accounting profits plus the implicit costs of the firm. 
D)  whatever remains after all opportunity costs have been taken into account. 
A)  the same as accounting profits when firms do not own capital equipment. 
B)  always greater than accounting profits. 
C)  equal to accounting profits plus the implicit costs of the firm. 
D)  whatever remains after all opportunity costs have been taken into account.

Question 7

Suppose that you borrow $10,000 for one year, and at the end of the year, you must repay $10,350. The interest rate is

Accepted Answer

A)  10.35 percent. 
B)  6.5 percent. 
C)  3.5 percent. 
D)  2.7 percent. 
A)  10.35 percent. 
B)  6.5 percent. 
C)  3.5 percent. 
D)  2.7 percent.

Question 8

Suppose the auto industry has several investment projects with an expected rate of return of 15 percent, the aluminum industry has projects with an expected return of over 20 percent, the publishing industry projects with an expected return of 10 percent, the steel industry has projects with an expected return of 7 percent and the rubber industry projects with an expected return of 5 percent. The current market rate of interest is 7 percent. A reduction in the supply of funds causes interest rates to rise to 11 percent. The effect is to

Accepted Answer

A)  cause the firms in the steel and publishing industries to cancel their projects, which would have been funded at the old interest rate. 
B)  cause the firms in the steel and the rubber industries to go ahead with their projects. 
C)  force the firms in the automobile industry and the publishing industry to rely on funding their projects through other means. 
D)  make the projects of the aluminum industry and the steel industry unprofitable; the firms in these industries will not borrow the funds or make the investments. 
A)  cause the firms in the steel and publishing industries to cancel their projects, which would have been funded at the old interest rate. 
B)  cause the firms in the steel and the rubber industries to go ahead with their projects. 
C)  force the firms in the automobile industry and the publishing industry to rely on funding their projects through other means. 
D)  make the projects of the aluminum industry and the steel industry unprofitable; the firms in these industries will not borrow the funds or make the investments.

Question 9

The real rate of interest is

Accepted Answer

A)  the nominal interest rate minus the anticipated rate of inflation. 
B)  the interest rate actually paid explicitly by the borrower. 
C)  the interest rate received by the lender minus the handling charges of the loan. 
D)  the average rate of interest over the last 20 years. 
A)  the nominal interest rate minus the anticipated rate of inflation. 
B)  the interest rate actually paid explicitly by the borrower. 
C)  the interest rate received by the lender minus the handling charges of the loan. 
D)  the average rate of interest over the last 20 years.

Question 10

In a partnership, debts accumulated by one partner are

Accepted Answer

A)  the responsibility of that partner only. 
B)  the responsibility of that partner plus any partners who are actively involved in running the partnership. 
C)  the responsibility of all of the other partners for the full amount of the debt. 
D)  the responsibility of all of the other partners, up to the total value of the firm. 
A)  the responsibility of that partner only. 
B)  the responsibility of that partner plus any partners who are actively involved in running the partnership. 
C)  the responsibility of all of the other partners for the full amount of the debt. 
D)  the responsibility of all of the other partners, up to the total value of the firm.

Question 11

What would happen if a corporation goes out of business?

Accepted Answer

The assets of the corporation would be s

Question 12

Corporations account for

Accepted Answer

A)  the largest proportion of business revenues generated in the United States. 
B)  the largest amount of taxes paid to the U.S. government. 
C)  the largest number of firms in the United States. 
D)  the smallest amount of revenues in the United States. 
A)  the largest proportion of business revenues generated in the United States. 
B)  the largest amount of taxes paid to the U.S. government. 
C)  the largest number of firms in the United States. 
D)  the smallest amount of revenues in the United States.

Question 13

Mary and Jane are partners in a business. Their business is growing but has not yet reached the point where they can afford a new delivery truck. Jane owns an old truck that she has not been using. She decides to donate it to their business for free.

Accepted Answer

A)  This transaction (donation) involves no economic cost. 
B)  This transaction involves both economic cost and accounting cost. 
C)  This transaction involves economic cost but no accounting cost. 
D)  This transaction involves no economic cost and no accounting cost. 
A)  This transaction (donation) involves no economic cost. 
B)  This transaction involves both economic cost and accounting cost. 
C)  This transaction involves economic cost but no accounting cost. 
D)  This transaction involves no economic cost and no accounting cost.

Question 14

Stocks are

Accepted Answer

A)  promises to repay loans. 
B)  a liability of a proprietorship. 
C)  a liability of a corporation. 
D)  shares of ownership in a corporation. 
A)  promises to repay loans. 
B)  a liability of a proprietorship. 
C)  a liability of a corporation. 
D)  shares of ownership in a corporation.

Question 15

Which legal claim has a fixed annual coupon payment?

Accepted Answer

A)  common stock 
B)  preferred stock 
C)  bond 
D)  reinvestment 
A)  common stock 
B)  preferred stock 
C)  bond 
D)  reinvestment

Question 16

If the supply curve for land was a vertical line, then any payment made for land would be considered

Accepted Answer

A)  as economic rent. 
B)  as economic lease. 
C)  as economic interest. 
D)  as an opportunity lease payment. 
A)  as economic rent. 
B)  as economic lease. 
C)  as economic interest. 
D)  as an opportunity lease payment.

Question 17

The real rate of interest is 4% and the anticipated rate of inflation is 1%. What is the nominal rate of interest?

Accepted Answer

A)  1% 
B)  3% 
C)  4% 
D)  5% 
A)  1% 
B)  3% 
C)  4% 
D)  5%

Question 18

If you want to vote for the management of the corporation, you should buy

Accepted Answer

A)  common stock. 
B)  preferred stock. 
C)  bonds. 
D)  either common stock or preferred stock. 
A)  common stock. 
B)  preferred stock. 
C)  bonds. 
D)  either common stock or preferred stock.

Question 19

A disadvantage of the partnership form of business organization is

Accepted Answer

A)  its limited access to capital. 
B)  its limited liability. 
C)  that it can issue only one class of stock. 
D)  that the owners must fight a lot of red tape to form the firm. 
A)  its limited access to capital. 
B)  its limited liability. 
C)  that it can issue only one class of stock. 
D)  that the owners must fight a lot of red tape to form the firm.

Question 20

A proprietorship is

Accepted Answer

A)  a business with annual sales of less than $50,000 a year. 
B)  a business owned by one individual that employs 10 or fewer workers, and has been in business less than 15 years. 
C)  a business owned by one individual who receives the profits and is legally responsible for the debts of the firm. 
D)  a form of business in which the stock of the company is closely held by members of one family. 
A)  a business with annual sales of less than $50,000 a year. 
B)  a business owned by one individual that employs 10 or fewer workers, and has been in business less than 15 years. 
C)  a business owned by one individual who receives the profits and is legally responsible for the debts of the firm. 
D)  a form of business in which the stock of the company is closely held by members of one family.

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

How is inflation related to interest rates?

A disadvantage of the proprietorship form of business organization is

An organization that brings together the factors of production is called

A dedicated professor loves being in the classroom and would teach for $70,000 per year, but he is actually paid $80,000 per year. This individual

The most important source of financial capital for firms today is

Economic profits are

Suppose that you borrow $10,000 for one year, and at the end of the year, you must repay $10,350. The interest rate is

The real rate of interest is

In a partnership, debts accumulated by one partner are

What would happen if a corporation goes out of business?

Corporations account for

Mary and Jane are partners in a business. Their business is growing but has not yet reached the point where they can afford a new delivery truck. Jane owns an old truck that she has not been using. She decides to donate it to their business for free.

Stocks are

Which legal claim has a fixed annual coupon payment?

If the supply curve for land was a vertical line, then any payment made for land would be considered

The real rate of interest is 4% and the anticipated rate of inflation is 1%. What is the nominal rate of interest?

If you want to vote for the management of the corporation, you should buy

A disadvantage of the partnership form of business organization is

A proprietorship 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