Question 1

The owner(s) of a corporation

Accepted Answer

A)  is the entrepreneur. 
B)  are the shareholders. 
C)  are the bondholders. 
D)  is the CEO. 
A)  is the entrepreneur. 
B)  are the shareholders. 
C)  are the bondholders. 
D)  is the CEO.

Question 2

Suppose Jon Stewart of the "Daily Show" makes an annual income of $1,000,000. If he quit his television job and went into producing he could make $400,000 per year. Jon Stewart's opportunity cost as a producer is

Accepted Answer

A)  $1,400,000. 
B)  1,000,000. 
C)  $400,000. 
D)  $600,000. 
A)  $1,400,000. 
B)  1,000,000. 
C)  $400,000. 
D)  $600,000.

Question 3

A famous opera star made $2 million per year. He said he would rather sell insurance if he couldn't make more than $100,000 per year. If he is telling the truth, what's his opportunity cost as an opera star?

Accepted Answer

A)  $2.0 million 
B)  $100,000 
C)  $1.9 million 
D)  $2.1 million 
A)  $2.0 million 
B)  $100,000 
C)  $1.9 million 
D)  $2.1 million

Question 4

The ABC Corporation earned a real rate return of 4.5 percent on an investment. In the economy, the nominal rate of interest was 6 percent and the rate of inflation was 3 percent. We can conclude that

Accepted Answer

A)  the investment was unprofitable. 
B)  the investment was profitable. 
C)  the real rate of interest was 9 percent. 
D)  the real rate of interest was 1.5 percent. 
A)  the investment was unprofitable. 
B)  the investment was profitable. 
C)  the real rate of interest was 9 percent. 
D)  the real rate of interest was 1.5 percent.

Question 5

A share of stock in a corporation is

Accepted Answer

A)  a guarantee to a fixed amount of income from the corporation. 
B)  a legal claim to a lump-sum payment at a specified point of time in the future. 
C)  a legal claim to a dividend, regardless of the corporation's ability to pay its interest payments. 
D)  a legal claim to a share of the company's future profits. 
A)  a guarantee to a fixed amount of income from the corporation. 
B)  a legal claim to a lump-sum payment at a specified point of time in the future. 
C)  a legal claim to a dividend, regardless of the corporation's ability to pay its interest payments. 
D)  a legal claim to a share of the company's future profits.

Question 6

The most common form of business organization, as far as the number of such firms in business, is the

Accepted Answer

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

Question 7

If the rate of inflation is zero, prices are expected to remain stable, and the nominal rate of interest is 3 percent, then the

Accepted Answer

A)  real rate of interest is equal to the nominal rate. 
B)  real rate of interest is less than the nominal rate. 
C)  nominal rate is greater than the real rate of interest. 
D)  investment demand schedule will shift upward. 
A)  real rate of interest is equal to the nominal rate. 
B)  real rate of interest is less than the nominal rate. 
C)  nominal rate is greater than the real rate of interest. 
D)  investment demand schedule will shift upward.

Question 8

If a factor of production with a fixed supply is earning $100 in its current use and its next best use would yield earnings of $90, the factor is earning a pure economic rent equal to

Accepted Answer

A)  $0. 
B)  $10. 
C)  $90. 
D)  $190. 
A)  $0. 
B)  $10. 
C)  $90. 
D)  $190.

Question 9

The supply curve for land in the city of San Francisco is most likely

Accepted Answer

A)  horizontal or perfectly elastic. 
B)  a downward sloping straight line. 
C)  an upward sloping straight line. 
D)  vertical or perfectly inelastic. 
A)  horizontal or perfectly elastic. 
B)  a downward sloping straight line. 
C)  an upward sloping straight line. 
D)  vertical or perfectly inelastic.

Question 10

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

Accepted Answer

A)  $85 
B)  $115.76 
C)  $90.70 
D)  $86.38 
A)  $85 
B)  $115.76 
C)  $90.70 
D)  $86.38

Question 11

Rents

Accepted Answer

A)  have no useful economic purpose. 
B)  have an allocative function since they help decide to which use a resource will be put. 
C)  have a distributional function since they affect incomes, but have no allocative function since the resource is in fixed supply. 
D)  have an economic purpose only if they are taxed and provide revenue to the government. 
A)  have no useful economic purpose. 
B)  have an allocative function since they help decide to which use a resource will be put. 
C)  have a distributional function since they affect incomes, but have no allocative function since the resource is in fixed supply. 
D)  have an economic purpose only if they are taxed and provide revenue to the government.

Question 12

An important problem with corporations is

Accepted Answer

A)  the inability of the government to control and tax the firms. 
B)  the possibility of large liabilities for the owners. 
C)  the separation of ownership and control. 
D)  the difficulties with raising financial capital. 
A)  the inability of the government to control and tax the firms. 
B)  the possibility of large liabilities for the owners. 
C)  the separation of ownership and control. 
D)  the difficulties with raising financial capital.

Question 13

To find economic profit from accounting profit, it is necessary to

Accepted Answer

A)  subtract dividends. 
B)  add retained earnings. 
C)  subtract the opportunity cost of capital. 
D)  add depreciation expense. 
A)  subtract dividends. 
B)  add retained earnings. 
C)  subtract the opportunity cost of capital. 
D)  add depreciation expense.

Question 14

Which of the following is NOT a disadvantage of a proprietorship?

Accepted Answer

A)  how profits are taxed 
B)  ability to raise capital 
C)  unlimited liability 
D)  the disposition of the firm when the owner dies 
A)  how profits are taxed 
B)  ability to raise capital 
C)  unlimited liability 
D)  the disposition of the firm when the owner dies

Question 15

The person least likely to receive a payment from a corporation in a year of losses is the

Accepted Answer

A)  bank that loaned money to the corporation. 
B)  bondholder. 
C)  preferred stockholder. 
D)  common stockholder. 
A)  bank that loaned money to the corporation. 
B)  bondholder. 
C)  preferred stockholder. 
D)  common stockholder.

Question 16

When the rate of interest is 10 percent, the present value of $100 payable in two years is approximately

Accepted Answer

A)  $80. 
B)  $83. 
C)  $100. 
D)  $110. 
A)  $80. 
B)  $83. 
C)  $100. 
D)  $110.

Question 17

If the interest rate is 10 percent per year, and you have $100,000 now, which of the following is closest to what your $100,000 will be worth in three years?

Accepted Answer

A)  $155,000 
B)  $115,000 
C)  $120,000 
D)  $133,000 
A)  $155,000 
B)  $115,000 
C)  $120,000 
D)  $133,000

Question 18

The opportunity cost of capital is

Accepted Answer

A)  the rate of return realized on an investment. 
B)  the rate of return that could be earned by the owner's capital were it used elsewhere. 
C)  the rate used to calculate a firm's tax liability. 
D)  the rate of interest the government uses to calculate legal business tax penalties. 
A)  the rate of return realized on an investment. 
B)  the rate of return that could be earned by the owner's capital were it used elsewhere. 
C)  the rate used to calculate a firm's tax liability. 
D)  the rate of interest the government uses to calculate legal business tax penalties.

Question 19

The most common type of firm in the United States is the

Accepted Answer

A)  proprietorship. 
B)  partnership. 
C)  corporation. 
D)  limited partnership. 
A)  proprietorship. 
B)  partnership. 
C)  corporation. 
D)  limited partnership.

Question 20

The theory that there is no way to "get rich quick" in securities due to a lack of predictable trends is

Accepted Answer

A)  no-win theory. 
B)  market trend analysis. 
C)  random walk theory. 
D)  trading. 
A)  no-win theory. 
B)  market trend analysis. 
C)  random walk theory. 
D)  trading.

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

The owner(s) of a corporation

Suppose Jon Stewart of the "Daily Show" makes an annual income of $1,000,000. If he quit his television job and went into producing he could make $400,000 per year. Jon Stewart's opportunity cost as a producer is

A famous opera star made $2 million per year. He said he would rather sell insurance if he couldn't make more than $100,000 per year. If he is telling the truth, what's his opportunity cost as an opera star?

The ABC Corporation earned a real rate return of 4.5 percent on an investment. In the economy, the nominal rate of interest was 6 percent and the rate of inflation was 3 percent. We can conclude that

A share of stock in a corporation is

The most common form of business organization, as far as the number of such firms in business, is the

If the rate of inflation is zero, prices are expected to remain stable, and the nominal rate of interest is 3 percent, then the

If a factor of production with a fixed supply is earning $100 in its current use and its next best use would yield earnings of $90, the factor is earning a pure economic rent equal to

The supply curve for land in the city of San Francisco is most likely

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

Rents

An important problem with corporations is

To find economic profit from accounting profit, it is necessary to

Which of the following is NOT a disadvantage of a proprietorship?

The person least likely to receive a payment from a corporation in a year of losses is the

When the rate of interest is 10 percent, the present value of $100 payable in two years is approximately

If the interest rate is 10 percent per year, and you have $100,000 now, which of the following is closest to what your $100,000 will be worth in three years?

The opportunity cost of capital is

The most common type of firm in the United States is the

The theory that there is no way to "get rich quick" in securities due to a lack of predictable trends 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

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