Question 1

A new delivery van will cost a catering firm $40,000 (including all associated taxes and fees). The catering firm plans to pay cash for this van and the van will generate $8,000 (net of any costs associated with maintaining the van) worth of services each year for five years. At the end of the fifth year, the van can be sold for an estimated value of $10,000. If the interest rate is 6 percent, should the catering firm buy the new delivery van? If the interest rate were to suddenly rise to 8 percent, would this change the firm's decision? Explain your answer, using present value calculations to support your conclusions.

Accepted Answer

The answer of A new delivery van will cost a...

Question 2

Economists generally agree that land rents are

Accepted Answer

A) price determining, not price determined. 
B) price determined, not price determining. 
C) too high. 
D) too low. 
E) Economists generally do not agree on anything.

Question 3

If X is the actual amount of income or receipts and i is the interest rate (in decimals) that could be earned on alternative uses of money that face the same risk, the present value of X in t years from now is computed by

Accepted Answer

A) (it)(1 + X). 
B) (Xt)(1 + i). 
C) i/(1 + X)t. 
D) X/(1 + i)t. 
E) X/(1 - i)t .

Question 4

Exhibit 29-1
​
 
-Refer to Exhibit 29-1. Suppose the supply curve is S1 and the price is A. Pure economic rent equals area

Accepted Answer

A) ABD. 
B) EBA. 
C) ODBC. 
D) EBD. 
E) none of the above

Question 5

The term "roundabout methods of production" refers to

Accepted Answer

A) Firm A purchasing a product from Firm B and reselling it to consumers. 
B) firms first producing capital goods and then using those capital goods to produce consumer goods. 
C) firms selling unassembled products so that the consumer completes the production process. 
D) banks and other financial institutions making loans available to producers so that the producers can make goods available to consumers; thus in a roundabout way the banks are making the goods available to consumers.

Question 6

The English economist David Ricardo argued that

Accepted Answer

A) grain prices were high because land rents were high. 
B) land rents were high because grain prices were high. 
C) grain prices were high because land rents were low. 
D) land rents were high because grain prices were low. 
E) none of the above

Question 7

If the demand for living in and visiting New York City were to decrease, then the following would happen in this order:

Accepted Answer

A) prices of goods and services would fall, and then land rents would decrease. 
B) land rents would decrease, and then prices of goods and services would decrease. 
C) land rents would decrease, and then prices of goods and services would fall, and finally land rents would increase. 
D) land rents would decrease, and then prices of goods and services would increase. 
E) There is not enough information to answer the question.

Question 8

A decrease in the expected rate of inflation will shift the demand for loanable funds curve __________, while shifting the supply of loanable funds curve __________.

Accepted Answer

A) leftward; leftward 
B) leftward; rightward 
C) rightward; rightward 
D) rightward; leftward

Question 9

Which of the following statements is true?

Accepted Answer

A) The administrative costs per dollar are greater for a large loan than a small loan. 
B) The risk on a long-term loan is likely to be less than on a short-term loan, ceteris paribus. 
C) a and b 
D) none of the above

Question 10

Exhibit 29-1
​
 
-Refer to Exhibit 29-1. Suppose the supply curve is S2 and the price is A. Economic rent equals area

Accepted Answer

A) EBD. 
B) ABD. 
C) ODBC. 
D) EBA. 
E) none of the above

Question 11

If you place $10,000 in a savings account that pays 3 percent interest per year and you leave all the money, principal plus interest earned, in the account for three years, approximately how much money will you have at the end of the three years?

Accepted Answer

A) $10,090 
B) $11,120 
C) $10,927 
D) $9,152 
E) $10,124

Question 12

What is the difference between uncertainty and risk?

Accepted Answer

A) Risk deals with people, uncertainty with events. 
B) Uncertainty deals with people, risk deals with events. 
C) Risk exists when the probability of a given event cannot be estimated, whereas uncertainty exists when the probability of a given event can be estimated. 
D) Uncertainty exists when the probability of a given event cannot be estimated, whereas risk exists when the probability of a given event can be estimated. 
E) b and d

Question 13

Professor Simpson earns $80,000 per year teaching at the local college. Due to budget cutbacks, the college cuts her annual salary to $50,000 per year. Professor Simpson remains at the college and her behavior at work is not affected by the salary cut.Based upon this information, which of the following is most likely?

Accepted Answer

A) Professor Simpson's entire salary is an economic rent. 
B) The $30,000 cut from Professor Simpson's salary was entirely economic rent. 
C) The $30,000 cut from Professor Simpson's salary was partly economic rent. 
D) a and b

Question 14

As the interest rate (price for loanable funds) decreases, businesses will

Accepted Answer

A) find it less profitable to invest in capital goods, because the lower interest rate means that they will earn a lower return on their investments. 
B) find it less profitable to invest in capital goods, because their costs of production will be higher. 
C) increase their borrowings of loanable funds, because the cost of borrowing has declined relative to the benefits of borrowing. 
D) decrease their borrowings of loanable funds, because there will now be cheaper ways to produce goods than to employ roundabout methods of production. 
E) b and c

Question 15

The return on capital is greater than the price of loanable funds. It follows that firms will

Accepted Answer

A) borrow funds, the capital stock will rise, and eventually the return on capital will fall. 
B) borrow funds, the capital stock will fall, and eventually the return on capital will rise. 
C) not borrow funds and, as a result, the price of credit will rise. 
D) not borrow funds and eventually the capital stock will decrease and the return on capital will fall. 
E) none of the above

Question 16

A firm is considering the purchase of a capital good that will generate an additional $40,000 income each year for 4 years (after which time the capital good is useless and has no scrap value). The interest rate is 4 percent. It follows that the firm should not purchase the capital good if its price is greater than (approximately)

Accepted Answer

A) $135,800. 
B) $111,004. 
C) $160,200. 
D) $174,915. 
E) $123,318.

Question 17

Many years ago someone developed an item that was simply a small rock inside a box with holes. The person earned large profits from selling "pet rocks." Which of the following theories on the source of profits best describes the reason behind this success?

Accepted Answer

A) Uncertainty is a source of profits. 
B) Profit is the reward for alertness to arbitrage opportunities. 
C) Profit is the return to the entrepreneur as innovator. 
D) There's a sucker born every minute. 
E) Sometimes all that it takes is to be in the right place at the right time.

Question 18

If the nominal interest rate is 5.2 percent and expected inflation rate is 2 percent, the real interest rate equals

Accepted Answer

A) 7.2 percent. 
B) 3.2 percent. 
C) 5.0 percent. 
D) 10.4 percent. 
E) none of the above

Question 19

If the price for loanable funds is less than the return on capital, then firms will

Accepted Answer

A) borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital decreases and its return rises. 
B) borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital increases and its return falls. 
C) not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will fall. 
D) not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will rise.

Question 20

There are two societies, A and B, that are alike in every way but one. In society A, people have a high rate of time preference, and in society B, people have a low rate of time preference. It follows that

Accepted Answer

A) the demand for consumption loans will probably be lower in A than B. 
B) interest rates will be lower in B than A. 
C) there will be more saving in A than B. 
D) b and c 
E) none of the above

Exam 29: Interest Rent and Profit

Economists generally agree that land rents are

If X is the actual amount of income or receipts and i is the interest rate (in decimals) that could be earned on alternative uses of money that face the same risk, the present value of X in t years from now is computed by

Exhibit 29-1 -Refer to Exhibit 29-1. Suppose the supply curve is S₁ and the price is A. Pure economic rent equals area

The term "roundabout methods of production" refers to

The English economist David Ricardo argued that

If the demand for living in and visiting New York City were to decrease, then the following would happen in this order:

A decrease in the expected rate of inflation will shift the demand for loanable funds curve , while shifting the supply of loanable funds curve .

Which of the following statements is true?

Exhibit 29-1 -Refer to Exhibit 29-1. Suppose the supply curve is S₂ and the price is A. Economic rent equals area

If you place $10,000 in a savings account that pays 3 percent interest per year and you leave all the money, principal plus interest earned, in the account for three years, approximately how much money will you have at the end of the three years?

What is the difference between uncertainty and risk?

As the interest rate (price for loanable funds) decreases, businesses will

The return on capital is greater than the price of loanable funds. It follows that firms will

Many years ago someone developed an item that was simply a small rock inside a box with holes. The person earned large profits from selling "pet rocks." Which of the following theories on the source of profits best describes the reason behind this success?

If the nominal interest rate is 5.2 percent and expected inflation rate is 2 percent, the real interest rate equals

If the price for loanable funds is less than the return on capital, then firms will

There are two societies, A and B, that are alike in every way but one. In society A, people have a high rate of time preference, and in society B, people have a low rate of time preference. It follows that

Exam 29: Interest Rent and Profit

Economists generally agree that land rents are

If X is the actual amount of income or receipts and i is the interest rate (in decimals) that could be earned on alternative uses of money that face the same risk, the present value of X in t years from now is computed by

Exhibit 29-1 ​ -Refer to Exhibit 29-1. Suppose the supply curve is S1 and the price is A. Pure economic rent equals area

The term "roundabout methods of production" refers to

The English economist David Ricardo argued that

If the demand for living in and visiting New York City were to decrease, then the following would happen in this order:

A decrease in the expected rate of inflation will shift the demand for loanable funds curve __________, while shifting the supply of loanable funds curve __________.

Which of the following statements is true?

Exhibit 29-1 ​ -Refer to Exhibit 29-1. Suppose the supply curve is S2 and the price is A. Economic rent equals area

If you place $10,000 in a savings account that pays 3 percent interest per year and you leave all the money, principal plus interest earned, in the account for three years, approximately how much money will you have at the end of the three years?

What is the difference between uncertainty and risk?

As the interest rate (price for loanable funds) decreases, businesses will

The return on capital is greater than the price of loanable funds. It follows that firms will

Many years ago someone developed an item that was simply a small rock inside a box with holes. The person earned large profits from selling "pet rocks." Which of the following theories on the source of profits best describes the reason behind this success?

If the nominal interest rate is 5.2 percent and expected inflation rate is 2 percent, the real interest rate equals

If the price for loanable funds is less than the return on capital, then firms will

There are two societies, A and B, that are alike in every way but one. In society A, people have a high rate of time preference, and in society B, people have a low rate of time preference. It follows that

Exhibit 29-1 -Refer to Exhibit 29-1. Suppose the supply curve is S₁ and the price is A. Pure economic rent equals area

A decrease in the expected rate of inflation will shift the demand for loanable funds curve , while shifting the supply of loanable funds curve .

Exhibit 29-1 -Refer to Exhibit 29-1. Suppose the supply curve is S₂ and the price is A. Economic rent equals area