Question 1

The minimum rate of return or payment necessary to keep an entrepreneur in some specific enterprise is referred to as

Accepted Answer

A)  the pure rate of interest. 
B)  the real interest rate. 
C)  economic profit. 
D)  normal profit.

Question 2

Normal profit is considered an economic cost.

Accepted Answer

A) True 
 B)False

Question 3

The pure rate of interest in economic models is best approximated by the

Accepted Answer

A)  1-month Treasury bills. 
B)  prime interest rate. 
C)  federal funds rate. 
D)  20-year Treasury bond rate.

Question 4

For a usury law to be effective, the interest rate must be

Accepted Answer

A)  determined by borrowing and lending. 
B)  set at the market equilibrium interest rate. 
C)  set above the market equilibrium interest rate. 
D)  set below the market equilibrium interest rate.

Question 5

Other things equal, the interest rate on a loan will be larger,

Accepted Answer

A)  the less the risk involved. 
B)  the larger the amount of the loan. 
C)  the longer the length of the loan. 
D)  if loan interest is exempt from taxation.

Question 6

The quantity of loanable funds supplied is inversely related to the interest rate.

Accepted Answer

A) True 
 B)False

Question 7

Henry George claimed that land-rent taxes would not impair economic efficiency because

Accepted Answer

A)  they do not result in a change in the amount of land available. 
B)  landowners are, as a group, financially secure and able to pay the taxes. 
C)  the supply of land is infinitely elastic. 
D)  rents represent a small part of income paid to American resource suppliers, so taxes on wages and salaries are more disruptive.

Question 8

Some economists advocate taxes on land because such taxes

Accepted Answer

A)  do not affect the supply of land. 
B)  increase the supply of land. 
C)  improve the allocation of land by shifting it from low-productivity to high-productivity uses. 
D)  have a positive incentive function.

Question 9

Which of the following is not a component of the demand for loanable funds?

Accepted Answer

A)  household purchases of housing and durable consumer goods 
B)  business purchases of capital goods 
C)  government financing of the public debt 
D)  household saving

Question 10

If labor's share of the income paid to American resource suppliers is broadly defined as the sum of wages and salaries and proprietors' income, we can say that labor's relative share has

Accepted Answer

A)  remained approximately constant since 1900. 
B)  increased dramatically at the expense of capitalist income. 
C)  declined by about one-third since 1900. 
D)  decreased because of the decline of unionism.

Question 11

The free-land era of U.S. history reflected a situation in which the quantity of land available at a zero price exceeded the quantity of land demanded.

Accepted Answer

A) True 
 B)False

Question 12

A given future value of money would have a smaller present value if

Accepted Answer

A)  the interest rate used in discounting is higher. 
B)  the length of time over which it is "discounted" is shorter. 
C)  the interest rate is zero. 
D)  there is no compounding of interest.

Question 13

David Ricardo, a nineteenth-century economist, wrote, "The price of corn is high not because a rent is paid, but a rent is paid because the price of the corn is high." Which of the following correctly explains Ricardo's assertion?

Accepted Answer

A)  The high rents landowners charge tenant farmers cause high corn prices. 
B)  If landowners weren't so greedy and lowered the rents they charge tenant farmers, the price of corn would fall. 
C)  If the price of corn rises because of increased demand for corn, land rents will rise to absorb most of the extra revenue received by tenant corn farmers. 
D)  If the price of corn rises, all other things being equal, increases in rent will cause some tenant farmers to stop growing corn.

Question 14

Interest rates are the payments needed to entice individuals to

Accepted Answer

A)  accept insurable risk. 
B)  accept uninsurable risk. 
C)  sacrifice their present consumption. 
D)  sacrifice their future consumption.

Question 15

A unique characteristic of taxes on economic rents is that such taxes

Accepted Answer

A)  stimulate aggregate production. 
B)  do not lead to a reallocation of the resource. 
C)  are paid by consumers. 
D)  are always regressive.

Question 16

Interest rates of various loans vary over a wide range due to differences in all of the following, except

Accepted Answer

A)  borrower characteristics. 
B)  maturity of the loan. 
C)  loan size. 
D)  lender characteristics.

Question 17

Pure, or economic, profit is

Accepted Answer

A)  the amount by which accounting profits exceed normal profits. 
B)  determined by subtracting explicit costs from total revenue. 
C)  the return required to retain entrepreneurial talent in some particular line of production. 
D)  the return to any resource the supply of which is perfectly inelastic.

Question 18

To an individual firm or landowner, land rents do not appear to be a surplus because

Accepted Answer

A)  land is a productive resource, like the other resources. 
B)  a given parcel of land has alternative uses, and rent represents a real cost of production. 
C)  they do not understand that the supply of land, in total, is perfectly inelastic. 
D)  landowners are, politically and economically, a powerful and well-organized group.

Question 19

The basic function of profits and losses is to allocate society's scarce resources to their highest valued uses.

Accepted Answer

A) True 
 B)False

Question 20

Effective usury laws

Accepted Answer

A)  subsidize lenders. 
B)  penalize those who borrow at the below-market interest rate. 
C)  improve efficiency in investing. 
D)  keep some low-income people from obtaining credit and loans.

Exam 18: Rent, Interest, and Profit

The minimum rate of return or payment necessary to keep an entrepreneur in some specific enterprise is referred to as

Normal profit is considered an economic cost.

The pure rate of interest in economic models is best approximated by the

For a usury law to be effective, the interest rate must be

Other things equal, the interest rate on a loan will be larger,

The quantity of loanable funds supplied is inversely related to the interest rate.

Henry George claimed that land-rent taxes would not impair economic efficiency because

Some economists advocate taxes on land because such taxes

Which of the following is not a component of the demand for loanable funds?

If labor's share of the income paid to American resource suppliers is broadly defined as the sum of wages and salaries and proprietors' income, we can say that labor's relative share has

The free-land era of U.S. history reflected a situation in which the quantity of land available at a zero price exceeded the quantity of land demanded.

A given future value of money would have a smaller present value if

David Ricardo, a nineteenth-century economist, wrote, "The price of corn is high not because a rent is paid, but a rent is paid because the price of the corn is high." Which of the following correctly explains Ricardo's assertion?

Interest rates are the payments needed to entice individuals to

A unique characteristic of taxes on economic rents is that such taxes

Interest rates of various loans vary over a wide range due to differences in all of the following, except

Pure, or economic, profit is

To an individual firm or landowner, land rents do not appear to be a surplus because

The basic function of profits and losses is to allocate society's scarce resources to their highest valued uses.

Effective usury laws