Question 1

In making an investment decision, a business firm is most interested in the

Accepted Answer

A)   nominal interest rate.
B)   real interest rate.
C)   nominal interest rate minus the real interest rate.
D)   future supply of loanable funds.E) All of the above
F) A) and D)

Question 2

The demand for land is

Accepted Answer

A)   perfectly elastic.
B)   perfectly inelastic.
C)   upsloping.
D)   downsloping.E) A) and B)
F) B) and C)

Question 3

A firm will undertake investments as long as the expected rate of return is less than the interest rate.

Accepted Answer

A) True 
 B)False

Question 4

Money is an economic resource referred to as capital.

Accepted Answer

A) True 
 B)False

Question 5

Economic profit is most closely associated with

Accepted Answer

A)   the process of saving and investing.
B)   monopoly, innovation, and uninsurable risks.
C)   long-run competitive equilibrium.
D)   a static economy.E) B) and C)
F) C) and D)

Question 6

As interest rates decrease, the

Accepted Answer

A)   cost of current relative to future consumption increases.
B)   cost of current relative to future consumption decreases.
C)   cost of current consumption relative to future consumption remains the same.
D)   desire of many individuals to save increases.E) None of the above
F) A) and B)

Question 7

An increase in the expected rates of return on investments would most likely increase the supply of loanable funds.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is correct?

Accepted Answer

A)   Money is a resource, but real capital is not.
B)   Real capital is a resource, but money is not.
C)   Neither money nor real capital is a resource.
D)   Both money and real capital are resources.E) A) and C)
F) C) and D)

Question 9

Landowners will not receive any rent so long as

Accepted Answer

A)   there is any tax on land.
B)   the supply and demand curves for land intersect.
C)   the supply curve of land is perfectly inelastic.
D)   the supply curve lies entirely to the right of the demand curve.E) B) and C)
F) B) and D)

Question 10

The largest single share of all income earned by Americans consists of

Accepted Answer

A)   wages and salaries.
B)   interest.
C)   rents.
D)   corporate profits.E) B) and C)
F) A) and C)

Question 11

Other things equal, an increase in the productivity of capital goods will

Accepted Answer

A)   increase the demand for loanable funds and decrease the equilibrium interest rate.
B)   increase the demand for loanable funds and increase the equilibrium interest rate.
C)   increase the supply of loanable funds and decrease the equilibrium interest rate.
D)   increase the supply of loanable funds and increase the equilibrium interest rate.E) None of the above
F) A) and B)

Question 12

Other things equal, interest rates are

Accepted Answer

A)   higher on large loans than on small loans.
B)   higher on loans with tax-exempt interest payments.
C)   lower on less risky loans than on riskier loans.
D)   lower on short-term loans than on long-term loans.E) A) and D)
F) B) and C)

Question 13

Some countries have negative nominal interest rates. Which of the following statements about this situation is not true?

Accepted Answer

A)   A saver or lender will get back less than the amount she invested.
B)   This is mostly a result of deliberate central bank policies.
C)   Consumers are expected to save more and consume less.
D)   Consumers are expected to borrow more and spend more.E) B) and C)
F) A) and D)

Question 14

Capitalist income (corporate profits, interest, and rent)  has

Accepted Answer

A)   declined sharply since 1900 because of the growing strength of labor unions.
B)   remained approximately constant since 1900.
C)   increased significantly because of rising rents.
D)   fallen since 1900 because of the declining importance of corporations.E) A) and C)
F) B) and D)

Question 15

The equilibrium interest rate

Accepted Answer

A)   affects both the size of total output and its composition.
B)   falls when the demand for loanable funds increases.
C)   determines the composition of R&D spending but not its total amount.
D)   increases when the expected rate of return on R&D spending falls.E) B) and C)
F) All of the above

Question 16

The supply curve of loanable funds is upsloping because

Accepted Answer

A)   businesses find more investments to be profitable at low interest rates than at high interest rates.
B)   government budget deficits vary inversely with the equilibrium interest rate.
C)   households are willing to save more at high interest rates than they are at low interest rates.
D)   banks lend more at low interest rates than they do at high interest rates.E) C) and D)
F) All of the above

Question 17

Other things equal, the shorter the loan period and the larger the loan size, the higher is the interest rate charged by the lender.

Accepted Answer

A) True 
 B)False

Question 18

Rent performs an incentive function, but no rationing function.

Accepted Answer

A) True 
 B)False

Question 19

The value today of a specific sum of money to be received in the future is referred to as

Accepted Answer

A)   the future value of that sum of money.
B)   the present value of that sum of money.
C)   compound interest.
D)   the time-value of money.E) All of the above
F) B) and C)

Question 20

A decrease in the supply of loanable funds would tend to lower the interest rate.

Accepted Answer

A) True 
 B)False

Exam 18: Rent, Interest, and Profit

The equilibrium interest rate

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The value today of a specific sum of money to be received in the future is referred to as

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As interest rates decrease, the

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Some countries have negative nominal interest rates. Which of the following statements about this situation is not true?

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A firm will undertake investments as long as the expected rate of return is less than the interest rate.

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Other things equal, the shorter the loan period and the larger the loan size, the higher is the interest rate charged by the lender.

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Rent performs an incentive function, but no rationing function.

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Economic profit is most closely associated with

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The largest single share of all income earned by Americans consists of

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Capitalist income (corporate profits, interest, and rent) has

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Landowners will not receive any rent so long as

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Other things equal, an increase in the productivity of capital goods will

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Which of the following is correct?

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In making an investment decision, a business firm is most interested in the

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Other things equal, interest rates are

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Money is an economic resource referred to as capital.

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The demand for land is

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An increase in the expected rates of return on investments would most likely increase the supply of loanable funds.

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A decrease in the supply of loanable funds would tend to lower the interest rate.

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The supply curve of loanable funds is upsloping because

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