Question 1

A firm wants to borrow funds to purchase a new piece of equipment that costs $20,000 and has a useful life of one year. The investment is expected to produce an additional $1,500 in total revenue. The firm will most likely make the investment if the interest rate is

Accepted Answer

A)  6 percent.
B)  8 percent.
C)  10 percent.
D)  12 percent.E) A) and C)
F) All of the above

Question 2

The "time-value of money" refers to the fact that

Accepted Answer

A)  a given amount of money becomes more valuable over time.
B)  a given amount of money is more valuable the sooner it is obtained.
C)  people expect monetary compensation for their labor time.
D)  a given amount of money today is equivalent to a smaller amount of money in the future.E) A) and B)
F) All of the above

Question 3

The time-value of money refers to the idea that a given amount of money is more valuable to a person the sooner it is received.

Accepted Answer

A) True 
 B)False

Question 4

The demand curve for loanable funds illustrates the behavior of lenders or savers.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements best illustrates the time-value of money concept?

Accepted Answer

A)  Bob is willing to forgo receiving $100 today in order to receive $110 next month.
B)  Tom is indifferent between receiving $50 now and receiving $50 six months from now.
C)  Terry works for an hourly wage instead of a fixed salary.
D)  Jeff would prefer to receive $200 at the end of the year instead of $220 now.E) A) and D)
F) A) and C)

Question 6

What is the pure rate of interest?

Accepted Answer

The pure rate of interest is a hypotheti...

Question 7

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 savingE) A) and D)
F) A) and C)

Question 8

Refer to the table representing Darcy's bank account. If she deposited $4,500 into her account at the beginning of year 1 and made no further deposits or withdrawals, what is the value for cell D?

Accepted Answer

A)  $93.20
B)  $270
C)  $275
D)  It cannot be determined.E) B) and C)
F) C) and D)

Question 9

Answer the question using the table. Figures are in billions of dollars. The equilibrium interest rate and quantity of loanable funds demanded and supplied in this market will be

Accepted Answer

A)  8 percent and $14 billion.
B)  10 percent and $18 billion.
C)  12 percent and $22 billion.
D)  14 percent and $26 billion.E) A) and B)
F) C) and D)

Question 10

To say that land rent performs no incentive function means that

Accepted Answer

A)  higher rental payments will not bring forth a larger quantity of land.
B)  rent is not a cost to specific firms, but it is a cost from the standpoint of the economy as a whole.
C)  rent does not allocate land in terms of productive efficiency.
D)  rent tends to allocate land into the most productive uses.E) C) and D)
F) None of the above

Question 11

As viewed by society, economic rent is not a cost but rather a surplus payment.

Accepted Answer

A) True 
 B)False

Question 12

If the interest rate is 5 percent, what is the future value of $5,000 three years from now?

Accepted Answer

A)  $5,788
B)  $5,010
C)  $5,500
D)  $4,310E) None of the above
F) B) and C)

Question 13

The schedule shows various interest rates, the associated quantity demanded of loanable funds, and the quantity supplied of loanable funds in billions of dollars at those interest rates. At an interest rate of 4 percent, there will be

Accepted Answer

A)  an excess supply of loanable funds of 140 billion.
B)  an excess supply of loanable funds of 360 billion.
C)  an excess demand for loanable funds of 140 billion.
D)  an excess demand for loanable funds of 500 billion.E) A) and D)
F) B) and C)

Question 14

What are ways that lenders affect the effective rate of interest paid or received relative to what it appears to be?

Accepted Answer

Some lenders discount a loan at the time...

Question 15

Henry George's single-tax movement was based on the argument that

Accepted Answer

A)  the tax structure should consist solely of a highly progressive tax on nonwage incomes.
B)  interest is unearned income and should be taxed away by government.
C)  in less-developed countries the supply of and demand for land will be such that land will be a free good and therefore capable of bearing sizable taxes.
D)  a high tax on land rent is justified because land rent performs no incentive function.E) A) and D)
F) None of the above

Question 16

Refer to the diagram. Land

Accepted Answer

A)  will cease to be used in production if demand falls below D₄.
B)  would be a free resource if demand were D₄ or less.
C)  would be an economic (scarce) resource in the case of all four demand curves.
D)  would be a free resource in the case of all four demand curves.E) None of the above
F) A) and B)

Question 17

What are the relationships among capital, interest rates, and interest income?

Accepted Answer

Businesses can either lease capital good...

Question 18

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 19

Which of the following generalizations is false? Other things equal,

Accepted Answer

A)  interest rates are higher if lenders are imperfectly, rather than purely, competitive.
B)  the interest rate is less on small loans than on larger loans.
C)  long-term loans normally command higher interest rates than short-term loans.
D)  the greater the risk on a loan, the greater the interest rate.E) A) and D)
F) None of the above

Question 20

Answer the question using the table. Figures are in billions of dollars. A usury law that sets the interest rate 2 percent below the market rate of interest will result in a shortage of funds of

Accepted Answer

A)  $120 billion.
B)  $80 billion.
C)  $40 billion.
D)  $20 billion.E) None of the above
F) B) and C)

Exam 18: Rent, Interest, and Profit

Refer to the table representing Darcy's bank account. If she deposited $4,500 into her account at the beginning of year 1 and made no further deposits or withdrawals, what is the value for cell D?

Correct AnswerverifiedShow Answer

Answer the question using the table. Figures are in billions of dollars. A usury law that sets the interest rate 2 percent below the market rate of interest will result in a shortage of funds of

Correct AnswerverifiedShow Answer

What are the relationships among capital, interest rates, and interest income?

Correct AnswerverifiedBusinesses can either lease capital good...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

A firm wants to borrow funds to purchase a new piece of equipment that costs $20,000 and has a useful life of one year. The investment is expected to produce an additional $1,500 in total revenue. The firm will most likely make the investment if the interest rate is

Correct AnswerverifiedShow Answer

The schedule shows various interest rates, the associated quantity demanded of loanable funds, and the quantity supplied of loanable funds in billions of dollars at those interest rates. At an interest rate of 4 percent, there will be

Correct AnswerverifiedShow Answer

The "time-value of money" refers to the fact that

Correct AnswerverifiedShow Answer

The demand curve for loanable funds illustrates the behavior of lenders or savers.

Correct AnswerverifiedShow Answer

The time-value of money refers to the idea that a given amount of money is more valuable to a person the sooner it is received.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Henry George's single-tax movement was based on the argument that

Correct AnswerverifiedShow Answer

To say that land rent performs no incentive function means that

Correct AnswerverifiedShow Answer

Answer the question using the table. Figures are in billions of dollars. The equilibrium interest rate and quantity of loanable funds demanded and supplied in this market will be

Correct AnswerverifiedShow Answer

What are ways that lenders affect the effective rate of interest paid or received relative to what it appears to be?

Correct AnswerverifiedSome lenders discount a loan at the time...View AnswerShow Answer

If the interest rate is 5 percent, what is the future value of $5,000 three years from now?

Correct AnswerverifiedShow Answer

As viewed by society, economic rent is not a cost but rather a surplus payment.

Correct AnswerverifiedShow Answer

Refer to the diagram. Land

Correct AnswerverifiedShow Answer

What is the pure rate of interest?

Correct AnswerverifiedThe pure rate of interest is a hypotheti...View AnswerShow Answer

Which of the following generalizations is false? Other things equal,

Correct AnswerverifiedShow Answer

Which of the following statements best illustrates the time-value of money concept?

Correct AnswerverifiedShow Answer

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Businesses can either lease capital good...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Some lenders discount a loan at the time...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The pure rate of interest is a hypotheti...
View Answer

Correct Answer
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Correct Answer
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