Question 1

The total supply of land is

Accepted Answer

A)   upsloping.
B)   perfectly elastic.
C)   perfectly inelastic.
D)   greater in the short run than in the long run.E) A) and B)
F) A) and C)

Question 2

Usury laws will result in a shortage of loanable funds and nonmarket rationing in credit markets.

Accepted Answer

A) True 
 B)False

Question 3

Currently, capitalist income, that is, corporate profits, interest, and rent, accounts for about what percentage of the income paid to American resource suppliers?

Accepted Answer

A)   10 percent
B)   20 percent
C)   50 percent
D)   80 percentE) A) and B)
F) A) and C)

Question 4

If you pay $10,625 annually on a $125,000 loan and the rate of inflation is 3 percent, then the

Accepted Answer

A)   real rate of interest is 4.5 percent.
B)   nominal rate of interest is 8.5 percent.
C)   real rate of interest is 6.5 percent.
D)   nominal rate of interest is 11.5 percent.E) A) and D)
F) A) and C)

Question 5

Profits account for a smaller share of total U.S. income than interest income.

Accepted Answer

A) True 
 B)False

Question 6

Which would usually not be an entrepreneurial function?

Accepted Answer

A)   introducing a new product in a business
B)   assuming uninsurable risks of owning a business
C)   combining and directing resources in an uncertain business environment
D)   managing the accounting department of a Fortune 500 corporationE) All of the above
F) None of the above

Question 7

Investment and R&D decisions by firms are based on nominal interest rates, not real interest.

Accepted Answer

A) True 
 B)False

Question 8

The interest rate is the price paid for the use of money.

Accepted Answer

A) True 
 B)False

Question 9

Economists who have studied the composition of "proprietor's income" have found that this income item is made up of

Accepted Answer

A)   wages and profits, mostly wages.
B)   interest and profits, mostly profits.
C)   rent and interest, mostly interest.
D)   wages and interest, mostly wages.E) A) and D)
F) All of the above

Question 10

Most borrowers value money for

Accepted Answer

A)   its own sake.
B)   what it can buy.
C)   what it can produce.
D)   what they have to pay for it.E) C) and D)
F) B) and C)

Question 11

If an economic expansion in the economy caused an increase in the demand for loanable funds, what would be the effect on the interest rate and the quantity of funds loaned in the credit market?

Accepted Answer

A)   Interest rates would increase and the quantity of funds loaned would decrease.
B)   Interest rates would decrease and the quantity of funds loaned would increase.
C)   Interest rates and the quantity of funds loaned would decrease.
D)   Interest rates and the quantity of funds loaned would increase.E) A) and B)
F) B) and C)

Question 12

Economic rent is the payment made to a resource that has a perfectly inelastic demand curve.

Accepted Answer

A) True 
 B)False

Question 13

If Congress were to pass a law exempting interest on saving from taxation, the

Accepted Answer

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

Question 14

The equilibrium interest rate

Accepted Answer

A)   allocates the available supply of loanable funds to investment projects that have high enough rates of return to justify the borrowing.
B)   rises when the supply of loanable funds increases.
C)   is the price paid for the use of any resource.
D)   affects the size of total output but not the composition of that output.E) B) and C)
F) A) and D)

Question 15

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) A) and C)

Question 16

Which of the following will increase the supply of loanable funds? An increase in the

Accepted Answer

A)   rates of return on potential investments.
B)   productivity of business firms.
C)   demand for business products.
D)   savings of households.E) All of the above
F) B) and D)

Question 17

Which of the following would cause an increase in interest rates in credit markets?

Accepted Answer

A)   a decrease in business demand for credit
B)   an increase in the supply of consumer saving
C)   an increase in the supply of business saving
D)   an increase in consumer demand for creditE) A) and B)
F) None of the above

Question 18

Interest is the

Accepted Answer

A)   price paid for the use of money.
B)   opportunity cost of time.
C)   expectation of a future return on investment.
D)   reward for consuming rather than saving.E) A) and C)
F) B) and C)

Question 19

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

Accepted Answer

A)   the greater the risk involved.
B)   the smaller the amount of the loan.
C)   the longer the length of the loan.
D)   if the loan interest is exempt from taxation.E) B) and C)
F) A) and D)

Question 20

Economic rent, or pure rent, is

Accepted Answer

A)   a payment made for the use of housing, factory buildings, or capital goods.
B)   a payment for resources used in the production of "free goods."
C)   a payment for the use of those resources whose supply is perfectly elastic.
D)   the price paid for the use of land and other nonreproducible resources.E) A) and B)
F) A) and C)

Exam 18: Rent, Interest, and Profit

Which would usually not be an entrepreneurial function?

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Investment and R&D decisions by firms are based on nominal interest rates, not real interest.

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The total supply of land is

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Profits account for a smaller share of total U.S. income than interest income.

Correct AnswerverifiedShow Answer

Usury laws will result in a shortage of loanable funds and nonmarket rationing in credit markets.

Correct AnswerverifiedShow Answer

Economic rent is the payment made to a resource that has a perfectly inelastic demand curve.

Correct AnswerverifiedShow Answer

The interest rate is the price paid for the use of money.

Correct AnswerverifiedShow Answer

Economists who have studied the composition of "proprietor's income" have found that this income item is made up of

Correct AnswerverifiedShow Answer

The equilibrium interest rate

Correct AnswerverifiedShow Answer

Interest is the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Most borrowers value money for

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following would cause an increase in interest rates in credit markets?

Correct AnswerverifiedShow Answer

Economic rent, or pure rent, is

Correct AnswerverifiedShow Answer

If an economic expansion in the economy caused an increase in the demand for loanable funds, what would be the effect on the interest rate and the quantity of funds loaned in the credit market?

Correct AnswerverifiedShow Answer

If you pay $10,625 annually on a $125,000 loan and the rate of inflation is 3 percent, then the

Correct AnswerverifiedShow Answer

Currently, capitalist income, that is, corporate profits, interest, and rent, accounts for about what percentage of the income paid to American resource suppliers?

Correct AnswerverifiedShow Answer

If Congress were to pass a law exempting interest on saving from taxation, the

Correct AnswerverifiedShow Answer

Which of the following will increase the supply of loanable funds? An increase in the

Correct AnswerverifiedShow Answer

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