Question 1

Changes in the equilibrium interest rate will

Accepted Answer

A)   affect both the size of the domestic output and the allocation of capital goods among industries.
B)   affect the size of the domestic output but not the allocation of capital goods among industries.
C)   affect the allocation of capital goods among industries but not the size of the domestic output.
D)   have no perceptible effect on either the size of the domestic output or the allocation of capital goods among industries.E) A) and C)
F) All of the above

Question 2

For all practical purposes, the supply of land is

Accepted Answer

A)   almost perfectly inelastic.
B)   negatively sloped.
C)   relatively elastic.
D)   perfectly elastic.E) A) and B)
F) B) and C)

Question 3

"Proprietor's income" refers to income received by

Accepted Answer

A)   corporate executives.
B)   owners of small, unincorporated enterprises.
C)   workers hired by small businesses.
D)   interns in businesses.E) A) and B)
F) A) and C)

Question 4

Other things equal, an increase in the equilibrium interest rate will

Accepted Answer

A)   increase R&D spending.
B)   rise when the supply of loanable funds increases.
C)   decrease purchases of capital goods and reduce R&D spending.
D)   increase bank lending.E) A) and C)
F) B) and C)

Question 5

If the nominal rate of interest is 8 percent and the real rate of interest is 3 percent, the inflation rate must be 11 percent.

Accepted Answer

A) True 
 B)False

Question 6

"Present value" refers to the

Accepted Answer

A)   value today of a specific amount of money to be received in the future.
B)   current value of money held in a bank account.
C)   amount to which some current amount of money will grow over time.
D)   interest rate specified when a loan contract is signed.E) A) and B)
F) B) and D)

Question 7

The supply of loanable funds is perfectly elastic.

Accepted Answer

A) True 
 B)False

Question 8

Unlike most demand curves, the demand curve for loanable funds is upsloping.

Accepted Answer

A) True 
 B)False

Question 9

Other things equal, short-term loans usually have lower rates of interest than do long-term loans.

Accepted Answer

A) True 
 B)False

Question 10

The share of total income for "capitalists" in America (in the form of rent, interest, and profits)  has been about

Accepted Answer

A)   20 percent.
B)   40 percent.
C)   50 percent.
D)   75 percent.E) A) and B)
F) B) and C)

Question 11

On January 1, 2016, Alex deposited $5,000 into a savings account that pays interest of 5 percent, compounded annually. If he makes no further deposits or withdrawals, how much will Alex have in his account on December 31, 2018 (3 years later) ?

Accepted Answer

A)   $5,750.
B)   $5,788.
C)   $5,813.
D)   $5,825.E) A) and B)
F) All of the above

Question 12

Entrepreneurs mostly focus on a single number: profits. As a result, which of the following statements tends to be true about their firms?

Accepted Answer

A)   The firms tend to do well in some aspects of their operations, but other aspects are neglected.
B)   The firms cannot achieve a very high overall efficiency.
C)   The firms pay close attention to every aspect of their operations.
D)   The firms' suppliers and customers are often left behind.E) B) and C)
F) C) and D)

Question 13

Which factor will increase the demand for loanable funds?

Accepted Answer

A)   a change in the tax law to exempt savings from taxation
B)   expansion of social insurance to cover more fully the cost of retirement
C)   a general business recession that produces high rates of unemployment
D)   a technological advance that increases returns on investmentsE) B) and C)
F) C) and D)

Question 14

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 C)
F) B) and C)

Question 15

Which factor will decrease the demand for loanable funds?

Accepted Answer

A)   a change in the tax law to exempt savings from taxation
B)   expansion of social insurance to cover more fully the cost of retirement
C)   a general business recession that produces high rates of unemployment
D)   a technological advance that increases returns on investmentsE) B) and D)
F) B) and C)

Question 16

Suppose a firm is considering the purchase of a machine which would increase its total revenues by $10,000 for the year. The machine costs $8,000 and has a useful life of one year. The interest rate is 20 percent. This investment should

Accepted Answer

A)   be undertaken because the rate of return is 2 percent greater than the interest rate.
B)   be undertaken because the rate of return is 5 percent greater than the interest rate.
C)   be undertaken because the rate of return is 7 percent greater than the interest rate.
D)   not be undertaken, because the rate of return is 7 percent less than the interest rate.E) None of the above
F) A) and C)

Question 17

Which of the following is incorrect?

Accepted Answer

A)   The nominal interest rate is the rate of interest expressed in terms of current dollars.
B)   The real interest rate is the rate of interest expressed in terms of dollars of constant, or inflation-adjusted, value.
C)   The nominal interest rate is the real interest rate less the rate of inflation.
D)   During periods of inflation, the nominal interest rate will exceed the real interest rate.E) A) and C)
F) C) and D)

Question 18

If the desired real rate of interest is 5 percent and the expected rate of inflation is 15 percent, what is the nominal rate of interest?

Accepted Answer

A)   5 percent
B)   10 percent
C)   15 percent
D)   20 percentE) A) and C)
F) A) and B)

Question 19

If the expected rates of return on investments increased, the loanable funds theory predicts that the equilibrium interest rate would decrease.

Accepted Answer

A) True 
 B)False

Question 20

(Last Word)  Suppose you borrow $500 and agree to pay this $500 plus $75 of interest at the end of a year. The interest rate is

Accepted Answer

A)   10 percent.
B)   15 percent.
C)   12.5 percent.
D)   7.5 percent.E) All of the above
F) A) and B)

Exam 18: Rent, Interest, and Profit

On January 1, 2016, Alex deposited $5,000 into a savings account that pays interest of 5 percent, compounded annually. If he makes no further deposits or withdrawals, how much will Alex have in his account on December 31, 2018 (3 years later) ?

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Other things equal, an increase in the equilibrium interest rate will

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If the nominal rate of interest is 8 percent and the real rate of interest is 3 percent, the inflation rate must be 11 percent.

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"Proprietor's income" refers to income received by

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Unlike most demand curves, the demand curve for loanable funds is upsloping.

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(Last Word) Suppose you borrow $500 and agree to pay this $500 plus $75 of interest at the end of a year. The interest rate is

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For all practical purposes, the supply of land is

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"Present value" refers to the

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Other things equal, short-term loans usually have lower rates of interest than do long-term loans.

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Which factor will increase the demand for loanable funds?

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Which factor will decrease the demand for loanable funds?

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The supply of loanable funds is perfectly elastic.

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Entrepreneurs mostly focus on a single number: profits. As a result, which of the following statements tends to be true about their firms?

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Suppose a firm is considering the purchase of a machine which would increase its total revenues by $10,000 for the year. The machine costs $8,000 and has a useful life of one year. The interest rate is 20 percent. This investment should

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Which of the following is incorrect?

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If the expected rates of return on investments increased, the loanable funds theory predicts that the equilibrium interest rate would decrease.

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Changes in the equilibrium interest rate will

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If the desired real rate of interest is 5 percent and the expected rate of inflation is 15 percent, what is the nominal rate of interest?

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

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The share of total income for "capitalists" in America (in the form of rent, interest, and profits) has been about

Correct AnswerverifiedShow Answer

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