Question 1

An economic analysis of "planned obsolescence" shows that

Accepted Answer

A)  monopolies have an incentive to produce shorter-lived products,even when longer-lived products can be produced at the same cost. 
B)  firms prefer to produce shorter-lived products,because these result in greater sales and hence larger profits. 
C)  competitive firms are forced to produce the product with greatest longevity,but monopolies can successfully use planned obsolescence. 
D)  firms will make a longer-lived product if the additional cost is less than the present value of the benefits received by consumers. 
A)  monopolies have an incentive to produce shorter-lived products,even when longer-lived products can be produced at the same cost. 
B)  firms prefer to produce shorter-lived products,because these result in greater sales and hence larger profits. 
C)  competitive firms are forced to produce the product with greatest longevity,but monopolies can successfully use planned obsolescence. 
D)  firms will make a longer-lived product if the additional cost is less than the present value of the benefits received by consumers. D

Question 2

Without inflation the real interest rate is always greater than the nominal interest rate.

Accepted Answer

A) True 
 B)False  False

Question 3

A representative agent is someone that acts as a proxy for an investor during corporate votes.

Accepted Answer

A) True 
 B)False  False

Question 4

The market interest rate equals the absolute slope of the representative agent's indifference curve at the endowment point,minus 1.

Accepted Answer

A) True 
 B)False

Question 5

A dividend is the amount of money a shareholder is paid (per share)at years end.

Accepted Answer

A) True 
 B)False

Question 6

Future productivity increases will be reflected in higher interest rates today.

Accepted Answer

A) True 
 B)False

Question 7

When the interest rate is 7.5%,what is the present value of a perpetuity paying $50 a year forever?

Accepted Answer

A)  $375.00. 
B)  $465.11. 
C)  $537.50. 
D)  $666.67. 
A)  $375.00. 
B)  $465.11. 
C)  $537.50. 
D)  $666.67.

Question 8

Suppose pizzas are the only good and people have homothetic preferences.The supply of pizzas today is perfectly inelastic and determined solely by people's endowments.Which of the following would cause the interest rate to rise?

Accepted Answer

A)  A 50% increase in pizza production,this year and throughout the future. 
B)  A 50% increase in this year's pizza production that is not expected to affect future harvests. 
C)  An expected 50% increase in future pizza production. 
D)  A hurricane that permanently destroys 50% of all pizza parlors. 
A)  A 50% increase in pizza production,this year and throughout the future. 
B)  A 50% increase in this year's pizza production that is not expected to affect future harvests. 
C)  An expected 50% increase in future pizza production. 
D)  A hurricane that permanently destroys 50% of all pizza parlors.

Question 9

If marginal costs are significant,then the price of an exhaustible resource grows at the rate of interest.

Accepted Answer

A) True 
 B)False

Question 10

Suppose coal is mined at a zero marginal cost and is priced competitively.If the price of coal is growing faster than the interest rate,then coal miners

Accepted Answer

A)  are making positive economic profits. 
B)  will increase the amount of coal left unmined. 
C)  should extract more coal now and less coal in the future. 
D)  will exit the industry in the long run. 
A)  are making positive economic profits. 
B)  will increase the amount of coal left unmined. 
C)  should extract more coal now and less coal in the future. 
D)  will exit the industry in the long run.

Question 11

No one benefits when interest rates rise,because everyone's current consumption will be lowered.

Accepted Answer

A) True 
 B)False

Question 12

If a project costs $2000 up front and generates revenues of $500 per year for ten years,then any profit maximizing company will choose to undertake the project.

Accepted Answer

A) True 
 B)False

Question 13

When the government wants to spend money

Accepted Answer

A)  current consumption will fall only if the government borrows. 
B)  current consumption will fall only if the government raises taxes. 
C)  current consumption will fall if the government borrows or raises taxes. 
D)  current consumption will not be affected. 
A)  current consumption will fall only if the government borrows. 
B)  current consumption will fall only if the government raises taxes. 
C)  current consumption will fall if the government borrows or raises taxes. 
D)  current consumption will not be affected.

Question 14

Anna and Howard both own 100 shares of Photo-Hut.Anna buys stocks for income for current consumption,Howard buys stocks for their future growth.This year the firm has paid out all its profits to its stockholders.We can expect that

Accepted Answer

A)  Anna and Howard will both spend the income. 
B)  Howard will spend the income,while Anna will use the money to buy more stock in the firm. 
C)  Howard will sell the stock since it is not reinvesting its profits. 
D)  Anna will spend the income,while Howard will use the money to buy more stock in the firm. 
A)  Anna and Howard will both spend the income. 
B)  Howard will spend the income,while Anna will use the money to buy more stock in the firm. 
C)  Howard will sell the stock since it is not reinvesting its profits. 
D)  Anna will spend the income,while Howard will use the money to buy more stock in the firm.

Question 15

If a coupon bond that pays one hundred dollars at the end of the next three years is worth three hundred dollars,then the interest rate must be

Accepted Answer

A)  one percent 
B)  one hundred percent 
C)  ten percent 
D)  zero percent 
A)  one percent 
B)  one hundred percent 
C)  ten percent 
D)  zero percent

Question 16

Suppose favorable weather conditions temporarily raise the marginal productivity of existing capital.Weather conditions are expected to return to normal next year,so there is no change in the expected marginal productivity of future capital.In this situation,the interest rate will

Accepted Answer

A)  rise. 
B)  fall. 
C)  remain unchanged. 
D)  react unpredictably. 
A)  rise. 
B)  fall. 
C)  remain unchanged. 
D)  react unpredictably.

Question 17

A borrower sells bonds,and a lender buys bonds.

Accepted Answer

A) True 
 B)False

Question 18

Current and Future Consumption

The following questions refer to the accompanying diagram, which shows a consumer's choice between current and future consumption.
 
-Refer to Current and Future Consumption.The diagram shows the case of a

Accepted Answer

A)  representative agent. 
B)  net borrower. 
C)  net lender. 
D)  disequilibrium situation. 
A)  representative agent. 
B)  net borrower. 
C)  net lender. 
D)  disequilibrium situation.

Question 19

Deficit spending by the government is unwise,because taxpayers receive nothing of value when their taxes are used to make interest payments.

Accepted Answer

A) True 
 B)False

Question 20

When interest rates come down,

Accepted Answer

A)  people on average are better off since borrowing is now less expensive. 
B)  people on average are worse off since the income of lenders will now decrease. 
C)  social welfare is left unchanged since what borrowers gain is exactly offset by what lenders lose. 
D)  people on average may or may not be better off,depending on how high the rate was to begin with. 
A)  people on average are better off since borrowing is now less expensive. 
B)  people on average are worse off since the income of lenders will now decrease. 
C)  social welfare is left unchanged since what borrowers gain is exactly offset by what lenders lose. 
D)  people on average may or may not be better off,depending on how high the rate was to begin with.

An economic analysis of "planned obsolescence" shows that

Without inflation the real interest rate is always greater than the nominal interest rate.

A representative agent is someone that acts as a proxy for an investor during corporate votes.

The market interest rate equals the absolute slope of the representative agent's indifference curve at the endowment point,minus 1.

A dividend is the amount of money a shareholder is paid (per share)at years end.

Future productivity increases will be reflected in higher interest rates today.

When the interest rate is 7.5%,what is the present value of a perpetuity paying $50 a year forever?

Suppose pizzas are the only good and people have homothetic preferences.The supply of pizzas today is perfectly inelastic and determined solely by people's endowments.Which of the following would cause the interest rate to rise?

If marginal costs are significant,then the price of an exhaustible resource grows at the rate of interest.

Suppose coal is mined at a zero marginal cost and is priced competitively.If the price of coal is growing faster than the interest rate,then coal miners

No one benefits when interest rates rise,because everyone's current consumption will be lowered.

If a project costs $2000 up front and generates revenues of $500 per year for ten years,then any profit maximizing company will choose to undertake the project.

When the government wants to spend money

Anna and Howard both own 100 shares of Photo-Hut.Anna buys stocks for income for current consumption,Howard buys stocks for their future growth.This year the firm has paid out all its profits to its stockholders.We can expect that

If a coupon bond that pays one hundred dollars at the end of the next three years is worth three hundred dollars,then the interest rate must be

Suppose favorable weather conditions temporarily raise the marginal productivity of existing capital.Weather conditions are expected to return to normal next year,so there is no change in the expected marginal productivity of future capital.In this situation,the interest rate will

A borrower sells bonds,and a lender buys bonds.

Current and Future Consumption The following questions refer to the accompanying diagram, which shows a consumer's choice between current and future consumption. -Refer to Current and Future Consumption.The diagram shows the case of a

Deficit spending by the government is unwise,because taxpayers receive nothing of value when their taxes are used to make interest payments.

When interest rates come down,

Supply,demand,and Equilibrium

Prices,costs and Gains From Trade

The Behavior of Consumers

Consumers in the Marketplace

The Behavior of Firms

Production and Costs

Competition

Welfare Economics and the Gains From Trade

Knowledge and Information

Monopoly

Market Power,collusion,and Oligopoly

The Theory of Games

External Costs and Benefits

Common Property and Public Goods

The Demand for Factors of Production

The Market for Labor

Risk and Uncertainty

What Is Economics

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Exam 17: Allocating Goods Over Time

An economic analysis of "planned obsolescence" shows that

Without inflation the real interest rate is always greater than the nominal interest rate.

A representative agent is someone that acts as a proxy for an investor during corporate votes.

The market interest rate equals the absolute slope of the representative agent's indifference curve at the endowment point,minus 1.

A dividend is the amount of money a shareholder is paid (per share)at years end.

Future productivity increases will be reflected in higher interest rates today.

When the interest rate is 7.5%,what is the present value of a perpetuity paying $50 a year forever?

Suppose pizzas are the only good and people have homothetic preferences.The supply of pizzas today is perfectly inelastic and determined solely by people's endowments.Which of the following would cause the interest rate to rise?

If marginal costs are significant,then the price of an exhaustible resource grows at the rate of interest.

Suppose coal is mined at a zero marginal cost and is priced competitively.If the price of coal is growing faster than the interest rate,then coal miners

No one benefits when interest rates rise,because everyone's current consumption will be lowered.

If a project costs $2000 up front and generates revenues of $500 per year for ten years,then any profit maximizing company will choose to undertake the project.

When the government wants to spend money

Anna and Howard both own 100 shares of Photo-Hut.Anna buys stocks for income for current consumption,Howard buys stocks for their future growth.This year the firm has paid out all its profits to its stockholders.We can expect that

If a coupon bond that pays one hundred dollars at the end of the next three years is worth three hundred dollars,then the interest rate must be

Suppose favorable weather conditions temporarily raise the marginal productivity of existing capital.Weather conditions are expected to return to normal next year,so there is no change in the expected marginal productivity of future capital.In this situation,the interest rate will

A borrower sells bonds,and a lender buys bonds.

Current and Future Consumption The following questions refer to the accompanying diagram, which shows a consumer's choice between current and future consumption. -Refer to Current and Future Consumption.The diagram shows the case of a

Deficit spending by the government is unwise,because taxpayers receive nothing of value when their taxes are used to make interest payments.

When interest rates come down,

Supply,demand,and Equilibrium

Prices,costs and Gains From Trade

The Behavior of Consumers

Consumers in the Marketplace

The Behavior of Firms

Production and Costs

Competition

Welfare Economics and the Gains From Trade

Knowledge and Information

Monopoly

Market Power,collusion,and Oligopoly

The Theory of Games

External Costs and Benefits

Common Property and Public Goods

The Demand for Factors of Production

The Market for Labor

Risk and Uncertainty

What Is Economics

Filters