Question 1

An increase in the interest rate would reduce the present value of a property

Accepted Answer

A) True 
 B)False  True

Question 2

The supply of loanable funds reflects the willingness of

Accepted Answer

A)  businesses to borrow loanable funds for new capital at various interest rates 
B)  consumers to spend loanable funds for items, such as new cars, at various interest rates 
C)  savers to provide loanable funds to the loanable funds market at various interest rates 
D)  firms to provide the funds, which is why production occurs in the first place 
E)  people to invest in business enterprise, if the price is right (meaning if the interest rate is right) 
A)  businesses to borrow loanable funds for new capital at various interest rates 
B)  consumers to spend loanable funds for items, such as new cars, at various interest rates 
C)  savers to provide loanable funds to the loanable funds market at various interest rates 
D)  firms to provide the funds, which is why production occurs in the first place 
E)  people to invest in business enterprise, if the price is right (meaning if the interest rate is right) C

Question 3

-In Exhibit Q-7, at an interest rate of 6 percent,

Accepted Answer

A)  we would expect the interest rate to fall soon 
B)  there is an excess demand for loanable funds 
C)  there is an excess supply of loanable funds 
D)  the market is in equilibrium 
E)  the interest rate is above its equilibrium level 
A)  we would expect the interest rate to fall soon 
B)  there is an excess demand for loanable funds 
C)  there is an excess supply of loanable funds 
D)  the market is in equilibrium 
E)  the interest rate is above its equilibrium level B

Question 4

-Exhibit Q-3 shows the market for loanable funds. If the rate of interest is 11 percent,there would be a(n)

Accepted Answer

A)  excess supply of loanable funds to the market 
B)  excess demand for loanable funds in the market 
C)  shortage of loanable funds in the market 
D)  equilibrium in the market 
E)  quantity demanded of loanable funds that exceeds the quantity supplied 
A)  excess supply of loanable funds to the market 
B)  excess demand for loanable funds in the market 
C)  shortage of loanable funds in the market 
D)  equilibrium in the market 
E)  quantity demanded of loanable funds that exceeds the quantity supplied

Question 5

Discounting is a process of turning a stream of future returns into a present dollar equivalent.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statments about interest income derived from loanable funds is false? It

Accepted Answer

A)  is considered to be the profit due to an entrepreneur 
B)  originates in theft of property, according to Marxists 
C)  is the reward for an earlier decision to postpone consumption 
D)  is justified because savers have property rights to their savings and are entitled to the rewards they generate 
E)  is paid in the loanable funds market 
A)  is considered to be the profit due to an entrepreneur 
B)  originates in theft of property, according to Marxists 
C)  is the reward for an earlier decision to postpone consumption 
D)  is justified because savers have property rights to their savings and are entitled to the rewards they generate 
E)  is paid in the loanable funds market

Question 7

If the rate at which one can borrow loanable funds is fixed at 8 percent, the marginal factor cost of employing 8 units of loanable funds is

Accepted Answer

A)  zero 
B)  64 percent 
C)  8 percent 
D)  1 percent 
E)  unable to determine with this information 
A)  zero 
B)  64 percent 
C)  8 percent 
D)  1 percent 
E)  unable to determine with this information

Question 8

Marxists believe that interest income is justifiable because it discourages present consumption.

Accepted Answer

A) True 
 B)False

Question 9

The MRP of capital is measured by the change in

Accepted Answer

A)  total output/change in loanable funds 
B)  marginal physical product/change in loanable funds 
C)  total revenue/change in loanable funds 
D)  loanable funds/change in total revenue 
E)  total output/change in total capital 
A)  total output/change in loanable funds 
B)  marginal physical product/change in loanable funds 
C)  total revenue/change in loanable funds 
D)  loanable funds/change in total revenue 
E)  total output/change in total capital

Question 10

-Exhibit Q-3 shows the market for loanable funds. The demand curve for loanable funds isequivalent to the firms' __________.

Accepted Answer

A)  MFC of capital 
B)  interest rate 
C)  equipment capital 
D)  MRP of capital 
E)  wage-related rent 
A)  MFC of capital 
B)  interest rate 
C)  equipment capital 
D)  MRP of capital 
E)  wage-related rent

Question 11

-In Exhibit Q-7, the equilibrium rate of interest is _____ because at that rate __________.

Accepted Answer

A)  10 percent; the quantity supplied equals the quantity demanded 
B)  6 percent; demanders are encouraged to borrow and thus invest the most 
C)  14 percent; suppliers are encouraged to save the most 
D)  10 percent; firms maximize their profit 
E)  unknown; not enough information is given 
A)  10 percent; the quantity supplied equals the quantity demanded 
B)  6 percent; demanders are encouraged to borrow and thus invest the most 
C)  14 percent; suppliers are encouraged to save the most 
D)  10 percent; firms maximize their profit 
E)  unknown; not enough information is given

Question 12

Labor is the only resource that cannot earn rent.

Accepted Answer

A) True 
 B)False

Question 13

If the rate of interest is fixed, the MFC of capital is equal to the interest rate.

Accepted Answer

A) True 
 B)False

Question 14

Suppose you were given a gift of a gold mine that generates $1,000 of net income every year, indefinitely. And suppose the equilibrium rate of interest is 5 percent. What is the present value of that gold mine?

Accepted Answer

A)  $20,000 
B)  $5,000 
C)  $50,000 
D)  $500,000 
E)  $10,000 
A)  $20,000 
B)  $5,000 
C)  $50,000 
D)  $500,000 
E)  $10,000

Question 15

If the annual returns from an asset increase, the present value of the asset will

Accepted Answer

A)  not be affected 
B)  decrease 
C)  increase 
D)  increase only if there is also an increase in the rate of interest 
E)  decrease only if there is also an increase in the rate of interest 
A)  not be affected 
B)  decrease 
C)  increase 
D)  increase only if there is also an increase in the rate of interest 
E)  decrease only if there is also an increase in the rate of interest

Question 16

An increase in the interest rate would result in a(n)

Accepted Answer

A)  shift to the left in the demand curve for loanable funds 
B)  shift to right in the supply curve of loanable funds 
C)  decrease in the quantity demanded of loanable funds 
D)  increase in the present value of assets 
E)  decrease in the quantity supplied of loanable funds 
A)  shift to the left in the demand curve for loanable funds 
B)  shift to right in the supply curve of loanable funds 
C)  decrease in the quantity demanded of loanable funds 
D)  increase in the present value of assets 
E)  decrease in the quantity supplied of loanable funds

Question 17

Entrepreneurs, if successful, earn

Accepted Answer

A)  rent 
B)  profit 
C)  wages 
D)  salary 
E)  interest 
A)  rent 
B)  profit 
C)  wages 
D)  salary 
E)  interest

Question 18

The difference between what a productive resource receives as payment for its use in production and the cost of bringing that resource to the market is called profit.

Accepted Answer

A) True 
 B)False

Question 19

If the annual return on a property is $30,000, and the interest rate is 20 percent, the present value is $6,000.

Accepted Answer

A) True 
 B)False

Question 20

How does the value of land change when interest rates increase?

Accepted Answer

It varies inversely with interest rates.

Exam 17: Interest, Rent, and Profit

An increase in the interest rate would reduce the present value of a property

The supply of loanable funds reflects the willingness of

-In Exhibit Q-7, at an interest rate of 6 percent,

-Exhibit Q-3 shows the market for loanable funds. If the rate of interest is 11 percent,there would be a(n)

Discounting is a process of turning a stream of future returns into a present dollar equivalent.

Which of the following statments about interest income derived from loanable funds is false? It

If the rate at which one can borrow loanable funds is fixed at 8 percent, the marginal factor cost of employing 8 units of loanable funds is

Marxists believe that interest income is justifiable because it discourages present consumption.

The MRP of capital is measured by the change in

-Exhibit Q-3 shows the market for loanable funds. The demand curve for loanable funds isequivalent to the firms' __________.

-In Exhibit Q-7, the equilibrium rate of interest is _____ because at that rate __________.

Labor is the only resource that cannot earn rent.

If the rate of interest is fixed, the MFC of capital is equal to the interest rate.

Suppose you were given a gift of a gold mine that generates $1,000 of net income every year, indefinitely. And suppose the equilibrium rate of interest is 5 percent. What is the present value of that gold mine?

If the annual returns from an asset increase, the present value of the asset will

An increase in the interest rate would result in a(n)

Entrepreneurs, if successful, earn

The difference between what a productive resource receives as payment for its use in production and the cost of bringing that resource to the market is called profit.

If the annual return on a property is $30,000, and the interest rate is 20 percent, the present value is $6,000.

How does the value of land change when interest rates increase?

Introduction

Production Possibilities and Opportunity Costs

Demand and Supply

Elasticity

Happiness, Utility, and Consumer Choice

Price Ceilings and Price Floors

Entrepreneurship and Business Ownership

Costs of Production

Maximizing Profit

Identifying Markets and Market Structures

Price and Output in Monopoly, Monopolistic Competition, and Perfect Competition

Price and Output Determination Under Oligopoly

Antitrust and Regulation

Externalities, Market Failure, and Public Choice

Wage Rates in Competitive Labor Markets

Wages and Employment: Monopsony and Labor Unions

Income Distribution and Poverty

International Trade

Exchange Rates, Balance of Payments, and International Debt

The Economic Problems of Less-Developed Economies

Filters

-In Exhibit Q-7, the equilibrium rate of interest is _ because at that rate ______.