Question 1

Capital stock is the current market value of all of the shares of stock a company has.

Accepted Answer

A) True 
 B)False  False

Question 2

Tom's Donuts can invest in a new espresso machine that costs $300 and will yield expected profits of $200 each year for two years. What is the present discounted value of the expected profits from this investment if the interest rate is 5%?

Accepted Answer

A)  $185.93 
B)  $276.64 
C)  $371.89 
D)  $380.96 
A)  $185.93 
B)  $276.64 
C)  $371.89 
D)  $380.96 C

Question 3

You use $50,000 of your own money to start a catering business. During the first year you earn a 5% return on that investment. If the current interest rate is 8%, you earn an economic profit of

Accepted Answer

A)  -$4,000. 
B)  -$2,500. 
C)  -$1,500. 
D)  $4,000. 
A)  -$4,000. 
B)  -$2,500. 
C)  -$1,500. 
D)  $4,000. C

Question 4

Saying a firm will continue investing up to the point at which the marginal revenue product of capital is equal to the price of capital is equivalent to saying that a firm will keep investing in new capital up to the point where

Accepted Answer

A)  the expected rate of return is zero. 
B)  economic profit is zero. 
C)  the expected rate of return is equal to the interest rate. 
D)  the price of capital equals the interest rate. 
A)  the expected rate of return is zero. 
B)  economic profit is zero. 
C)  the expected rate of return is equal to the interest rate. 
D)  the price of capital equals the interest rate.

Question 5

A fund that takes household savings and puts them into high-risk ventures in exchange for a share of the profits if the new business succeeds is a

Accepted Answer

A)  business capital fund. 
B)  innovation capital fund. 
C)  risk capital fund. 
D)  venture capital fund. 
A)  business capital fund. 
B)  innovation capital fund. 
C)  risk capital fund. 
D)  venture capital fund.

Question 6

A capital asset will depreciate because

Accepted Answer

A)  it wears out physically. 
B)  a similar product becomes available. 
C)  of an increase in the tax on profits. 
D)  All of the above are correct. 
A)  it wears out physically. 
B)  a similar product becomes available. 
C)  of an increase in the tax on profits. 
D)  All of the above are correct.

Question 7

Refer to the data provided in Table 11.2 below to answer the following questions.
Table 11.2 $$\begin{array}{l}
\begin{array} { l c c } 
&\text { Total Investment}&\text { Expected Rate of Return }\
{ \text { Project } } & \text { (dollars) } & \text { (percentage) } \
\hline \text { New bookkeeping software } & \$ 150,000 & 5 \
\text { New tractor } & \$ 200,000 & 12 \
\text { New grain storage tanks } & \$ 250,000 & 10 \
\text { Irrigation system } & \$ 500,000 & 15 \
\hline
\end{array}
\end{array}$$
-Refer to Table 11.2. When the interest rate ________, the farmer will engage in no investment.

Accepted Answer

A)  is greater than 15% 
B)  is less than 5% 
C)  is less than 15% 
D)  is greater than 5% 
A)  is greater than 15% 
B)  is less than 5% 
C)  is less than 15% 
D)  is greater than 5%

Question 8

You agree to lend a friend $20,000 for a year at an annual interest rate of 45%. At the end of the year your friend must pay you ________ in interest.

Accepted Answer

A)  $133 
B)  $750 
C)  $1,900 
D)  $9,000 
A)  $133 
B)  $750 
C)  $1,900 
D)  $9,000

Question 9

As the inventory of a firm falls,

Accepted Answer

A)  there is no change in its capital. 
B)  its intangible capital decreases. 
C)  its tangible capital decreases. 
D)  its social capital increases. 
A)  there is no change in its capital. 
B)  its intangible capital decreases. 
C)  its tangible capital decreases. 
D)  its social capital increases.

Question 10

The present value of $100 in one year is $86.96 when the interest rate is 15%.

Accepted Answer

A) True 
 B)False

Question 11

The term investment as it is used by an economist refers to

Accepted Answer

A)  the creation of new capital. 
B)  the act of buying a share of stock or a bond. 
C)  a household's savings. 
D)  the net worth of a company's financial assets. 
A)  the creation of new capital. 
B)  the act of buying a share of stock or a bond. 
C)  a household's savings. 
D)  the net worth of a company's financial assets.

Question 12

Suppose that a normal rate of return in the economy is 10% and the rate of return being earned by firms in a competitive industry equals exactly 10%. Which of the following is a CORRECT prediction based on this information?

Accepted Answer

A)  New firms will want to enter this industry, as the existing firms are earning an economic profit. 
B)  Firms already in the industry will want to expand to try to increase their rate of return. 
C)  Firms in the industry will not undertake any investment projects other than to replace depreciating capital stock. 
D)  The industry size will contract. 
A)  New firms will want to enter this industry, as the existing firms are earning an economic profit. 
B)  Firms already in the industry will want to expand to try to increase their rate of return. 
C)  Firms in the industry will not undertake any investment projects other than to replace depreciating capital stock. 
D)  The industry size will contract.

Question 13

You borrow $40,000 at an interest rate of 5% to open Organic Foods, an all-natural food store. You will earn an economic profit if the return on your investment is

Accepted Answer

A)  greater than 5%. 
B)  5%. 
C)  between 0 and 5%. 
D)  10% or greater. 
A)  greater than 5%. 
B)  5%. 
C)  between 0 and 5%. 
D)  10% or greater.

Question 14

Benefits of investments are generally certain, but costs are harder to quantify and involve greater uncertainty.

Accepted Answer

A) True 
 B)False

Question 15

An example of tangible capital is

Accepted Answer

A)  a restaurant's unsold, unopened cans of soda. 
B)  an idea for a new business. 
C)  the goodwill a firm has established through advertising. 
D)  knowledge of how to program a computer. 
A)  a restaurant's unsold, unopened cans of soda. 
B)  an idea for a new business. 
C)  the goodwill a firm has established through advertising. 
D)  knowledge of how to program a computer.

Question 16

Those goods produced by the economic system that are used as inputs in the production of future goods and services are known as capital.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements of the expected flow of future benefits is false?

Accepted Answer

A)  Firms must rely on forecasts of expected future benefits to make sensible investment decisions. 
B)  Households, business firms, and governments all evaluate the expected flow of benefits when making investment decisions. 
C)  If future benefits are overestimated by the firm, the firm will under invest in capital. 
D)  If future benefits are underestimated by the firm, the firm will under invest in capital. 
A)  Firms must rely on forecasts of expected future benefits to make sensible investment decisions. 
B)  Households, business firms, and governments all evaluate the expected flow of benefits when making investment decisions. 
C)  If future benefits are overestimated by the firm, the firm will under invest in capital. 
D)  If future benefits are underestimated by the firm, the firm will under invest in capital.

Question 18

The firm should continue investing

Accepted Answer

A)  even if the MRPK is equal to the price of capital. 
B)  only as long as the MRPK is less than the price of capital. 
C)  up to the point where the MRPK equals the price of capital. 
D)  only as long as the price of capital is greater than the interest rate. 
A)  even if the MRPK is equal to the price of capital. 
B)  only as long as the MRPK is less than the price of capital. 
C)  up to the point where the MRPK equals the price of capital. 
D)  only as long as the price of capital is greater than the interest rate.

Question 19

Capital is defined as the current market value of a firm's productive assets.

Accepted Answer

A) True 
 B)False

Question 20

The measure of a firm's ________ is the current market value of its plant, equipment, inventories, and intangible assets.

Accepted Answer

A)  investment 
B)  depreciation 
C)  capital stock 
D)  capital flow 
A)  investment 
B)  depreciation 
C)  capital stock 
D)  capital flow

Capital stock is the current market value of all of the shares of stock a company has.

Tom's Donuts can invest in a new espresso machine that costs $300 and will yield expected profits of $200 each year for two years. What is the present discounted value of the expected profits from this investment if the interest rate is 5%?

You use $50,000 of your own money to start a catering business. During the first year you earn a 5% return on that investment. If the current interest rate is 8%, you earn an economic profit of

Saying a firm will continue investing up to the point at which the marginal revenue product of capital is equal to the price of capital is equivalent to saying that a firm will keep investing in new capital up to the point where

A fund that takes household savings and puts them into high-risk ventures in exchange for a share of the profits if the new business succeeds is a

A capital asset will depreciate because

You agree to lend a friend $20,000 for a year at an annual interest rate of 45%. At the end of the year your friend must pay you ________ in interest.

As the inventory of a firm falls,

The present value of $100 in one year is $86.96 when the interest rate is 15%.

The term investment as it is used by an economist refers to

Suppose that a normal rate of return in the economy is 10% and the rate of return being earned by firms in a competitive industry equals exactly 10%. Which of the following is a CORRECT prediction based on this information?

You borrow $40,000 at an interest rate of 5% to open Organic Foods, an all-natural food store. You will earn an economic profit if the return on your investment is

Benefits of investments are generally certain, but costs are harder to quantify and involve greater uncertainty.

An example of tangible capital is

Those goods produced by the economic system that are used as inputs in the production of future goods and services are known as capital.

Which of the following statements of the expected flow of future benefits is false?

The firm should continue investing

Capital is defined as the current market value of a firm's productive assets.

The measure of a firm's ________ is the current market value of its plant, equipment, inventories, and intangible assets.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Social Choice

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: The Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing and Transitional Economies

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Exam 11: Input Demand: the Capital Market and the Investment Decision

Capital stock is the current market value of all of the shares of stock a company has.

Tom's Donuts can invest in a new espresso machine that costs $300 and will yield expected profits of $200 each year for two years. What is the present discounted value of the expected profits from this investment if the interest rate is 5%?

You use $50,000 of your own money to start a catering business. During the first year you earn a 5% return on that investment. If the current interest rate is 8%, you earn an economic profit of

Saying a firm will continue investing up to the point at which the marginal revenue product of capital is equal to the price of capital is equivalent to saying that a firm will keep investing in new capital up to the point where

A fund that takes household savings and puts them into high-risk ventures in exchange for a share of the profits if the new business succeeds is a

A capital asset will depreciate because

You agree to lend a friend $20,000 for a year at an annual interest rate of 45%. At the end of the year your friend must pay you ________ in interest.

As the inventory of a firm falls,

The present value of $100 in one year is $86.96 when the interest rate is 15%.

The term investment as it is used by an economist refers to

Suppose that a normal rate of return in the economy is 10% and the rate of return being earned by firms in a competitive industry equals exactly 10%. Which of the following is a CORRECT prediction based on this information?

You borrow $40,000 at an interest rate of 5% to open Organic Foods, an all-natural food store. You will earn an economic profit if the return on your investment is

Benefits of investments are generally certain, but costs are harder to quantify and involve greater uncertainty.

An example of tangible capital is

Those goods produced by the economic system that are used as inputs in the production of future goods and services are known as capital.

Which of the following statements of the expected flow of future benefits is false?

The firm should continue investing

Capital is defined as the current market value of a firm's productive assets.

The measure of a firm's ________ is the current market value of its plant, equipment, inventories, and intangible assets.

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

The Production Process: the Behavior of Profit-Maximizing Firms

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Social Choice

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: The Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing and Transitional Economies

Filters