Question 1

Draw a diagram of a market in which economic rent occurs.Be sure to label the rent in the diagram.

Accepted Answer

The answer of Draw a diagram of a market in...

Question 2

In a competitive market,the rental price of capital equals its marginal revenue product.

Accepted Answer

A) True 
 B)False  True

Question 3

The stock of physical capital in the economy consists of all of the

Accepted Answer

A) buildings and equipment used by private firms and the government,plus residential housing. 
B) buildings and equipment used by private firms. 
C) buildings,equipment,and financial assets of private firms. 
D) buildings and equipment used by private firms and the government. 
E) buildings and equipment used by private firms and the government,not including schools and the military. 
A) buildings and equipment used by private firms and the government,plus residential housing. 
B) buildings and equipment used by private firms. 
C) buildings,equipment,and financial assets of private firms. 
D) buildings and equipment used by private firms and the government. 
E) buildings and equipment used by private firms and the government,not including schools and the military. A

Question 4

A regulatory capture in the financial system occurs when

Accepted Answer

A) government regulators own stocks of financial institutions. 
B) the government and financial institutions become hostile to each other. 
C) government regulators and financial institutions take actions to benefit each other. 
D) the government makes loans directly to borrowers without going through the financial system. 
E) the general public bails out a financial institution. 
A) government regulators own stocks of financial institutions. 
B) the government and financial institutions become hostile to each other. 
C) government regulators and financial institutions take actions to benefit each other. 
D) the government makes loans directly to borrowers without going through the financial system. 
E) the general public bails out a financial institution.

Question 5

Suppose a stock has the same expected rate of return as a bank account.Explain why this is not an equilibrium situation.

Accepted Answer

The stock is more risky,so all risk-aver

Question 6

The price of a good with a vertical market supply is called

Accepted Answer

A) pure profit. 
B) economic rent. 
C) pure price. 
D) fixed-supply price. 
E) gouged price. 
A) pure profit. 
B) economic rent. 
C) pure price. 
D) fixed-supply price. 
E) gouged price.

Question 7

Economists generally believe that as risk increases,investment becomes more interesting and people require lower rates of return.

Accepted Answer

A) True 
 B)False

Question 8

Severe adverse selection and moral hazard problems can prevent the formation of business relationships between principals and agents.For example,people may be unwilling to buy stock in a firm because they believe that managers may use that money for their own benefit rather than for the company's interests.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is true?

Accepted Answer

A) The bond yield is fixed for the life of the bond,but the bond price can vary. 
B) The bond yield and bond price are positively related. 
C) The bond price is fixed for the life of the bond,but the bond yield can vary. 
D) The bond yield and the bond price are inversely related. 
E) The bond yield and bond price are both fixed for the life of the bond. 
A) The bond yield is fixed for the life of the bond,but the bond price can vary. 
B) The bond yield and bond price are positively related. 
C) The bond price is fixed for the life of the bond,but the bond yield can vary. 
D) The bond yield and the bond price are inversely related. 
E) The bond yield and bond price are both fixed for the life of the bond.

Question 10

The equilibrium rental price of capital is determined by the supply of and demand for capital goods.

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 16-1  
-Refer to Exhibit 16-1.Suppose that the price of tools is $32.Then a profit-maximizing firm will buy a total of

Accepted Answer

A) 1 unit. 
B) 2 units. 
C) 3 units. 
D) 4 units. 
E) 5 units. 
A) 1 unit. 
B) 2 units. 
C) 3 units. 
D) 4 units. 
E) 5 units.

Question 12

Poor corporate governance can take the extreme form of outright fraud,and because corporate fraud is legal under U.S.law,it must be dealt with internally,such as with a profit sharing agreement.

Accepted Answer

A) True 
 B)False

Question 13

The amount of money the borrower agrees to pay the bondholder each year is called the

Accepted Answer

A) interest rate. 
B) coupon. 
C) dividend. 
D) yield. 
E) face value. 
A) interest rate. 
B) coupon. 
C) dividend. 
D) yield. 
E) face value.

Question 14

The dividend yield for a stock is the dividend divided by the price of the stock.

Accepted Answer

A) True 
 B)False

Question 15

When capital loses value over time because of use and wear,we call this

Accepted Answer

A) depreciation. 
B) wear and tear. 
C) creative destruction. 
D) capital utilization. 
E) decapitalization. 
A) depreciation. 
B) wear and tear. 
C) creative destruction. 
D) capital utilization. 
E) decapitalization.

Question 16

What is the difference between financial capital and physical capital?

Accepted Answer

Physical capital is used to produce othe

Question 17

When the interest rate is 10 percent,what is the price of a bond that matures in one year,has a $300 face value,and has a coupon of $20 per year?

Accepted Answer

A) $93.24 
B) $266.11 
C) $272.72 
D) $290.90 
E) $282.64 
A) $93.24 
B) $266.11 
C) $272.72 
D) $290.90 
E) $282.64

Question 18

If the marginal revenue product is less than the price of an input,then a profit-maximizing firm will increase the amount of the input.

Accepted Answer

A) True 
 B)False

Question 19

A construction firm can buy a bulldozer for $200,000.Gasoline costs $500 per month,the interest rate is 15 percent,and depreciation is $25,000 per year.If the bulldozer is purchased,the monthly implicit rent will be

Accepted Answer

A) $2,500. 
B) $4,583. 
C) $32,083. 
D) $5,083. 
E) $32,583. 
A) $2,500. 
B) $4,583. 
C) $32,083. 
D) $5,083. 
E) $32,583.

Question 20

Label each of the following as financial capital or physical capital.
(A)New shares of stock issued to raise funds for an expansion
(B)A new factory built as part of an expansion
(C)A car loan
(D)A new car
(E)New computer equipment
(F)Checking deposits

Accepted Answer

(A) Financial capital 
(B) Phy

Exam 16: Capital and Financial Markets

Draw a diagram of a market in which economic rent occurs.Be sure to label the rent in the diagram.

In a competitive market,the rental price of capital equals its marginal revenue product.

The stock of physical capital in the economy consists of all of the

A regulatory capture in the financial system occurs when

Suppose a stock has the same expected rate of return as a bank account.Explain why this is not an equilibrium situation.

The price of a good with a vertical market supply is called

Economists generally believe that as risk increases,investment becomes more interesting and people require lower rates of return.

Which of the following is true?

The equilibrium rental price of capital is determined by the supply of and demand for capital goods.

Exhibit 16-1 -Refer to Exhibit 16-1.Suppose that the price of tools is $32.Then a profit-maximizing firm will buy a total of

Poor corporate governance can take the extreme form of outright fraud,and because corporate fraud is legal under U.S.law,it must be dealt with internally,such as with a profit sharing agreement.

The amount of money the borrower agrees to pay the bondholder each year is called the

The dividend yield for a stock is the dividend divided by the price of the stock.

When capital loses value over time because of use and wear,we call this

What is the difference between financial capital and physical capital?

When the interest rate is 10 percent,what is the price of a bond that matures in one year,has a $300 face value,and has a coupon of $20 per year?

If the marginal revenue product is less than the price of an input,then a profit-maximizing firm will increase the amount of the input.

A construction firm can buy a bulldozer for $200,000.Gasoline costs $500 per month,the interest rate is 15 percent,and depreciation is $25,000 per year.If the bulldozer is purchased,the monthly implicit rent will be

Label each of the following as financial capital or physical capital. (A)New shares of stock issued to raise funds for an expansion (B)A new factory built as part of an expansion (C)A car loan (D)A new car (E)New computer equipment (F)Checking deposits

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model: Price Floors,price Ceilings,and Elasticity

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Interaction of People in Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, transfers, and Income Distribution

Public Goods, externalities, and Government Behavior

Macroeconomics: the Big Picture

Measuring the Production, income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Nature and Causes of Economic Fluctuations

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth and Globalization

International Trade

International Finance

Reading,understanding,and Creating Graphs

Consumer Theory With Indifference Curves

Producer Theory With Isoquants

Present Discounted Value

The Miracle of Compound Growth

Deriving the Growth Accounting Formula

Deriving the Formula for the Keynesian Multiplier and the Forward-Looking Consumption Model

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