Question 1

Which of the following statements is true?

Accepted Answer

A)  When rents are real, competing for them uses resources in a socially unproductive way.
B)  The competition for real rents often increases supply and lowers price.
C)  If Firm A is receiving artificial rents and Firm B is receiving real rents, then Firm B is larger than Firm A.
D)  If Firm A is receiving artificial rents and Firm B is receiving real rents, then Firm B is smaller than Firm A.E) All of the above
F) B) and C)

Question 2

Lawrence earns $X in his current job. If he weren't working at his current job, he would be working at another job earning $Y. It follows that

Accepted Answer

A)  Lawrence is not earning any economic rent in his current job.
B)  Lawrence is earning economic rent in his current job if $X - $Y is a positive dollar amount.
C)  Lawrence is earning economic rent in his current job if $X - $Y is a negative dollar amount.
D)  Lawrence is earning pure economic rent in his current job.
E)  Lawrence is definitely earning some economic rent in his current job.F) None of the above
G) All of the above

Question 3

Pure economic rent can exist only when a factor has a demand curve that is perfectly inelastic.

Accepted Answer

A) True 
 B)False

Question 4

A change in the expected rate of inflation from 3 percent to 5 percent will

Accepted Answer

A)  increase the real interest rate by 2 percentage points.
B)  decrease the real interest rate by 3 percentage points.
C)  increase the nominal interest rate by 2 percentage points.
D)  decrease the nominal interest rate by 2 percentage points.E) B) and C)
F) A) and B)

Question 5

Describe the three theories of where profit comes from.

Accepted Answer

One theory holds that uncertainty is the...

Question 6

Which of the following statements is true?

Accepted Answer

A)  Nominal interest rate = real interest rate - expected inflation rate.
B)  Nominal interest rate = real interest rate + expected inflation rate.
C)  Real interest rate = nominal interest rate + expected inflation rate.
D)  Expected inflation rate = nominal interest rate + real interest rate.E) A) and B)
F) A) and C)

Question 7

The supply of loanable funds curve is

Accepted Answer

A)  upward sloping.
B)  downward sloping.
C)  perfectly elastic.
D)  perfectly inelastic.E) A) and B)
F) All of the above

Question 8

Which of the following statements is true?

Accepted Answer

A)  All persons have a high rate of time preference.
B)  People with a high rate of time preference are more likely to be borrowers than people with a low rate of time preference.
C)  People with a high rate of time preference are more likely to be lenders than people with a low rate of time preference.
D)  A high interest rate is the cause of a high rate of time preference.E) A) and B)
F) None of the above

Question 9

Interest rates differ because of differences in

Accepted Answer

A)  risk, the term of the loan, and the cost of making the loan.
B)  the term of the loan, but no other factors.
C)  the cost of making the loan, but no other factors.
D)  the term of the loan and the cost of making the loan, but not because of differences in risk.E) A) and B)
F) A) and C)

Question 10

Pure economic rent can exist only when the factor under consideration

Accepted Answer

A)  is something other than land.
B)  has a supply curve that is perfectly elastic.
C)  has a demand curve that is perfectly elastic.
D)  has a supply curve that is perfectly inelastic.E) A) and B)
F) A) and C)

Question 11

Suppose you are thinking about buying a car.  The market price of the car (including all associated taxes and fees)is $18,200 which you will pay for in cash if you buy the car.  You anticipate that you will receive $3,000 (above and beyond any costs associated with running and maintaining the car)worth of services from the car each year for the next eight years, after which time the car will be scrapped and will have no scrap value.  If the interest rate is 6%, determine if the present value of the car is more than, less than, or equal to the market value of the car and specify whether or not it makes economic sense to purchase this car.  Does the interest rate need to rise or fall in order for you to reach the opposite conclusion about buying the car?  Explain your answer and support it using present value calculations.

Accepted Answer

The present value of the future stream o...

Question 12

Bill Brown commands $2 million a year as either a professional basketball player or a professional baseball player. His next best alternative is a coaching job at a high school that pays $60,000 a year. If Bill chooses to play professional basketball, then his economic rent from working at that job rather than working as a professional baseball player is

Accepted Answer

A)  $0.
B)  $60,000.
C)  $1 million.
D)  $1,930,000.
E)  $2 million.F) B) and D)
G) A) and D)

Question 13

A person buys X in one market and combines it with Y purchased in another market. The combination of X and Y gives Z, which the person sells in a third market for a higher price than the sum of the prices of X and Y. Which theory of profit is most consistent with this example?

Accepted Answer

A)  Profit is the return to being alert to an arbitrage (broadly defined) opportunity.
B)  Uncertainty is the source of profit.
C)  Profit is the return to the entrepreneur as innovator.
D)  There is not enough information provided to answer this question.E) B) and C)
F) A) and D)

Question 14

Ceteris paribus , the more risk associated with a loan,

Accepted Answer

A)  the lower the interest rate.
B)  the higher the interest rate.
C)  the more likely the loan will be granted.
D)  the bigger the loan.E) B) and D)
F) None of the above

Question 15

The terms interest and interest rate are synonyms.

Accepted Answer

A) True 
 B)False

Question 16

Firm X competes for the monopoly right to produce and sell widgets by expending resources to lobby politicians. The government decides to award the monopoly right to the firm. Which of the following is false ?

Accepted Answer

A)  The resources used to affect the transfer are expended in a socially wasteful manner.
B)  The resources used to affect the transfer are better used from society's point of view in the production of goods and services.
C)  The resources used to affect the transfer are not used in a wasteful manner from the firm's point of view.
D)  The rent the firm consequently earns is real economic rent.E) None of the above
F) B) and D)

Question 17

As the interest rate rises, the opportunity cost of

Accepted Answer

A)  future consumption rises.
B)  present consumption rises.
C)  investing in roundabout methods of production rises.
D)  lending money rises.E) A) and B)
F) B) and D)

Question 18

Loanable funds are

Accepted Answer

A)  another term for capital.
B)  a particular type of investment fund that companies such as Merrill Lynch offer to consumers.
C)  funds that someone gives with no promise to pay or receive interest for the use of the funds.
D)  funds that someone borrows or lends with the requirement that interest be paid for the use of the funds.E) A) and B)
F) A) and C)

Question 19

Suppose you borrow $1,000 today with the promise to pay back $1,070 one year from today. Based upon this information, the interest rate is __________, and the interest is __________.

Accepted Answer

A)  $70; 7 percent
B)  7 percent; $1,070
C)  7 percent; $70
D)  $100; 10 percent
E)  10 percent; $100F) A) and E)
G) A) and D)

Question 20

Exhibit 29-3 
Refer to Exhibit 29-3. The real interest rate in year 2 is

Accepted Answer

A)  25 percent.
B)  5 percent.
C)  15 percent.
D)  -25 percent.
E)  -15 percent.F) A) and B)
G) A) and C)

Exam 16: Interest, Rent, and Profit

Pure economic rent can exist only when the factor under consideration

Correct Answer
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Ceteris paribus , the more risk associated with a loan,

Correct Answer
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The terms interest and interest rate are synonyms.

Correct Answer
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Which of the following statements is true?

Correct Answer
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Exhibit 29-3 Refer to Exhibit 29-3. The real interest rate in year 2 is

Correct Answer
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As the interest rate rises, the opportunity cost of

Correct Answer
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Which of the following statements is true?

Correct Answer
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Correct Answer
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Pure economic rent can exist only when a factor has a demand curve that is perfectly inelastic.

Correct Answer
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Loanable funds are

Correct Answer
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Which of the following statements is true?

Correct Answer
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The supply of loanable funds curve is

Correct Answer
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Correct Answer
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The present value of the future stream o...
View Answer

Interest rates differ because of differences in

Correct Answer
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A person buys X in one market and combines it with Y purchased in another market. The combination of X and Y gives Z, which the person sells in a third market for a higher price than the sum of the prices of X and Y. Which theory of profit is most consistent with this example?

Correct Answer
verified

Suppose you borrow $1,000 today with the promise to pay back $1,070 one year from today. Based upon this information, the interest rate is , and the interest is .

Correct Answer
verified

Firm X competes for the monopoly right to produce and sell widgets by expending resources to lobby politicians. The government decides to award the monopoly right to the firm. Which of the following is false ?

Correct Answer
verified

Describe the three theories of where profit comes from.

Correct Answer
verified
One theory holds that uncertainty is the...
View Answer

Lawrence earns $X in his current job. If he weren't working at his current job, he would be working at another job earning $Y. It follows that

Correct Answer
verified

A change in the expected rate of inflation from 3 percent to 5 percent will

Correct Answer
verified

Exam 16: Interest, Rent, and Profit

Pure economic rent can exist only when the factor under consideration

Correct AnswerverifiedShow Answer

Ceteris paribus , the more risk associated with a loan,

Correct AnswerverifiedShow Answer

The terms interest and interest rate are synonyms.

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Exhibit 29-3 Refer to Exhibit 29-3. The real interest rate in year 2 is

Correct AnswerverifiedShow Answer

As the interest rate rises, the opportunity cost of

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Pure economic rent can exist only when a factor has a demand curve that is perfectly inelastic.

Correct AnswerverifiedShow Answer

Loanable funds are

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

The supply of loanable funds curve is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe present value of the future stream o...View AnswerShow Answer

Interest rates differ because of differences in

Correct AnswerverifiedShow Answer

A person buys X in one market and combines it with Y purchased in another market. The combination of X and Y gives Z, which the person sells in a third market for a higher price than the sum of the prices of X and Y. Which theory of profit is most consistent with this example?

Correct AnswerverifiedShow Answer

Suppose you borrow $1,000 today with the promise to pay back $1,070 one year from today. Based upon this information, the interest rate is __________, and the interest is __________.

Correct AnswerverifiedShow Answer

Firm X competes for the monopoly right to produce and sell widgets by expending resources to lobby politicians. The government decides to award the monopoly right to the firm. Which of the following is false ?

Correct AnswerverifiedShow Answer

Describe the three theories of where profit comes from.

Correct AnswerverifiedOne theory holds that uncertainty is the...View AnswerShow Answer

Lawrence earns $X in his current job. If he weren't working at his current job, he would be working at another job earning $Y. It follows that

Correct AnswerverifiedShow Answer

A change in the expected rate of inflation from 3 percent to 5 percent will

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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Correct Answer
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The present value of the future stream o...
View Answer

Correct Answer
verified

Correct Answer
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Suppose you borrow $1,000 today with the promise to pay back $1,070 one year from today. Based upon this information, the interest rate is , and the interest is .

Correct Answer
verified

Correct Answer
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Correct Answer
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One theory holds that uncertainty is the...
View Answer

Correct Answer
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Correct Answer
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