Question 1

On January 1, 2016, Alex deposited $5,000 into a savings account that pays interest of 5 percent, compounded annually.If he makes no further deposits or withdrawals, how much will Alex have in his account on December 31, 2018 (3 years later) ?

Accepted Answer

A)  $5,750.
B)  $5,788.
C)  $5,813.
D)  $5,825.E) B) and C)
F) A) and D)

Question 2

If the interest rate is 15 percent, what is the future of value of $10,000 two years from now?

Accepted Answer

A)  $13,225
B)  $225
C)  $13,000
D)  $7,576E) A) and D)
F) A) and B)

Question 3

The demand curve for loanable funds illustrates the behavior of lenders or savers.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is incorrect?

Accepted Answer

A)  The nominal interest rate is the rate of interest expressed in terms of current dollars.
B)  The real interest rate is the rate of interest expressed in terms of dollars of constant, or inflation-adjusted, value.
C)  The nominal interest rate is the real interest rate less the rate of inflation.
D)  During periods of inflation, the nominal interest rate will exceed the real interest rate.E) None of the above
F) C) and D)

Question 5

Which of the following is not a major criticism of the single-tax movement?

Accepted Answer

A)  It is impractical because most income payments are a mixture of interest, rent, wages, and profits.
B)  It is inefficient because the land-rent tax will distort the use of land resources, thereby preventing allocative efficiency.
C)  It is unfair because there are other "unearned" incomes besides land rent, such as capital-gains income.
D)  It is inadequate because current levels of government spending are too big to be sufficiently funded by rent tax alone.E) A) and D)
F) All of the above

Question 6

Suppose that interest payments are $140 per year on a $1,000 loan and $1,188 per year on an $8,485 loan.The interest rates on the two loans are

Accepted Answer

A)  14 percent and 20 percent, respectively.
B)  14 percent on both loans.
C)  18.8 percent on both loans.
D)  1.4 percent and 11.8 percent, respectively.E) A) and B)
F) A) and C)

Question 7

The time-value of money refers to the idea that a given amount of money is more valuable to a person the sooner it is received.

Accepted Answer

A) True 
 B)False

Question 8

Entrepreneurs normally do all of the following except

Accepted Answer

A)  taking the initiative in combining other resources to produce goods or services.
B)  making the basic, nonroutine policy decisions for their organization.
C)  bearing the risks involved in introducing new products or production innovations.
D)  getting hired as a top executive in established corporations.E) A) and B)
F) All of the above

Question 9

The pure rate of interest is approximated by the

Accepted Answer

A)  rate that savings and loan associations charge on mortgage loans.
B)  rate charged consumers by credit card companies.
C)  rate paid on long-term government bonds.
D)  announced rate at which commercial banks make business loans.E) B) and D)
F) A) and B)

Question 10

The loanable funds theory of interest shows that interest rates on loans are determined by

Accepted Answer

A)  the amount of money supply that the government has pumped into the economy.
B)  agreement, explicit or tacit, among the bank lending officers.
C)  supply and demand for funds available for lending.
D)  government analysts and government regulation.E) A) and B)
F) A) and C)

Question 11

The supply curve for loanable funds is upward-sloping because

Accepted Answer

A)  lenders are more willing to lend at lower, rather than higher, interest rates.
B)  lenders are more willing to lend at higher, rather than lower, interest rates.
C)  borrowers are more willing to borrow at lower, rather than higher, interest rates.
D)  borrowers are more willing to borrow at higher, rather than lower, interest rates.E) C) and D)
F) None of the above

Question 12

Economic rent is the payment made to a resource that has a perfectly inelastic demand curve.

Accepted Answer

A) True 
 B)False

Question 13

Opponents of land nationalization argue that private ownership

Accepted Answer

A)  allows rent to function as an efficient allocation mechanism.
B)  is fair in terms of equalizing income distribution.
C)  follows the natural order of things in society.
D)  is consistent with detailed government planning for land use.E) B) and D)
F) All of the above

Question 14

If people became thriftier and saved more, the loanable funds theory predicts that the equilibrium interest rate would decrease.

Accepted Answer

A) True 
 B)False

Question 15

As viewed by society, economic rent is not a cost but rather a surplus payment.

Accepted Answer

A) True 
 B)False

Question 16

Economic profits are not payments received for

Accepted Answer

A)  taking uninsurable risks in a firm.
B)  making products or production innovations.
C)  starting up a business.
D)  working for someone else.E) A) and B)
F) A) and C)

Question 17

Capitalist income (corporate profits, interest, and rent)  has

Accepted Answer

A)  declined sharply since 1900 because of the growing strength of labor unions.
B)  remained approximately constant since 1900.
C)  increased significantly because of rising rents.
D)  fallen since 1900 because of the declining importance of corporations.E) B) and D)
F) None of the above

Question 18

The characteristic that makes economic rent distinct from wages, interest, and profit is that it is

Accepted Answer

A)  payment for a resource that is completely fixed in total supply.
B)  always expressed in dollars, never in percent.
C)  fixed by annual or monthly contracts.
D)  makes the supply of the resource increase if its rent rises.E) A) and D)
F) A) and C)

Question 19

The value today of a specific sum of money to be received in the future is referred to as

Accepted Answer

A)  the future value of that sum of money.
B)  the present value of that sum of money.
C)  compound interest.
D)  the time-value of money.E) B) and C)
F) A) and D)

Question 20

Economic profit is most closely associated with

Accepted Answer

A)  the process of saving and investing.
B)  monopoly, innovation, and uninsurable risks.
C)  long-run competitive equilibrium.
D)  a static economy.E) B) and C)
F) A) and D)

Exam 18: Rent, Interest, and Profit

Which of the following is incorrect?

Correct AnswerverifiedShow Answer

The loanable funds theory of interest shows that interest rates on loans are determined by

Correct AnswerverifiedShow Answer

Economic rent is the payment made to a resource that has a perfectly inelastic demand curve.

Correct AnswerverifiedShow Answer

Opponents of land nationalization argue that private ownership

Correct AnswerverifiedShow Answer

Which of the following is not a major criticism of the single-tax movement?

Correct AnswerverifiedShow Answer

If the interest rate is 15 percent, what is the future of value of $10,000 two years from now?

Correct AnswerverifiedShow Answer

If people became thriftier and saved more, the loanable funds theory predicts that the equilibrium interest rate would decrease.

Correct AnswerverifiedShow Answer

The value today of a specific sum of money to be received in the future is referred to as

Correct AnswerverifiedShow Answer

Suppose that interest payments are $140 per year on a $1,000 loan and $1,188 per year on an $8,485 loan.The interest rates on the two loans are

Correct AnswerverifiedShow Answer

Entrepreneurs normally do all of the following except

Correct AnswerverifiedShow Answer

Capitalist income (corporate profits, interest, and rent) has

Correct AnswerverifiedShow Answer

The demand curve for loanable funds illustrates the behavior of lenders or savers.

Correct AnswerverifiedShow Answer

The supply curve for loanable funds is upward-sloping because

Correct AnswerverifiedShow Answer

As viewed by society, economic rent is not a cost but rather a surplus payment.

Correct AnswerverifiedShow Answer

Economic profits are not payments received for

Correct AnswerverifiedShow Answer

Economic profit is most closely associated with

Correct AnswerverifiedShow Answer

The time-value of money refers to the idea that a given amount of money is more valuable to a person the sooner it is received.

Correct AnswerverifiedShow Answer

The characteristic that makes economic rent distinct from wages, interest, and profit is that it is

Correct AnswerverifiedShow Answer

The pure rate of interest is approximated by the

Correct AnswerverifiedShow Answer

On January 1, 2016, Alex deposited $5,000 into a savings account that pays interest of 5 percent, compounded annually.If he makes no further deposits or withdrawals, how much will Alex have in his account on December 31, 2018 (3 years later) ?

Correct AnswerverifiedShow Answer

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