Question 1

The real interest rate can be estimated by

Accepted Answer

A)  subtracting the pure interest rate from the nominal interest rate.
B)  dividing the nominal interest rate by the consumer price index.
C)  subtracting the nominal interest rate from the rate of inflation.
D)  subtracting the rate of inflation from the nominal interest rate.E) A) and B)
F) B) and C)

Question 2

Demand is the active and supply the passive determinant of land rent.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is a source of insurable business risk?

Accepted Answer

A)  changes in consumer tastes
B)  changes in government policies
C)  economic recession
D)  accidents to employeesE) None of the above
F) All of the above

Question 4

Which of the following resources is a "free and nonreproducible gift of nature"?

Accepted Answer

A)  labor
B)  entrepreneurship
C)  capital
D)  landE) A) and C)
F) B) and C)

Question 5

Which of the following statements about interest rates is false?

Accepted Answer

A)  Interest rates typically reflect the risk involved in extending a loan.
B)  Interest rates are affected by households' spending decisions.
C)  The equilibrium interest rate is determined by the intersection of the supply and demand schedules for loanable funds.
D)  The supply of loanable funds is independent of the rate of interest.E) C) and D)
F) None of the above

Question 6

Which of the following generalizations is false? Other things equal,

Accepted Answer

A)  interest rates are higher if lenders are imperfectly, rather than purely, competitive.
B)  the interest rate is less on small loans than on larger loans.
C)  long-term loans normally command higher interest rates than short-term loans.
D)  the greater the risk on a loan, the greater the interest rate.E) A) and B)
F) None of the above

Question 7

The share of total income for "capitalists" in America (in the form of rent, interest, and profits)  has been about

Accepted Answer

A)  20 percent.
B)  40 percent.
C)  50 percent.
D)  75 percent.E) B) and C)
F) A) and C)

Question 8

"Pure rate of interest" refers to the interest rate that

Accepted Answer

A)  borrowers pay to lenders in their own family or circle of close friends.
B)  serves solely as payment to lenders for giving up current use of their funds.
C)  is the difference between the actual rate and the theoretical rate.
D)  measures the compensation to lenders for taking on the risks involved.E) A) and B)
F) C) and D)

Question 9

Usury laws

Accepted Answer

A)  allocate funds from low-productivity to high-productivity investments.
B)  establish a legal ceiling on interest rates.
C)  make more funds available to low-income borrowers.
D)  create a surplus of loanable funds.E) A) and B)
F) A) and D)

Question 10

Which of the following statements is correct?

Accepted Answer

A)  Economic profits can properly be regarded as the salaries received by the hired managers of corporations.
B)  Economic rent is a price paid for productive land resources whose supply is perfectly inelastic.
C)  Economic profits would be nonexistent in a dynamic, purely competitive economy.
D)  Economic, or pure, profit is the minimum return that entrepreneurs must receive to continue in a particular line of production.E) A) and C)
F) B) and C)

Question 11

The aggregate economic rent received by a productive resource will decrease, ceteris paribus, whenever the

Accepted Answer

A)  demand for the resource increases.
B)  price of the resource decreases.
C)  demand for the resource decreases.
D)  supply curve shifts to the right.E) B) and D)
F) None of the above

Question 12

A usury law is a law that sets the

Accepted Answer

A)  federal funds rate.
B)  maximum interest rate at which loans can be made.
C)  spread between the prime rate of interest and credit card rates.
D)  interest paid on 90-day Treasury bills and 30-year bonds of the U.S.government.E) A) and B)
F) A) and C)

Question 13

A decrease in the supply of loanable funds and an increase in the demand for loanable funds will

Accepted Answer

A)  increase the interest rate and the quantity of funds loaned.
B)  decrease the interest rate and the quantity of funds loaned.
C)  increase the interest rate, but the quantity of funds loaned may either increase or decrease.
D)  decrease the interest rate, but the quantity of funds loaned may either increase or decrease.E) C) and D)
F) A) and D)

Question 14

Economic profits

Accepted Answer

A)  are identical to accounting profits.
B)  must be earned by every firm that continues to produce in the long run.
C)  serve no useful economic purpose and should never occur in a competitive economy.
D)  serve in the short run as an incentive to guide production decisions, but indicate the existence of barriers to entry in the long run.E) A) and B)
F) None of the above

Question 15

Interest rates are the payments needed to entice individuals to

Accepted Answer

A)  accept insurable risk.
B)  accept uninsurable risk.
C)  sacrifice their present consumption.
D)  sacrifice their future consumption.E) A) and B)
F) A) and C)

Question 16

The economist who advocated a single tax on land was

Accepted Answer

A)  Adam Smith.
B)  John Maynard Keynes.
C)  Henry George.
D)  Milton Friedman.E) A) and B)
F) A) and C)

Question 17

Money is an economic resource referred to as capital.

Accepted Answer

A) True 
 B)False

Question 18

The future value of $3,000 deposited today at 5 percent interest is $3,646.52 four years from now.

Accepted Answer

A) True 
 B)False

Question 19

In year 1 the price level is constant and the nominal rate of interest is 6 percent.But in year 2 the inflation rate is 3 percent.If the real rate of interest is to remain at the same level in year 2 as it was in year 1, then in year 2 the nominal interest rate must

Accepted Answer

A)  rise by 9 percentage points.
B)  rise by 3 percentage points.
C)  fall by 3 percentage points.
D)  rise by 6 percentage points.E) B) and C)
F) All of the above

Question 20

Entrepreneurs mostly focus on a single number: profits.As a result, which of the following statements tends to be true about their firms?

Accepted Answer

A)  The firms tend to do well in some aspects of their operations, but other aspects are neglected.
B)  The firms cannot achieve a very high overall efficiency.
C)  The firms pay close attention to every aspect of their operations.
D)  The firms' suppliers and customers are often left behind.E) A) and B)
F) B) and D)

Exam 18: Rent, Interest, and Profit

Which of the following resources is a "free and nonreproducible gift of nature"?

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Which of the following statements is correct?

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The future value of $3,000 deposited today at 5 percent interest is $3,646.52 four years from now.

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Entrepreneurs mostly focus on a single number: profits.As a result, which of the following statements tends to be true about their firms?

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Which of the following generalizations is false? Other things equal,

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Usury laws

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A decrease in the supply of loanable funds and an increase in the demand for loanable funds will

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Money is an economic resource referred to as capital.

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Demand is the active and supply the passive determinant of land rent.

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Which of the following statements about interest rates is false?

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The real interest rate can be estimated by

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In year 1 the price level is constant and the nominal rate of interest is 6 percent.But in year 2 the inflation rate is 3 percent.If the real rate of interest is to remain at the same level in year 2 as it was in year 1, then in year 2 the nominal interest rate must

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Economic profits

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The share of total income for "capitalists" in America (in the form of rent, interest, and profits) has been about

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Interest rates are the payments needed to entice individuals to

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A usury law is a law that sets the

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"Pure rate of interest" refers to the interest rate that

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The aggregate economic rent received by a productive resource will decrease, ceteris paribus, whenever the

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Which of the following is a source of insurable business risk?

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The economist who advocated a single tax on land was

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