Question 1

A bank charges one borrower (A) 8 percent interest per year and another borrower (B) 10 percent interest per year. Which of the following is a plausible reason for the higher interest rate for B?

Accepted Answer

A)  A is borrowing the money for a longer period than B.
B)  A is borrowing a larger amount than B.
C)  B is using the money for a less risky project than A.
D)  B has a better credit rating than A.E) A) and B)
F) A) and C)

Question 2

The table gives investment-demand in an economy. Assume that investment demand decreased by $100 billion in the investment-demand schedule. What expected rate of return and interest rate would create $430 billion of investment?

Accepted Answer

A)  13 percent
B)  15 percent
C)  17 percent
D)  19 percentE) B) and C)
F) C) and D)

Question 3

The payment earned for taking uninsurable risks in owning and running a business is called profit.

Accepted Answer

A) True 
 B)False

Question 4

Refer to the table representing Darcy's bank account. If she deposited $1,000 into her account at the beginning of year 1 and made no further deposits or withdrawals, what is the value for cell D?

Accepted Answer

A)  $67.40
B)  $180
C)  $191
D)  It cannot be determined.E) C) and D)
F) None of the above

Question 5

Other things equal, the shorter the loan period and the larger the loan size, the higher is the interest rate charged by the lender.

Accepted Answer

A) True 
 B)False

Question 6

In general, if we compare two loans or bonds with the same loan size and taxability of interest-income, we would expect a higher interest rate on the loan or bond with a

Accepted Answer

A)  higher risk and longer maturity.
B)  lower risk and longer maturity.
C)  lower risk and shorter maturity.
D)  higher risk and shorter maturity.E) B) and C)
F) A) and C)

Question 7

Which type of income contributes the smallest share to total income in the U.S.?

Accepted Answer

A)  wages
B)  interest
C)  rent
D)  profitsE) None of the above
F) A) and B)

Question 8

Interest rates of various loans vary over a wide range due to differences in all of the following, except

Accepted Answer

A)  borrower characteristics.
B)  maturity of the loan.
C)  loan size.
D)  lender characteristics.E) None of the above
F) A) and D)

Question 9

The total supply of land is

Accepted Answer

A)  upsloping.
B)  perfectly elastic.
C)  perfectly inelastic.
D)  greater in the short run than in the long run.E) None of the above
F) B) and C)

Question 10

Refer to the diagram. If the supply of loanable funds is S ₁ and the demand for loanable funds is D ₁, the equilibrium interest rate and quantity of funds borrowed will be

Accepted Answer

A)  G and A.
B)  F and A.
C)  F and C.
D)  E and A.E) All of the above
F) None of the above

Question 11

Refer to the table representing Darcy's bank account. If she deposited the $1,000 into her account at the beginning of year 1 and made no further deposits or withdrawals, what interest rate is being paid on Darcy's account?

Accepted Answer

A)  6.40 percent
B)  6 percent
C)  19.10 percent
D)  60 percentE) B) and C)
F) C) and D)

Question 12

Refer to the demand schedule and possible supply schedules, A-D. Suppose that the supply of a resource is given by the schedule that exhibits a zero price elasticity. If demand for the resource increases from the original demand schedule by 20 units at each price, then the equilibrium economic rent would be

Accepted Answer

A)  $4.
B)  $3.
C)  $2.
D)  $1.E) All of the above
F) A) and D)

Question 13

Which of the following statements is correct?

Accepted Answer

A)  Rent performs an incentive function, but not a rationing function.
B)  Wage rate does not perform an incentive function in the supply of labor.
C)  Profits are payments to capital resource owners.
D)  Demand is the "active," and supply the "passive," determinant of land rent.E) A) and C)
F) A) and B)

Question 14

"Present value" refers to the

Accepted Answer

A)  value today of a specific amount of money to be received in the future.
B)  current value of money held in a bank account.
C)  amount to which some current amount of money will grow over time.
D)  interest rate specified when a loan contract is signed.E) All of the above
F) C) and D)

Question 15

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 B)
F) B) and D)

Question 16

Refer to the table, in which the values for columns (2) through (5) are in acres. If the relevant columns are (1) , (2) , and (3) , land rent will be

Accepted Answer

A)  $100 per acre.
B)  $200 per acre.
C)  $300 per acre.
D)  $400 per acre.E) All of the above
F) C) and D)

Question 17

Suppose many businesses want to increase their stock of capital goods and decide to borrow funds to do it. Which would be the likely result of this event?

Accepted Answer

A)  Interest rates would increase.
B)  Interest rates would decrease.
C)  The equilibrium quantity of loanable funds would decrease.
D)  The equilibrium quantity of loanable funds would remain unchanged.E) All of the above
F) B) and D)

Question 18

For a usury law to be effective, the interest rate must be

Accepted Answer

A)  determined by borrowing and lending.
B)  set at the market equilibrium interest rate.
C)  set above the market equilibrium interest rate.
D)  set below the market equilibrium interest rate.E) A) and C)
F) B) and D)

Question 19

Which factor will increase the demand for loanable funds?

Accepted Answer

A)  a change in the tax law to exempt savings from taxation
B)  expansion of social insurance to cover more fully the cost of retirement
C)  a general business recession that produces high rates of unemployment
D)  a technological advance that increases returns on investmentsE) B) and D)
F) A) and B)

Question 20

A firm will undertake investments as long as the expected rate of return is less than the interest rate.

Accepted Answer

A) True 
 B)False

Exam 18: Rent, Interest, and Profit

A firm will undertake investments as long as the expected rate of return is less than the interest rate.

Correct Answer
verified

Refer to the diagram. If the supply of loanable funds is S ₁ and the demand for loanable funds is D ₁, the equilibrium interest rate and quantity of funds borrowed will be

Correct Answer
verified

The total supply of land is

Correct Answer
verified

Other things equal, the shorter the loan period and the larger the loan size, the higher is the interest rate charged by the lender.

Correct Answer
verified

The table gives investment-demand in an economy. Assume that investment demand decreased by $100 billion in the investment-demand schedule. What expected rate of return and interest rate would create $430 billion of investment?

Correct Answer
verified

For a usury law to be effective, the interest rate must be

Correct Answer
verified

Refer to the table representing Darcy's bank account. If she deposited the $1,000 into her account at the beginning of year 1 and made no further deposits or withdrawals, what interest rate is being paid on Darcy's account?

Correct Answer
verified

"Present value" refers to the

Correct Answer
verified

Which factor will increase the demand for loanable funds?

Correct Answer
verified

The payment earned for taking uninsurable risks in owning and running a business is called profit.

Correct Answer
verified

Correct Answer
verified

Refer to the table representing Darcy's bank account. If she deposited $1,000 into her account at the beginning of year 1 and made no further deposits or withdrawals, what is the value for cell D?

Correct Answer
verified

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

Correct Answer
verified

A bank charges one borrower (A) 8 percent interest per year and another borrower (B) 10 percent interest per year. Which of the following is a plausible reason for the higher interest rate for B?

Correct Answer
verified

In general, if we compare two loans or bonds with the same loan size and taxability of interest-income, we would expect a higher interest rate on the loan or bond with a

Correct Answer
verified

Refer to the table, in which the values for columns (2) through (5) are in acres. If the relevant columns are (1) , (2) , and (3) , land rent will be

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Interest rates of various loans vary over a wide range due to differences in all of the following, except

Correct Answer
verified

Suppose many businesses want to increase their stock of capital goods and decide to borrow funds to do it. Which would be the likely result of this event?

Correct Answer
verified

Which type of income contributes the smallest share to total income in the U.S.?

Correct Answer
verified

Exam 18: Rent, Interest, and Profit

A firm will undertake investments as long as the expected rate of return is less than the interest rate.

Correct AnswerverifiedShow Answer

Refer to the diagram. If the supply of loanable funds is S ₁ and the demand for loanable funds is D ₁, the equilibrium interest rate and quantity of funds borrowed will be

Correct AnswerverifiedShow Answer

The total supply of land is

Correct AnswerverifiedShow Answer

Other things equal, the shorter the loan period and the larger the loan size, the higher is the interest rate charged by the lender.

Correct AnswerverifiedShow Answer

The table gives investment-demand in an economy. Assume that investment demand decreased by $100 billion in the investment-demand schedule. What expected rate of return and interest rate would create $430 billion of investment?

Correct AnswerverifiedShow Answer

For a usury law to be effective, the interest rate must be

Correct AnswerverifiedShow Answer

Refer to the table representing Darcy's bank account. If she deposited the $1,000 into her account at the beginning of year 1 and made no further deposits or withdrawals, what interest rate is being paid on Darcy's account?

Correct AnswerverifiedShow Answer

"Present value" refers to the

Correct AnswerverifiedShow Answer

Which factor will increase the demand for loanable funds?

Correct AnswerverifiedShow Answer

The payment earned for taking uninsurable risks in owning and running a business is called profit.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Refer to the table representing Darcy's bank account. If she deposited $1,000 into her account at the beginning of year 1 and made no further deposits or withdrawals, what is the value for cell D?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A bank charges one borrower (A) 8 percent interest per year and another borrower (B) 10 percent interest per year. Which of the following is a plausible reason for the higher interest rate for B?

Correct AnswerverifiedShow Answer

In general, if we compare two loans or bonds with the same loan size and taxability of interest-income, we would expect a higher interest rate on the loan or bond with a

Correct AnswerverifiedShow Answer

Refer to the table, in which the values for columns (2) through (5) are in acres. If the relevant columns are (1) , (2) , and (3) , land rent will be

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Interest rates of various loans vary over a wide range due to differences in all of the following, except

Correct AnswerverifiedShow Answer

Suppose many businesses want to increase their stock of capital goods and decide to borrow funds to do it. Which would be the likely result of this event?

Correct AnswerverifiedShow Answer

Which type of income contributes the smallest share to total income in the U.S.?

Correct AnswerverifiedShow Answer

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