Question 1

In time-value of money calculations, discounting is the reverse of compounding.

Accepted Answer

A) True 
 B)False

Question 2

Economists who have studied the composition of "proprietor's income" have found that this income item is made up of

Accepted Answer

A)  wages and profits, mostly wages.
B)  interest and profits, mostly profits.
C)  rent and interest, mostly interest.
D)  wages and interest, mostly wages.E) B) and D)
F) B) and C)

Question 3

An increase in the demand for loanable funds may be caused by a(n)

Accepted Answer

A)  increase in the availability of loanable funds.
B)  increase in consumers' willingness to save.
C)  increase in business borrowing.
D)  decrease in the interest rate.E) A) and B)
F) B) and D)

Question 4

Critics of a single tax on land oppose the idea because

Accepted Answer

A)  it would overtax the population.
B)  changes in land ownership would cause the tax burden to fall unfairly on people who did not receive economic rents.
C)  it would disproportionately tax the richest members of society.
D)  it would cause too much land to be brought out of production.E) B) and D)
F) B) and C)

Question 5

The demand side, not supply, is the major factor determining how high land's rent will be.

Accepted Answer

A) True 
 B)False

Question 6

Currently, capitalist income, that is, corporate profits, interest, and rent, accounts for about what percentage of the income paid to American resource suppliers?

Accepted Answer

A)  10 percent
B)  20 percent
C)  50 percent
D)  80 percentE) None of the above
F) All of the above

Question 7

If a factor of production has no production cost and has a fixed supply, then payments to that factor constitute what economists call

Accepted Answer

A)  abnormal profits.
B)  economic rent.
C)  normal profits.
D)  interest payments.E) A) and D)
F) C) and D)

Question 8

Entrepreneurs can generate economic profits by all of the following, except

Accepted Answer

A)  developing popular new products.
B)  reducing production costs below rivals' costs.
C)  creating and maintaining monopoly power.
D)  laying off workers in order to cut costs.E) A) and D)
F) B) and C)

Question 9

A given future value of money would have a smaller present value if

Accepted Answer

A)  the interest rate used in discounting is higher.
B)  the length of time over which it is "discounted" is shorter.
C)  the interest rate is zero.
D)  there is no compounding of interest.E) B) and C)
F) A) and C)

Question 10

(Last Word)  Suppose you deposit $5,000 in a bank that pays 10 percent interest compounded twice a year.The actual annual interest rate you receive is

Accepted Answer

A)  10 percent.
B)  11 percent.
C)  10.25 percent.
D)  12 percent.E) A) and B)
F) B) and C)

Question 11

(Consider This)  The story about economist Irving Fisher's conversation with his masseuse illustrates that interest payments arise because of

Accepted Answer

A)  the possibility of inflation.
B)  the reality of credit risk.
C)  imperfect information about the future.
D)  the time-value of money.E) All of the above
F) A) and B)

Question 12

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 C)
F) A) and B)

Question 13

As interest rates decrease, the

Accepted Answer

A)  cost of current relative to future consumption increases.
B)  cost of current relative to future consumption decreases.
C)  cost of current consumption relative to future consumption remains the same.
D)  desire of many individuals to save increases.E) A) and B)
F) A) and C)

Question 14

Effective usury laws

Accepted Answer

A)  subsidize lenders.
B)  penalize those who borrow at the below-market interest rate.
C)  improve efficiency in investing.
D)  keep some low-income people from obtaining credit and loans.E) None of the above
F) B) and C)

Question 15

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) All of the above
F) A) and B)

Question 16

Which of the following does not explain differences in rent for different parcels of land?

Accepted Answer

A)  productivity differences
B)  demand differences
C)  supply-elasticity differences
D)  marginal-revenue-product differencesE) None of the above
F) All of the above

Question 17

Which of the following statements about economic profits is not correct?

Accepted Answer

A)  Economic profits act as a signal to producers who make decisions about how to allocate scarce resources.
B)  Economic profits are influenced by the degree of monopoly power.
C)  Economic profits represent a reward for risk taking.
D)  Economic profits are an explicit cost of production.E) A) and B)
F) None of the above

Question 18

In his book Progress and Poverty, Henry George argued that

Accepted Answer

A)  poverty is associated with the personal characteristics of individuals and therefore cannot be remedied by government antipoverty programs.
B)  economic rent could be heavily taxed without impairing the supply of land or, therefore, the productive capacity of the economy.
C)  rents should not be taxed, because rental income is the basic source of saving, which ultimately permits a high level of investment and economic growth.
D)  taxes on rents are undesirable because they have a severe disincentive effect on landlords.E) All of the above
F) A) and C)

Question 19

Economists would not consider which one of the following to be a productive economic resource?

Accepted Answer

A)  land
B)  capital goods
C)  money
D)  entrepreneurshipE) B) and C)
F) A) and D)

Question 20

The rent paid for the pasture land used to graze cattle would increase if

Accepted Answer

A)  the productivity of the land increased.
B)  people decided to consume more beef.
C)  oil deposits were discovered on the land.
D)  any of these occurred.E) None of the above
F) All of the above

Exam 18: Rent, Interest, and Profit

Which factor will increase the demand for loanable funds?

Correct AnswerverifiedShow Answer

A given future value of money would have a smaller present value if

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

(Consider This) The story about economist Irving Fisher's conversation with his masseuse illustrates that interest payments arise because of

Correct AnswerverifiedShow Answer

An increase in the demand for loanable funds may be caused by a(n)

Correct AnswerverifiedShow Answer

Currently, capitalist income, that is, corporate profits, interest, and rent, accounts for about what percentage of the income paid to American resource suppliers?

Correct AnswerverifiedShow Answer

Which of the following does not explain differences in rent for different parcels of land?

Correct AnswerverifiedShow Answer

The demand side, not supply, is the major factor determining how high land's rent will be.

Correct AnswerverifiedShow Answer

Entrepreneurs can generate economic profits by all of the following, except

Correct AnswerverifiedShow Answer

Which of the following statements about economic profits is not correct?

Correct AnswerverifiedShow Answer

Effective usury laws

Correct AnswerverifiedShow Answer

Economists would not consider which one of the following to be a productive economic resource?

Correct AnswerverifiedShow Answer

Critics of a single tax on land oppose the idea because

Correct AnswerverifiedShow Answer

As interest rates decrease, the

Correct AnswerverifiedShow Answer

(Last Word) Suppose you deposit $5,000 in a bank that pays 10 percent interest compounded twice a year.The actual annual interest rate you receive is

Correct AnswerverifiedShow Answer

In time-value of money calculations, discounting is the reverse of compounding.

Correct AnswerverifiedShow Answer

In his book Progress and Poverty, Henry George argued that

Correct AnswerverifiedShow Answer

Economists who have studied the composition of "proprietor's income" have found that this income item is made up of

Correct AnswerverifiedShow Answer

If a factor of production has no production cost and has a fixed supply, then payments to that factor constitute what economists call

Correct AnswerverifiedShow Answer

The rent paid for the pasture land used to graze cattle would increase if

Correct AnswerverifiedShow Answer

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