Question 1

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) A) and B)
F) None of the above

Question 2

(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) None of the above
F) B) and D)

Question 3

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) A) and B)
F) B) and C)

Question 4

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) C) and D)

Question 5

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) B) and D)
F) A) and B)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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 C)

Question 8

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 9

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

Accepted Answer

A) True 
 B)False

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) B) and C)
F) None of the above

Question 11

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) B) and D)
F) B) and C)

Question 12

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) B) and C)
F) C) and D)

Question 13

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) B) and D)

Question 14

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 C)
F) All of the above

Question 15

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) B) and D)
F) A) and D)

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

Question 17

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) A) and C)

Question 18

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) B) and D)
F) A) and D)

Question 19

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) A) and C)

Question 20

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 C)
F) A) and D)

Exam 18: Rent, Interest, and Profit

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

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Which factor will increase the demand for loanable funds?

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

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Effective usury laws

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As interest rates decrease, the

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

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

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Critics of a single tax on land oppose the idea because

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

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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

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In his book Progress and Poverty, Henry George argued that

Correct AnswerverifiedShow Answer

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

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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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

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

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

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

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