Question 1

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

Question 2

Different rents on land reflect differences in the marginal revenue product of land.

Accepted Answer

A) True 
 B)False

Question 3

Economists claim that a farmer who owns her land, provides all her own labor, and calculates her profits from the farm by subtracting explicit costs from total revenues will

Accepted Answer

A)   overstate her accounting profits.
B)   understate her accounting profits.
C)   overstate her economic profits.
D)   understate her economic profits.E) None of the above
F) B) and C)

Question 4

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

Question 5

The risk that the firm's employees might get hurt while working is an example of the uninsurable risks faced by an entrepreneur.

Accepted Answer

A) True 
 B)False

Question 6

A normal profit is

Accepted Answer

A)   the average profitability of a firm over one complete business cycle.
B)   calculated by subtracting explicit costs from total revenue.
C)   the "price" required to retain entrepreneurial talent in some particular line of production.
D)   the amount by which total revenue exceeds total operating costs.E) C) and D)
F) B) and D)

Question 7

Economic profits are the salaries received by the hired managers of business corporations.

Accepted Answer

A) True 
 B)False

Question 8

(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) C) and D)

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements best illustrates the time-value of money concept?

Accepted Answer

A)   Bob is willing to forgo receiving $100 today in order to receive $110 next month.
B)   Tom is indifferent between receiving $50 now and receiving $50 six months from now.
C)   Terry works for an hourly wage instead of a fixed salary.
D)   Jeff would prefer to receive $200 at the end of the year instead of $220 now.E) All of the above
F) A) and C)

Question 11

The "future value" of a sum of money refers to

Accepted Answer

A)   the estimated value of that money invested in a stock portfolio at some future date.
B)   the purchasing power of a given amount of money adjusted for price changes.
C)   today's value of a sum of money to be received in the future.
D)   the amount to which some current sum of money will grow over time.E) A) and B)
F) B) and D)

Question 12

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

Question 13

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

Question 14

Other things equal, the interest rate on a loan will be larger,

Accepted Answer

A)   the higher the risk involved.
B)   the larger the amount of the loan.
C)   the shorter the length of the loan.
D)   if loan interest is exempt from taxation.E) A) and B)
F) None of the above

Question 15

If you pay $1,980 annually on an $18,000 loan and the rate of inflation is 3 percent, then the

Accepted Answer

A)   real rate of interest is 8 percent
B)   nominal rate of interest is 8 percent.
C)   real rate of interest is 11 percent.
D)   nominal rate of interest is 14 percent.E) C) and D)
F) None of the above

Question 16

The core concept that is central to understanding the time-value of money is

Accepted Answer

A)   GDP growth.
B)   inflation.
C)   interest rate.
D)   exchange rate.E) A) and B)
F) A) and C)

Question 17

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) All of the above

Question 18

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

Question 19

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

Question 20

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) C) and D)

Exam 18: Rent, Interest, and Profit

A normal profit is

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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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Economic profits are the salaries received by the hired managers of business corporations.

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

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

Correct AnswerverifiedShow Answer

The "future value" of a sum of money refers to

Correct AnswerverifiedShow Answer

Different rents on land reflect differences in the marginal revenue product of land.

Correct AnswerverifiedShow Answer

A usury law is a law that sets the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The risk that the firm's employees might get hurt while working is an example of the uninsurable risks faced by an entrepreneur.

Correct AnswerverifiedShow Answer

Economists claim that a farmer who owns her land, provides all her own labor, and calculates her profits from the farm by subtracting explicit costs from total revenues will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Other things equal, the interest rate on a loan will be larger,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If you pay $1,980 annually on an $18,000 loan and the rate of inflation is 3 percent, then the

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

The core concept that is central to understanding the time-value of money is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following statements best illustrates the time-value of money concept?

Correct AnswerverifiedShow Answer

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