Question 1

Refer to the table representing Kara's bank account. If the $4,000 was deposited into her account at the beginning of year 1 and no further deposits or withdrawals were made, the interest rate Kara is receiving on her account

Accepted Answer

A)  cannot be determined.
B)  is 6.00 percent.
C)  is 12.50 percent.
D)  is 19.00 percent.E) C) and D)
F) B) and D)

Question 2

Suppose that the available quantity of a certain type of farmland is 400,000 acres, and the demand for this land is given in the table. If landowners were taxed at a rate of $150 per acre for their land, what would be the economic rent on this land after taxes, and how many acres would be rented?

Accepted Answer

A)  $50 and 400,000 acres
B)  $400 and 50,000 acres
C)  $150 and 400,000 acres
D)  $250 and 50,000 acresE) All of the above
F) B) and C)

Question 3

The demand for loanable funds is downsloping

Accepted Answer

A)  because businesses find that more investments are profitable at low interest rates than at high interest rates.
B)  because households are willing to save more at high interest rates than at low interest rates.
C)  only when the nominal interest rate exceeds the real interest rate.
D)  because the amount of profitable business investment varies directly with the interest rate.E) C) and D)
F) B) and D)

Question 4

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, how much interest would Darcy receive in Year 2 only?

Accepted Answer

A)  $60
B)  $63.60
C)  $120
D)  $123.60E) None of the above
F) B) and D)

Question 5

If the interest rate is 11 percent, what is the future value of $6,000 three years from now?

Accepted Answer

A)  $8,206
B)  $7,980
C)  $7,500
D)  $8,460E) A) and B)
F) None of the above

Question 6

A decrease in saving that leads to an increase in the interest rate will

Accepted Answer

A)  decrease the amount of investment spending.
B)  only result in a surplus of loanable funds.
C)  shift the demand for loanable funds to the right, increasing net investment.
D)  shift the demand for loanable funds to the left, causing a decrease in investment.E) All of the above
F) A) and D)

Question 7

Refer to the table representing Kara's bank account. If the $3,000 was deposited into her account at the beginning of year 1 and no further deposits or withdrawals were made, the value for cell E.

Accepted Answer

A)  cannot be determined.
B)  is $3,472.88.
C)  is $3,165.38.
D)  is $3,307.50.E) B) and D)
F) A) and C)

Question 8

Usury laws will result in a shortage of loanable funds and nonmarket rationing in credit markets.

Accepted Answer

A) True 
 B)False

Question 9

Why would farmland closer to the limits of a city be worth more than farmland farther out?

Accepted Answer

Differences in rent arise from differenc...

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

The minimum rate of return or payment necessary to keep an entrepreneur in some specific enterprise is referred to as

Accepted Answer

A)  the pure rate of interest.
B)  the real interest rate.
C)  an economic profit.
D)  a normal profit.E) A) and B)
F) A) and D)

Question 12

If an economic expansion in the economy caused an increase in the demand for loanable funds, what would be the effect on the interest rate and the quantity of funds loaned in the credit market?

Accepted Answer

A)  Interest rates would increase and the quantity of funds loaned would decrease.
B)  Interest rates would decrease and the quantity of funds loaned would increase.
C)  Interest rates and the quantity of funds loaned would decrease.
D)  Interest rates and the quantity of funds loaned would increase.E) B) and D)
F) None of the above

Question 13

If the expected rates of return on investments increased, the loanable funds theory predicts that the equilibrium interest rate would decrease.

Accepted Answer

A) True 
 B)False

Question 14

Present value is the amount to which some current amount of money will grow as interest compounds over time.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

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

Question 16

Discuss the three main sources of economic profit.

Accepted Answer

The three sources of economic profit are...

Question 17

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 indicates the existence of barriers to entry in the long run.E) B) and D)
F) A) and B)

Question 18

Suppose you borrow $500 for a year and the lender discounts $75 of interest at the time the loan is made (giving the borrower only $425) . The interest rate on this loan is about

Accepted Answer

A)  12.50 percent.
B)  17.60 percent.
C)  14.50 percent.
D)  10.00 percent.E) A) and B)
F) All of the above

Question 19

The table applies to a loan with an interest rate of 5 percent per period. What value goes in the cell labeled W?

Accepted Answer

A)  $205
B)  $105
C)  $210
D)  $2,205E) C) and D)
F) A) and B)

Question 20

In a market system, private ownership of land does not lead to which of the following results?

Accepted Answer

A)  Private owners will face no cost in using land for one purpose rather than another.
B)  Land rent reflects the opportunity cost of land.
C)  Land is allocated to its best possible uses.
D)  Private land ownership aids economic growth because land rents reflect changes in tastes and technologies.E) B) and C)
F) B) and D)

Exam 18: Rent, Interest, and Profit

Present value is the amount to which some current amount of money will grow as interest compounds over time.

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Refer to the table representing Kara's bank account. If the $3,000 was deposited into her account at the beginning of year 1 and no further deposits or withdrawals were made, the value for cell E.

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

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In a market system, private ownership of land does not lead to which of the following results?

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Usury laws will result in a shortage of loanable funds and nonmarket rationing in credit markets.

Correct AnswerverifiedShow Answer

Refer to the table representing Kara's bank account. If the $4,000 was deposited into her account at the beginning of year 1 and no further deposits or withdrawals were made, the interest rate Kara is receiving on her account

Correct AnswerverifiedShow Answer

If the interest rate is 11 percent, what is the future value of $6,000 three years from now?

Correct AnswerverifiedShow Answer

A decrease in saving that leads to an increase in the interest rate will

Correct AnswerverifiedShow Answer

The minimum rate of return or payment necessary to keep an entrepreneur in some specific enterprise is referred to as

Correct AnswerverifiedShow Answer

Suppose that the available quantity of a certain type of farmland is 400,000 acres, and the demand for this land is given in the table. If landowners were taxed at a rate of $150 per acre for their land, what would be the economic rent on this land after taxes, and how many acres would be rented?

Correct AnswerverifiedShow Answer

The table applies to a loan with an interest rate of 5 percent per period. What value goes in the cell labeled W?

Correct AnswerverifiedShow Answer

If the expected rates of return on investments increased, the loanable funds theory predicts that the equilibrium interest rate would decrease.

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If an economic expansion in the economy caused an increase in the demand for loanable funds, what would be the effect on the interest rate and the quantity of funds loaned in the credit market?

Correct AnswerverifiedShow Answer

Economic profits

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Discuss the three main sources of economic profit.

Correct AnswerverifiedThe three sources of economic profit are...View AnswerShow 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, how much interest would Darcy receive in Year 2 only?

Correct AnswerverifiedShow Answer

Suppose you borrow $500 for a year and the lender discounts $75 of interest at the time the loan is made (giving the borrower only $425) . The interest rate on this loan is about

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Why would farmland closer to the limits of a city be worth more than farmland farther out?

Correct AnswerverifiedDifferences in rent arise from differenc...View AnswerShow Answer

The demand for loanable funds is downsloping

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The three sources of economic profit are...
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Differences in rent arise from differenc...
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