Question 1

As the degree of risk connected with a loan increases,the difference between the actual rate of interest on the loan and the pure rate of interest

Accepted Answer

A)   increases.
B)   decreases.
C)   remains unchanged.
D)   becomes zero.
E)   is negative.F) C) and D)
G) B) and E) A

Question 2

Under tight monetary policy,large amounts of government borrowing will

Accepted Answer

A)   shift the demand curve for loanable funds to the left.
B)   produce balance of payments surpluses.
C)   contribute to further increases in interest rates.
D)   lead to an increase in government bond prices.Shift to the left, causing the interest rate to fall.E) A) and B)
F) None of the above

Question 3

The pure rate of interest is the

Accepted Answer

A)   rate of interest charged for large, as compared to small, loans.
B)   interest rate minus any administrative costs, such as bookkeeping and collection.
C)   difference between the interest rate charged on a loan with no risk and one with a measurable degree of risk.
D)   prime rate of interest.
E)   interest rate on a riskless loan.F) B) and E)
G) None of the above

Question 4

The single tax movement of Henry George would have

Accepted Answer

A)   lumped together the piecemeal taxes of government into one tax on income.
B)   placed taxes on economic profits but not on accounting profits.
C)   taxed away economic rents.
D)   taxed only consumption so as not to discourage investment and innovative activity.
E)   placed a heavy tax on all consumption above the minimum requirements for food, clothing, and shelter.F) A) and B)
G) A) and C)

Question 5

The view that the only tax governments should impose is a tax on rent is most closely associated with

Accepted Answer

A)   Adam Smith.
B)   J. M. Keynes.
C)   Henry George.
D)   Joseph Schumpeter.
E)   Frank Knight.F) B) and C)
G) A) and D) C

Question 6

Marx called that part of labor's productivity appropriated by employers

Accepted Answer

A)   surplus value.
B)   capital.
C)   interest.
D)   the value of the marginal product.
E)   excess capacity.F) A) and D)
G) A) and E)

Question 7

If the interest rate is 7.5 percent,a dollar received a year from now has a present value of

Accepted Answer

A)   $1.075.
B)   $0.93.
C)   $0.875.
D)   $0.82.
E)   $0.75.F) All of the above
G) A) and B)

Question 8

Assume that the economy is in equilibrium with the pure rate of interest at 7 percent per year and an investment of funds in a particular project would return 11 percent per year.Frank Knight would argue that most of the 4 percent differential is

Accepted Answer

A)   a reward for innovation in this area.
B)   a premium for the risk inherent in this project.
C)   the result of monopoly profits due to contrived scarcity in this area.
D)   an indication that society should allocate more resources to this area.
E)   the result of exploitation of labor in this area.F) B) and C)
G) A) and B)

Question 9

That profits are a consequence of the exploitation of labor and the appropriation of labor's surplus value is a theory closely associated with

Accepted Answer

A)   Karl Marx.
B)   Henry George.
C)   Frank Knight.
D)   Thomas Malthus.
E)   Joseph Schumpeter.F) B) and D)
G) B) and E)

Question 10

In the 1990s,thousands of new companies were formed to take advantage of the

Accepted Answer

A)   pure rate of interest.
B)   single-tax movement.
C)   Internet.
D)   investment tax credit program.
E)   anti-usury laws.F) B) and E)
G) A) and C)

Question 11

An increase in the price of some rural acreage resulting from the construction of a nearby interstate highway is an example of

Accepted Answer

A)   capital formation.
B)   consumer surplus.
C)   parity.
D)   risk.
E)   rent.F) A) and E)
G) D) and E)

Question 12

The basic difference between rent and other payments for productive inputs is that

Accepted Answer

A)   a reduction in rent will not influence the availability of the input; reductions in other input payments will reduce their availability.
B)   rent is earned income to the input owner; other input payments are unearned.
C)   rent is payment for use of an input; other input payments are made to obtain input services.
D)   rent is payment for an input that has alternative uses; other input payments are for unique inputs.
E)   There are no basic differences among these payments.F) B) and C)
G) All of the above

Question 13

The primary function of interest rates is to

Accepted Answer

A)   determine the demand for labor.
B)   allocate the supply of loanable funds.
C)   compute the rate of profit.
D)   serve as a price for fixed inputs such as land.
E)   serve as a reward for uncompensated risk.F) All of the above
G) C) and D) B

Question 14

Land is defined by economists as an input whose ________ is fixed.

Accepted Answer

A)   price
B)   value
C)   tax rate
D)   quantity
E)   revenueF) None of the above
G) C) and D)

Question 15

Schumpeter argued that

Accepted Answer

A)   rents should be taxed away.
B)   profits result from exploitation of labor.
C)   interest is the reward for bearing risk.
D)   profits are derived from innovation.
E)   interest is best explained by the liquidity preference theory.F) B) and E)
G) A) and D)

Question 16

Accounting profits differ from the economist's concept of profits because accounting profits

Accepted Answer

A)   fall less rapidly during recessions.
B)   are excluded from calculations of the national income.
C)   are corrected for differences in the quality of management provided by owners.
D)   are measured in a way that does not fully reflect the opportunity costs of firms' resources.
E)   vary among industries, whereas economic profits are the same among all industries.F) B) and D)
G) All of the above

Question 17

Two important determinants of the rate of interest charged to borrowers are the riskiness of the loan and the

Accepted Answer

A)   capital budget.
B)   liquidity index.
C)   cost of bookkeeping and collection.
D)   level of roundaboutness.
E)   profit share.F) A) and B)
G) A) and C)

Question 18

If a $1 million project can be financed at 12 percent per year and will have a 15 percent rate of return per year,its annual profit will be

Accepted Answer

A)   $30,000.
B)   $120,000.
C)   $150,000.
D)   $240,000.
E)   $850,000.F) A) and C)
G) A) and B)

Question 19

Economic rent is a

Accepted Answer

A)   payment above the minimum necessary to make an input available to the economy.
B)   price of an apartment or other leased building.
C)   tax imposed by the government on property.
D)   payment for free resources such as air and water.
E)   payment for an input that has many close substitutes readily available.F) B) and E)
G) D) and E)

Question 20

The following question are based on the following rates of return for five independent investment projects:
 
-A 2 percent increase in the interest rate might result in canceling the decision to undertake project

Accepted Answer

A)   A.
B)   B.
C)   C.
D)   D.
E)   E.F) C) and D)
G) A) and E)

Exam 11: Interest,rent,and Profit

As the degree of risk connected with a loan increases,the difference between the actual rate of interest on the loan and the pure rate of interest

Correct AnswerverifiedA

Under tight monetary policy,large amounts of government borrowing will

Correct AnswerverifiedShow Answer

The pure rate of interest is the

Correct AnswerverifiedShow Answer

The single tax movement of Henry George would have

Correct AnswerverifiedShow Answer

The view that the only tax governments should impose is a tax on rent is most closely associated with

Correct AnswerverifiedC

Marx called that part of labor's productivity appropriated by employers

Correct AnswerverifiedShow Answer

If the interest rate is 7.5 percent,a dollar received a year from now has a present value of

Correct AnswerverifiedShow Answer

Assume that the economy is in equilibrium with the pure rate of interest at 7 percent per year and an investment of funds in a particular project would return 11 percent per year.Frank Knight would argue that most of the 4 percent differential is

Correct AnswerverifiedShow Answer

That profits are a consequence of the exploitation of labor and the appropriation of labor's surplus value is a theory closely associated with

Correct AnswerverifiedShow Answer

In the 1990s,thousands of new companies were formed to take advantage of the

Correct AnswerverifiedShow Answer

An increase in the price of some rural acreage resulting from the construction of a nearby interstate highway is an example of

Correct AnswerverifiedShow Answer

The basic difference between rent and other payments for productive inputs is that

Correct AnswerverifiedShow Answer

The primary function of interest rates is to

Correct AnswerverifiedB

Land is defined by economists as an input whose ________ is fixed.

Correct AnswerverifiedShow Answer

Schumpeter argued that

Correct AnswerverifiedShow Answer

Accounting profits differ from the economist's concept of profits because accounting profits

Correct AnswerverifiedShow Answer

Two important determinants of the rate of interest charged to borrowers are the riskiness of the loan and the

Correct AnswerverifiedShow Answer

If a $1 million project can be financed at 12 percent per year and will have a 15 percent rate of return per year,its annual profit will be

Correct AnswerverifiedShow Answer

Economic rent is a

Correct AnswerverifiedShow Answer

The following question are based on the following rates of return for five independent investment projects: -A 2 percent increase in the interest rate might result in canceling the decision to undertake project

Correct AnswerverifiedShow Answer

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C

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B

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