Question 1

The demand for farmland will increase if

Accepted Answer

A)  the demand for food decreases.
B)  technological advances make land more productive.
C)  the price of farm labor increases and the output effect exceeds the substitution effect.
D)  the supply of farmland increases.

Question 2

A major purpose of usury laws is to make more funds available to low-income borrowers.Economic analysis suggests that usury laws

Accepted Answer

A)  are effective in achieving this goal.
B)  allocate available funds to high-income borrowers.
C)  have no impact on the allocation of funds between high-income and low-income people.
D)  help low-income people only when the legal interest rate is above the market rate.

Question 3

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.

Question 4

Reducing the payment of rent to landowners will decrease the quantity of land supplied.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following factors is not a typical cause of changes in land rent?

Accepted Answer

A)  demand for land
B)  supply of land
C)  prices of the products produced from the land
D)  prices of other resources employed along with land

Question 6

Which of the following interest rates is usually the highest?

Accepted Answer

A)  30-year mortgage rate
B)  20-year Treasury bond rate
C)  consumer credit-card rate
D)  prime rate of banks

Question 7

In making an investment decision, a business firm is most interested in the

Accepted Answer

A)  nominal interest rate.
B)  real interest rate.
C)  nominal interest rate minus the real interest rate.
D)  future supply of loanable funds. B

Question 8

If you pay $10,625 annually on a $125,000 loan and the rate of inflation is 3 percent, then the

Accepted Answer

A)  real rate of interest is 4.5 percent.
B)  nominal rate of interest is 8.5 percent.
C)  real rate of interest is 6.5 percent.
D)  nominal rate of interest is 11.5 percent.

Question 9

Suppose many businesses want to increase their stock of capital goods and decide to borrow funds to do it.Which would be the likely result of this event?

Accepted Answer

A)  Interest rates would increase.
B)  Interest rates would decrease.
C)  The equilibrium quantity of loanable funds would decrease.
D)  The equilibrium quantity of loanable funds would remain unchanged.Difficulty: 01 Easy

Question 10

Rent performs an incentive function, but no rationing function.

Accepted Answer

A) True 
 B)False  False

Question 11

Other things equal, short-term loans usually have lower rates of interest than do long-term loans.

Accepted Answer

A) True 
 B)False

Question 12

(Last Word)  Suppose you borrow $500 and agree to pay this $500 plus $75 of interest at the end of a year.The interest rate is

Accepted Answer

A)  10 percent.
B)  15 percent.
C)  12.5 percent.
D)  7.5 percent.

Question 13

The marginal revenue product (MRP)  of land declines as more land is brought into production because

Accepted Answer

A)  land is a "free and nonreproducible gift of nature."
B)  of diminishing returns.
C)  land rent has no incentive function.
D)  the supply of land is fixed.

Question 14

In Progress and Poverty (1879) , Henry George argued for

Accepted Answer

A)  a progressive income tax.
B)  a heavy tax on land-rent income.
C)  a flat tax.
D)  a subsidy for land.

Question 15

If the payment to an input is pure economic rent, then reducing that payment will

Accepted Answer

A)  not influence the availability of the input.
B)  increase the quantity supplied of the input.
C)  decrease the quantity supplied of the input.
D)  decrease the demand for the input.

Question 16

Which of the following was not a belief of Henry George and the single-tax movement?

Accepted Answer

A)  Rental income is unfair because landlords do not really earn it from any productive effort.
B)  Rental income should be taxed heavily and should be the primary source of revenues for the government.
C)  Taxing rental income would adversely affect allocative efficiency because the tax would change how landlords use their land.
D)  The single tax on rent would not adversely affect society's productive efficiency. C

Question 17

Which factor will decrease 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 investments

Question 18

If the desired real rate of interest is 5 percent and the expected rate of inflation is 15 percent, what is the nominal rate of interest?

Accepted Answer

A)  5 percent
B)  10 percent
C)  15 percent
D)  20 percent

Question 19

The equilibrium interest rate equates

Accepted Answer

A)  nominal and real interest rates.
B)  the quantities demanded and supplied of loanable funds.
C)  consumption and saving.
D)  taxes and government spending.

Question 20

Normal profit is considered an economic cost.

Accepted Answer

A) True 
 B)False

Exam 18: Rent, Interest, and Profit

The demand for farmland will increase if

Correct AnswerverifiedShow Answer

A major purpose of usury laws is to make more funds available to low-income borrowers.Economic analysis suggests that usury laws

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

Reducing the payment of rent to landowners will decrease the quantity of land supplied.

Correct AnswerverifiedShow Answer

Which of the following factors is not a typical cause of changes in land rent?

Correct AnswerverifiedShow Answer

Which of the following interest rates is usually the highest?

Correct AnswerverifiedShow Answer

In making an investment decision, a business firm is most interested in the

Correct AnswerverifiedB

If you pay $10,625 annually on a $125,000 loan and the rate of inflation is 3 percent, then the

Correct AnswerverifiedShow Answer

Suppose many businesses want to increase their stock of capital goods and decide to borrow funds to do it.Which would be the likely result of this event?

Correct AnswerverifiedShow Answer

Rent performs an incentive function, but no rationing function.

Correct AnswerverifiedFalse

Other things equal, short-term loans usually have lower rates of interest than do long-term loans.

Correct AnswerverifiedShow Answer

(Last Word) Suppose you borrow $500 and agree to pay this $500 plus $75 of interest at the end of a year.The interest rate is

Correct AnswerverifiedShow Answer

The marginal revenue product (MRP) of land declines as more land is brought into production because

Correct AnswerverifiedShow Answer

In Progress and Poverty (1879) , Henry George argued for

Correct AnswerverifiedShow Answer

If the payment to an input is pure economic rent, then reducing that payment will

Correct AnswerverifiedShow Answer

Which of the following was not a belief of Henry George and the single-tax movement?

Correct AnswerverifiedC

Which factor will decrease the demand for loanable funds?

Correct AnswerverifiedShow Answer

If the desired real rate of interest is 5 percent and the expected rate of inflation is 15 percent, what is the nominal rate of interest?

Correct AnswerverifiedShow Answer

The equilibrium interest rate equates

Correct AnswerverifiedShow Answer

Normal profit is considered an economic cost.

Correct AnswerverifiedShow Answer

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B

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False

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C

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