Ch. 16: Flashcards on Economics

Economic or pure rent is: A. a payment made for the use of housing, factory buildings, or capital goods. B. a payment for resources used in the production of "free goods." C. a payment for the use of those resources whose supply is perfectly elastic. D. the price paid for the use of land and other nonreproducible resources

To say that land rent performs no incentive function means that: A. higher rental payments will not bring forth a larger quantity of land. B. rent is not a cost to specific firms, but it is a cost from the standpoint of the economy as a whole. C. rent does not allocate land in terms of productive efficiency. D. rent tends to allocate land into the most productive uses

The incentive function of prices: A. indicates that price increases bring forth more of that resource. B. is the idea that competitive markets will always clear. C. applies to all resources. D. only applies to land.

The demand for farmland will increase if: 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

Interest is the: A. price paid for the use of money. B. opportunity cost of time. C. expectation of a future return on investment. D. reward for consuming rather than saving.

Which of the following is correct? A. Money is a resource, but real capital is not. B. Real capital is a resource, but money is not. C. Neither money nor real capital is a resource. D. Both money and real capital are resources.

The equilibrium interest rate equates: A. nominal and real interest rates. B. the quantities demanded and supplied of loanable funds. C. consumption and saving. D. taxes and government spending.

The supply curve of loanable funds is upsloping because: A. businesses find more investments to be profitable at low interest rates than at high interest rates. B. government budget deficits vary inversely with the equilibrium interest rate. C. households are willing to save more at high interest rates than they are at low interest rates. D. banks lend more at low interest rates than they do at high interest rates.

Which of the following is not a component of the demand for loanable funds? A. Household purchases of housing and durable consumer goods. B. Business purchases of capital goods. C. Government financing of the public debt. D. Household saving.

The demand for loanable funds is downsloping: 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.

Other things equal, an increase in the productivity of capital goods will: A. increase the demand for loanable funds and decrease the equilibrium interest rate. B. increase the demand for loanable funds and increase the equilibrium interest rate. C. increase the supply of loanable funds and decrease the equilibrium interest rate. D. increase the supply of loanable funds and increase the equilibrium interest rate.

If Congress were to pass a law exempting interest on saving from taxation, the: A. supply of loanable funds would decrease and the equilibrium interest rate rise. B. supply of loanable funds would increase and the equilibrium interest rate fall. C. demand for loanable funds would increase and the equilibrium interest rate rise. D. equilibrium interest rate would be unaffected.

The "time-value of money" refers to the fact that: A. a given amount of money becomes more valuable over time. B. a given amount of money is more valuable the sooner it is obtained. C. people expect monetary compensation for their labor time. D. a given amount of money today is equivalent to a smaller amount of money in the future

Other things equal, interest rates are: A. higher on large loans than on small loans. B. higher on loans with tax-exempt interest payments. C. lower on less risky loans than on riskier loans. D. lower on short-term loans than on long-term loans.

Which of the following generalizations is false? Other things equal: A. interest rates are higher if lenders are imperfectly, rather than purely, competitive. B. the interest rate is less on small loans than on larger loans. C. long-term loans normally command higher interest rates than short-term loans. D. the greater the risk on a loan, the greater the interest rate.

A lower equilibrium interest rate: A. increases saving, reduces total spending, and increases total output. B. decreases saving, increases total spending, and decreases total output. C. Increases investment, increases total spending, and increases total output D.decreases investment, decreases total spending, and increases total output.

Changes in the equilibrium interest rate will: A. affect both the size of the domestic output and the allocation of capital goods among industries. B. affect the size of the domestic output, but not the allocation of capital goods among industries. C. affect the allocation of capital goods among industries, but not the size of the domestic output. D. have no perceptible effect on either the size of the domestic output or the allocation of capital goods among industries.

Economic profit is most closely associated with: A. the process of saving and investing. B. monopoly, innovation, and uninsurable risks. C. long-run competitive equilibrium. D. a static economy.

Which of the following represents an uninsurable risk to a business firm? A. The possibility that its warehouse will burn down. B. The possibility that several of its workers will be injured at work. C. The possibility that an adverse change in consumer tastes will decrease the demand for the firm's product. D. The possibility that a tornado will damage the plant and stop production for a month.

Economic profit affects: A. the allocation of resources but not the level of resource use. B. the level of resource use but not the allocation of resources. C. the allocation of resources and the level of resource use. D. neither the allocation of resources nor the level of resource use.