EC120 Chapter Notes - Chapter 23: Nominal Interest Rate, Loanable Funds, Longrun
EC120 Full Course Notes
Document Summary
Get access
Related Documents
Related Questions
QUESTION 16
Which of the following statements is true?
| The administrative costs per dollar are greater for a large loan than a small loan. | ||
| The risk on a long-term loan is likely to be less than on a short-term loan, ceteris paribus. | ||
| a and b | ||
| none of the above |
1 points
QUESTION 17
If the price for loanable funds is less than the return on capital, then firms will
| borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital decreases and its return rises. | ||
| borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital increases and its return falls. | ||
| not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will fall. | ||
| not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will rise. |
1 points
QUESTION 18
Economic rent is
| the payment a renter pays his or her landlord. | ||
| payment in excess of fixed costs. | ||
| payment in excess of opportunity costs. | ||
| the same as interest if we are discussing a capital good purchase. | ||
| none of the above |
1 points
QUESTION 19
Suppose a bank makes a $1,000 loan to you at 5 percent interest when the expected and actual inflation rate are zero percent. Before you pay back the $1,000 principal and $50 interest, the inflation rate increases to 10 percent. Does anyone lose from this situation?
| Nobody loses, because the terms were set before the inflation rate increased, and once the terms are set, inflation does not affect the situation. | ||
| You lose, because the dollars that you have borrowed are worth more the higher the inflation rate. | ||
| The banker loses, because you will be paying back the loan with dollars that are worth less than the dollars you borrowed. | ||
| Both the banker and you lose, for the reasons in answers b and c. | ||
| There is not enough information to answer the question. |
1 points
QUESTION 20
A change in the expected rate of inflation from 5 percent to 3 percent will
| decrease the real interest rate by 2 percentage points. | ||
| decrease the real interest rate by 3 percentage points. | ||
| increase the nominal interest rate by 2 percentage points. | ||
| decrease the nominal interest rate by 2 percentage points. |
13. Fred is considering expanding his dress shop. If interest rates rise he is
|
a. |
less likely to expand. This illustrates why the supply of loanable funds slopes downward. |
|
b. |
more likely to expand. This illustrates why the supply of loanable funds slopes upward. |
|
c. |
less likely to expand. This illustrates why the demand for loanable funds slopes downward. |
|
d. |
more likely to expand. This illustrates why the demand for loanable funds slopes upward. |
14. You are thinking of buying a bond from Knight Corporation. You know that this bond is long term and you know that Knight's business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation. Which of the following is correct?
|
a. |
The longer-term would tend to make the interest rate on the bond issued by Knight higher, while the higher risk would tend to make the interest rate lower. |
|
b. |
The longer-term would tend to make the interest rate on the bond issued by Knight lower, while the higher risk would tend to make the interest rate higher. |
|
c. |
Both the long-term and the higher risk would tend to make the interest rate lower on the bond issued by Knight. |
|
d. |
Both the long-term and the higher risk would tend to make the interest rate higher on the bond issued by Knight. |
15. In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the inflation rate in 2007 was 16 percent, then how much did a magazine cost in 2007?
|
a. |
$1.87 |
|
b. |
$2.08 |
|
c. |
$2.32 |
|
d. |
$3.00 |
16. An increase in the price of Irish whiskey regularly purchased by Americans will be reflected in
|
a. |
both the U.S. GDP deflator and the U.S. CPI. |
|
b. |
neither the U.S. GDP deflator nor the U.S. CPI. |
|
c. |
the U.S. GDP deflator, but not the U.S. CPI. |
|
d. |
the U.S. CPI, but not the U.S. GDP deflator. |
17. Which of the following would be human capital and physical capital, respectively?
|
a. |
for an accounting firm, the accountants' knowledge of tax laws and the number of hours worked by those accountants |
|
b. |
for a grocery store, grocery carts, and cash registers. |
|
c. |
for a restaurant, the chefs' knowledge about preparing food and equipment in the kitchen |
|
d. |
for a library, the building, and the reference librarians' knowledge of the Internet |
18. If a production function has increasing returns to scale, the output can be more than doubled if
|
a. |
labor alone doubles. |
|
b. |
all inputs but labor double. |
|
c. |
all of the inputs double. |
|
d. |
None of the above is correct. |
19.Suppose that an American company opens and operates a restaurant in Ireland. This is an example of
a. foreign direct investment. American saving is used to finance Irish investment.
b. foreign direct investment. American saving is used to finance American investment.
c. foreign portfolio investment. American saving is used to finance Irish investment.
d. foreign portfolio investment. American saving is used to finance American investment.
