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1 | |
Why do economists represent the supply of land as a perfectly inelastic curve? |
| | A) | There is a fixed amount of land provided as a non-reproducible gift of nature. |
| | B) | The supply of land is infinite – there is a lot to go around. |
| | C) | As the price of land (rent) increases, the quantity of land demanded will increase |
| | D) | None of the other choices. |
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2 | |
Thinking of the demand for and supply of land, |
| | A) | Land rent is completely supply determined |
| | B) | Land rent is determined by an interaction of demand and supply curves |
| | C) | Land rent is completely demand determined. |
| | D) | None of the other choices. |
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3 | |
Why is it that a small parcel of land in Toronto can command $200,000, but in Huntsville, 250km north of Toronto a piece of land the same size might be valued at only $15,000? |
| | A) | The demand for land up north is greater than for land in Toronto. |
| | B) | The demand for land in Toronto is much greater than for land up north. |
| | C) | The supply of land in Toronto is greater than that up north. |
| | D) | All of the other choices. |
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4 | |
Building a highway on highly productive farmland... |
| | A) | Would have a low opportunity cost. |
| | B) | Would have a high opportunity cost |
| | C) | May not be desirable because the marginal cost may exceed the marginal benefit. |
| | D) | Choices 2 and 3 are correct. |
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5 | |
Which of the following is not true of the term "interest"? |
| | A) | "It is the price paid for the use of money" |
| | B) | It is stated as a percentage |
| | C) | It is the price that lenders pay borrowers for transferring their purchasing power from the present to future. |
| | D) | None of the other choices |
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6 | |
The Loanable Funds Theory of interest states... |
| | A) | The interest rate is completely determined by the demand for loanable funds, since savings are fixed. |
| | B) | That the interest rate is determined by the supply of loanable funds. |
| | C) | That the interest is determined by a combination of demand for and supply of loanable funds. |
| | D) | That the interest rate is fixed at some given level. |
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7 | |
Which of the following is true of money and capital |
| | A) | In economics, they mean the same thing. |
| | B) | Businesses use money to buy capital goods which are used to produce goods and services |
| | C) | Money in itself is not a productive economic resource |
| | D) | None of the other choices |
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8 | |
Suppose that in the economy, the demand for loanable funds currently exceeds the supply, as a result... |
| | A) | There will be a surplus of loanable funds and the interest rate will be forced downward. |
| | B) | There will be a surplus of loanable funds, and the interest rate will be forced upward. |
| | C) | There will be a shortage of loanable funds, and the interest rate will be forced downward. |
| | D) | There will be a shortage of loanable funds and the interest rate will be forced upward. |
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9 | |
If the equilibrium interest rate is currently 5%, then setting the interest rate at 7% will... |
| | A) | Cause a surplus of savings (loanable funds) and cause the interest rate to fall back to equilibrium |
| | B) | Cause a shortage of savings and cause the interest rate to rise back to equilibrium |
| | C) | Cause a surplus of savings and cause the interest rate to rise back to equilibrium |
| | D) | None of the other choices |
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10 | |
What explains the negative downward slope of the demand for loanable finds curve? |
| | A) | At higher interest rates, the expected rate of return exceeds the cost of borrowing for only a few projects. |
| | B) | At lower interest rates, the expected rate of return exceeds the cost of borrowing for many projects. |
| | C) | At higher interest rates, fewer projects will be profitable |
| | D) | All of the other choices. |
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11 | |
If businesses expect retail sales to improve (customer spending to increase) and Gross Domestic Product (GDP) to increase, all else equal, then... |
| | A) | The demand for loanable funds will decrease and the interest rate will fall. |
| | B) | The supply of loanable funds will increase and the interest rate will fall. |
| | C) | The demand for loanable funds will increase and the interest rate will rise. |
| | D) | None of the other choices |
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12 | |
Which of the following combinations will definitely cause interest rates to fall? |
| | A) | Business demands more loanable funds, while the Bank of Canada takes monetary actions to increase the supply of loanable funds. |
| | B) | Business demands less loanable funds, while the Bank of Canada takes monetary actions to increase the supply of loanable funds. |
| | C) | Businesses demand more loanable funds, while the Bank of Canada takes monetary actions to reduce the supply of loanable funds. |
| | D) | None of the other choices. |
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13 | |
If the Bank of Canada wants to stimulate the Canadian economy and raise investment spending, it should... |
| | A) | Reduce interest rates by increasing the money supply. |
| | B) | Raise interest rates by lowering the money supply |
| | C) | Raise interest rates by increasing the demand for loanable funds |
| | D) | None oth the other choices |
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14 | |
The lower the interest rate, |
| | A) | The lower the cost of borrowing funds for R + D and the less profitable is more R + D spending. |
| | B) | The higher the cost of borrowing funds for R+D, the more profitable is more R+ D spending |
| | C) | The higher the cost of borrowing funds for R+ D, the less profitable is more R + D spending. |
| | D) | The lower the cost of borrowing funds for R + D, the more profitable is more R + D spending. |
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15 | |
Frances Frugal has just bought a $1000 Canadian savings bond that will come due in one year. The normal interest rate on the bond is 7%. If the average price level increases by 3% over the year, then... |
| | A) | Frances' bond has a real value of $1070 after one year. |
| | B) | Frances' bond has a real value of $1030 after one year |
| | C) | Frances' bond has a real value of $1040 after one year. |
| | D) | Frances' purchasing power has increased by 7% over the year. |
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16 | |
The real interest rate can be negative if... |
| | A) | The nominal interest rate exceeds the rate of inflation |
| | B) | The rate of inflation exceeds the nominal interest rate |
| | C) | The nominal interest rate equals the inflation rate |
| | D) | The real interest rate is never negative |
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17 | |
Clarice has a small baking business that she runs out of her home. Her explicit costs include baking ingredients, electricity and transportation. Which of the following would be an implicit cost for Clarice? |
| | A) | The cost of insurance for her business |
| | B) | The cost of a used car to transport her baked goods |
| | C) | The revenue Clarice could have earned baking for an established baking company. |
| | D) | The salary Clarice pays an assistant who helps her in the kitchen. |
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18 | |
In a constantly changing economy, |
| | A) | Entrepreneurs assume risk in return for an economic profit. |
| | B) | Some risks such as floods and thefts are insurable. |
| | C) | Some risks such as economic downturns and changing consumer tasks are uninsurable |
| | D) | All of the other choices |
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19 | |
If a local donut shop sees shrinking profits due to a government by-law prohibiting smoking in public eating establishments, what type of uninsurable risk is being addressed? |
| | A) | A downturn in the economy |
| | B) | A change in the structure of the economy. |
| | C) | A change in Government policy |
| | D) | None of the other choices |
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20 | |
Thinking of income shares in Canada... |
| | A) | Labour receives most of the national income in the form of "wages and salaries." |
| | B) | Rent receives most of the national income |
| | C) | Interest receives most of the national income. |
| | D) | None of the other choices. |
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21 | |
The long term risk-free rate of return paid on Government of Canada bonds is called... |
| | A) | The nominal interest rate |
| | B) | The real interest rate |
| | C) | The pure interest rate |
| | D) | The prime interest rate |
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22 | |
Which of the following would reduce the equilibrium interest rate? |
| | A) | A decrease in the demand for loanable funds businesses cut back on capital spending. |
| | B) | An increase in the supply of loanable funds as households save in anticipation of difficult times ahead. |
| | C) | Households increase their purchases of Guaranteed Investment Certificates (GICS) from chartered bans. |
| | D) | All of the other choices. |
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23 | |
If the real interest rate is negative, |
| | A) | The purchasing power of one's investment is increasing. |
| | B) | The purchasing power of one's investment is decreasing. |
| | C) | The purchasing power of one's investment is unchanged. |
| | D) | None of the other choices. |
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2002 McGraw-Hill Higher Education