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1 | |
A firm will employ real capital to the point where |
| | A) | the return on the capital is equal to the interest rate at which the firm can borrow money. |
| | B) | the return on the capital is equal to the rental rate at which the firm could rent the capital. |
| | C) | the marginal revenue product equals the purchase price of the capital. |
| | D) | the rental rate equals the market interest rate. |
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2 | |
If the price of a machine is $100, annual maintenance on the machine is $15, the machine''s useful life is five years, there is no technological change in this area, and the market interest rate is 10%/year, how much will it cost to rent this machine? |
| | A) | $10/year |
| | B) | $15/year |
| | C) | $30/year |
| | D) | $45/year |
| | E) | $100/year |
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3 | |
If the interest rate is 10%/year and the scrap value of a $1000 machine you intend to buy will be $100 in two years, what will you do with that information as you decide whether or not to buy today? |
| | A) | subtract $100 from the present cost of the machine. |
| | B) | Add approximately $90.91 to the cost of the machine. |
| | C) | Subtract approximately $90.91 from the cost of the machine. |
| | D) | Subtract approximately $82.64 from the cost of the machine. |
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4 | |
A firm buys a $1000 machine that earns $600/year in net revenue for two years, after which it collapses in a worthless heap. No maintenance costs or technology change exist for this machine. If the interest rate is 12% the firm made: |
| | A) | a good decision to buy. |
| | B) | a bad decision to buy. |
| | C) | neither a good nor a bad decision to buy, since it breaks even in the deal. |
| | D) | a decision that we can not judge without more information. |
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5 | |
Which statement is false? |
| | A) | If a firm has 5 machines but wishes it had 6, then the value of one machine would be the firm''s demand for loanable funds. |
| | B) | A consumer''s desire to borrow for a house is part of the demand for loanable funds. |
| | C) | Government borrowing does not constitute a part of the demand for loanable funds, since loanable funds markets include only private money flows. |
| | D) | Corporate retained earnings, consumer savings and foreign money seeking Canadian security and rates of return are all part of the supply of loanable funds. |
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6 | |
Which of the following questions is the least worthwhile question to ask of your broker? |
| | A) | Given my tax circumstance, should I consider stocks or government bonds for my new investments? |
| | B) | Which blue chip stocks would be the best buy for me now? |
| | C) | I am taking my retirement money in a lump sum and want to have income as well as growth of my assets. Which mutual funds offer the balance that I need? |
| | D) | I need to reduce the risk in my investment portfolio, How should I do that? |
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7 | |
If the banks'' lending rate (rL) exceeds the rate they pay on deposits (rB) and all borrowing and lending is done through the banks, then for a person with convex intertemporal indifference curves, at her initial income endowment point, |
| | A) | if her MRTP exactly equals (1 + rB), she will have an incentive to borrow. |
| | B) | if her MRTP exactly equals (1 + rL), she will have an incentive to borrow. |
| | C) | if her MRTP lies between (1 + rL) and (1 + rB), she will neither borrow nor lend. |
| | D) | if her MRTP is less than (1 + rL), she will have an incentive to borrow. |
| | E) | more than one of the above is true. |
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8 | |
Economic rent is formally the same as what other concept that we have used elsewhere in the course? |
| | A) | economic profit |
| | B) | producer surplus |
| | C) | consumer surplus |
| | D) | value of the marginal product of labour. |
| | E) | value of the marginal product of capital. |
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2002 McGraw-Hill Higher Education