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Multiple Choice Quiz
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1
The price paid for a natural resource that is completely fixed in supply is called
A)profit
B)interest
C)economic rent
D)normal profit
2
The economic rent from land will increase, other things being equal, whenever the
A)price of land decreases
B)demand for land increases
C)demand for land decreases
D)supply curve for land increases
3
Which of the following is true?
A)the greater the demand for land, the greater the supply of land.
B)individual users of land have to pay a rent to encourage land owners to make more land available.
C)individual users of land have to pay a rent to its owners because that land has alternative uses.
D)the less productive a particular piece of land is, the greater will be the rent its owner is able to earn from it.
4
The upward sloping supply of loanable funds is best explained by the idea that most people prefer
A)current consumption to future consumption
B)future consumption to present consumption
C)saving over consumption
D)investment over saving
5
A decrease in the productivity of capital goods will, all things being equal,
A)increase the supply of loanable funds
B)decrease the supply of loanable funds
C)increase the demand for loanable funds
D)decrease the demand for loanable funds
6
If the annual rate of interest were 18% and the rate of return a firm expects to earn annually by building a new plant were 20%, the firm would
A)not build the new plant
B)build the new plant
C)have to flip a coin to decide whether to build the new plant
D)not be able to determine from these figures whether to build the plant
7
What is the most likely reason why a lender would prefer a high-quality government bond that pays a 6% rate of interest as compared to corporate bond paying 8%?
A)the government bond is tax-exempt.
B)the government bond carries less risk than the corporate bond.
C)the 6% bond would never be preferred over the 8% bond.
D)all government bonds are for the short term.
8
The pure rate of interest is best approximated by the interest paid on
A)consumer credit cards
B)business loans at prime rate
C)90-day Canadian Treasury bills
D)long-term Government of Canada bonds
9
Chin Wah has just bought a $1000 Canadian savings bond that will come due in one year. The nominal interest rate on the bond is 7%. If the average price level increases by 3% over the year, then
A)Chin's bond has a real value of $1070 after one year.
B)Chin's bond has a real value of $1030 after one year
C)Chin's bond has a real value of $1040 after one year.
D)Chin's purchasing power has increased by 7% over the year.
10
Which of the following would tend to result in a lower interest rate?
A)the greater the risk involved
B)the shorter the length of the loan
C)the smaller the amount of the loan
D)the greater the monopoly power of the lender
11
Which is the minimum return or payment necessary to retain the entrepreneur in some specific line of production?
A)normal profit
B)explicit cost
C)real interest rate
D)pure rate of interest
12
A local donut shop sees shrinking profits because of a city by-law prohibiting smoking in public eating establishments. What type of uninsurable risk does this illustrate?
A)a downturn in the economy
B)a change in the structure of the economy.
C)a change in government policy
D)this is an insurable risk, so none of the other answers apply.
13
One basic reason why there is economic profit is that
A)risks are insurable
B)economies are static
C)there is innovation
D)there are purely competitive markets
14
In a static economy
A)the economic future is perfectly certain.
B)the economy grows at no more than two or three percent per year.
C)economic profits are always positive since the future is predictable.
D)the outcome of a production process cannot be accurately predicted.
15
Relative domestic income share data in Canada indicates that
A)labour receives the largest share in the form of "wages and salaries."
B)rent receives the largest share.
C)interest and miscellaneous investment income receives the largest share.
D)corporate profits before taxes constitute the largest share.





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