Question 1

The experience of the former Soviet bloc countries illustrates that high rates of investment may fail to promote rapid economic growth when a country

Accepted Answer

A)   uses central government planning rather than capital markets to allocate investment funds.
B)   has a strong education system.
C)   has secure property rights.
D)   has a tax system that encourages savings.

Question 2

Economic profit

Accepted Answer

A)   does not exist in competitive markets.
B)   provides an incentive for investors to undertake risky projects.
C)   motivates entrepreneurial innovation.
D)   does all of the above.
E)   is both b and c.

Question 3

For the past several decades, the percentage of national income in the United States allocated to physical capital (rents, interest, profit)  has been approximately

Accepted Answer

A)   20 percent.
B)   40 percent.
C)   60 percent.
D)   80 percent.

Question 4

In a world of imperfect knowledge and uncertainty, the return to investors who undertake projects that increase the value of resources is called

Accepted Answer

A)   economic profit.
B)   accounting profit.
C)   the inflationary premium.
D)   the real interest rate.

Question 5

If the interest rate is 8 percent, the present value of $750 to be received two years from now is

Accepted Answer

A)   $750.
B)   $886.10.
C)   $643.
D)   $738.14.

Question 6

When an investment project generates output that is valued more highly than the value of the resources required for its production,

Accepted Answer

A)   undertaking the project will create wealth.
B)   it will generally be profitable to undertake the project if property rights are securely defined and enforced .
C)   entrepreneurs seeking profit will have little incentive to undertake such projects.
D)   both a and b are correct.

Question 7

If an investment project costing $2,700 was expected to yield $1,000 (to be received at year end)  for each of the next three years, a profit-maximizing entrepreneur would

Accepted Answer

A)   definitely undertake the project.
B)   never undertake the project.
C)   undertake the project if the interest rate exceeded 12 percent.
D)   undertake the project if the interest rate was 5 percent or less.

Question 8

Investment in capital goods only makes sense when

Accepted Answer

A)   the capital goods can be used to increase the future output of consumption goods.
B)   the savings rate of a country is low.
C)   the interest rate is high and people have a positive rate of time preference.
D)   economies are organized along capitalist lines.

Question 9

Discounting is a procedure used to

Accepted Answer

A)   determine the present value of income or costs expected in the future.
B)   adjust future income for the effects of inflation.
C)   adjust the money interest rates for the effects of inflation.
D)   compare the value of income after taxes with its value prior to taxes.

Question 10

If the interest rate was 6 percent, the net present value of $100 to be received one year from now would be

Accepted Answer

A)   $94.34.
B)   $98.04.
C)   $100.00.
D)   $106.00.

Question 11

If the interest rate is 10 percent, the net present value of $500 to be received one year from now is

Accepted Answer

A)   $413.22.
B)   $450.
C)   $454.55.
D)   $500.

Question 12

For the past several decades, the percentage of national income in the United States allocated to human capital (employees and self-employed workers)  has been approximately

Accepted Answer

A)   20 percent.
B)   40 percent.
C)   60 percent.
D)   80 percent.

Question 13

Which one of the following economists is best known for his view that innovation by entrepreneurs is the major source of economic growth?

Accepted Answer

A)   Joseph Schumpeter
B)   Karl Marx
C)   Joan Robinson
D)   Alfred Marshall
E)   David Ricardo

Question 14

If the money rate of interest is 15 percent and the real rate of interest is 5 percent, the inflationary premium is

Accepted Answer

A)   zero.
B)   5 percent.
C)   10 percent.
D)   15 percent.

Question 15

Which of the following is true of saving and investment?

Accepted Answer

A)   There is no relationship between saving and investment; people can invest without having to save.
B)   Saving and investment can never be undertaken together by the same person.
C)   Saving and investment must always be undertaken by the same person.
D)   If investment is going to be undertaken, someone must save.

Question 16

If profit-seeking major oil companies began to use current profits from the oil business to buy department stores and hotel chains, economic analysis suggests that

Accepted Answer

A)   oil company profits were high relative to other possible investment opportunities.
B)   oil company executives thought profits from investment outside the oil industry would be lower than oil-industry investments.
C)   oil company executives must believe these other investments will be more profitable than investments in the oil industry.
D)   the government would be justified in subsidizing oil companies on grounds of economic efficiency.

Question 17

At a discount rate of 6 percent, what is the net present value of an investment project expected to yield $1,000 per year (to be received at year end)  for the next three years?

Accepted Answer

A)   $3,000
B)   $2,829
C)   $2,673
D)   There is insufficient information to determine whether the project should be undertaken.

Question 18

In a barter economy that had no form of currency, how could interest exist?

Accepted Answer

Goods would be loaned, and when the loan...

Question 19

Higher real interest rates indicate that people who are saving now will be able to purchase more in the future. This statement is

Accepted Answer

A)   true.
B)   always false.
C)   never true.
D)   either true or false, depending on the rate of inflation.

Question 20

Long-lasting resources used to expand the production of goods and services in the future are called

Accepted Answer

A)   consumables.
B)   capital goods.
C)   consumer durables.
D)   inventories.

Exam 27: Investment, the Capital Market, and the Wealth of Nations

Which one of the following economists is best known for his view that innovation by entrepreneurs is the major source of economic growth?

Correct AnswerverifiedShow Answer

If the interest rate was 6 percent, the net present value of $100 to be received one year from now would be

Correct AnswerverifiedShow Answer

At a discount rate of 6 percent, what is the net present value of an investment project expected to yield $1,000 per year (to be received at year end) for the next three years?

Correct AnswerverifiedShow Answer

When an investment project generates output that is valued more highly than the value of the resources required for its production,

Correct AnswerverifiedShow Answer

Which of the following is true of saving and investment?

Correct AnswerverifiedShow Answer

Economic profit

Correct AnswerverifiedShow Answer

If the money rate of interest is 15 percent and the real rate of interest is 5 percent, the inflationary premium is

Correct AnswerverifiedShow Answer

If the interest rate is 10 percent, the net present value of $500 to be received one year from now is

Correct AnswerverifiedShow Answer

Higher real interest rates indicate that people who are saving now will be able to purchase more in the future. This statement is

Correct AnswerverifiedShow Answer

In a world of imperfect knowledge and uncertainty, the return to investors who undertake projects that increase the value of resources is called

Correct AnswerverifiedShow Answer

Discounting is a procedure used to

Correct AnswerverifiedShow Answer

If an investment project costing $2,700 was expected to yield $1,000 (to be received at year end) for each of the next three years, a profit-maximizing entrepreneur would

Correct AnswerverifiedShow Answer

For the past several decades, the percentage of national income in the United States allocated to human capital (employees and self-employed workers) has been approximately

Correct AnswerverifiedShow Answer

If the interest rate is 8 percent, the present value of $750 to be received two years from now is

Correct AnswerverifiedShow Answer

Investment in capital goods only makes sense when

Correct AnswerverifiedShow Answer

Long-lasting resources used to expand the production of goods and services in the future are called

Correct AnswerverifiedShow Answer

The experience of the former Soviet bloc countries illustrates that high rates of investment may fail to promote rapid economic growth when a country

Correct AnswerverifiedShow Answer

In a barter economy that had no form of currency, how could interest exist?

Correct AnswerverifiedGoods would be loaned, and when the loan...View AnswerShow Answer

For the past several decades, the percentage of national income in the United States allocated to physical capital (rents, interest, profit) has been approximately

Correct AnswerverifiedShow Answer

If profit-seeking major oil companies began to use current profits from the oil business to buy department stores and hotel chains, economic analysis suggests that

Correct AnswerverifiedShow Answer

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Goods would be loaned, and when the loan...
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