Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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1.
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The
movement from x to x' in Exhibit 0195 represents a(n) a. | increase in
roundabout production; future ability to produce consumer goods will be higher as a
result | b. | increase in roundabout production; future ability to produce
consumer goods will be lower as a result | c. | decrease in roundabout production; future ability to produce
consumer goods will be higher as a result | d. | decrease in roundabout production; future ability to produce
consumer goods will be lower as a result | e. | decrease in roundabout production but one that does not have an
effect on future ability to produce consumer goods | | |
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2.
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The
benefit of the production of capital is a. | decreased current production of consumption
goods | b. | increased future production of consumption
goods | c. | the amount of roundabout production | d. | abundant capital
accumulation | e. | the decreased amount of future capital
available | | |
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3.
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Interest is a payment for deferred a. | taxation | b. | saving | c. | consumption | d. | investment | e. | none of the above | | |
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4.
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Which
of the following does not reflect a positive rate of time preference? a. | A couple gets a
mortgage for a new house instead of saving up for it. | b. | A print shop
gives discounts to people who can wait overnight for their copies. | c. | Mail companies
charge people premiums for packages that must be delivered overnight. | d. | Faster computers
are more expensive than slower ones, other things equal. | e. | Bank Christmas
clubs pay no interest. | | |
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5.
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If
the interest rate increases from 6 percent to 10 percent per year, each $100 saved will
earn a. | $4 per year more
than before | b. | $6 per year more than before | c. | $10 per year
more than before | d. | $16 per year more than before | e. | $60 per year
more than before | | |
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6.
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If we
assume that a unit of capital will last indefinitely, the marginal rate of return on investment
equals the marginal revenue product of capital divided by its marginal resource
cost.
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7.
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In
order to predict marginal rates of return on investment, producers must forecast interest
rates.
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8.
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The
concept of marginal productivity is applicable to a. | all of the following | b. | capital | c. | entrepreneurial talent | d. | land | e. | labor | | |
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9.
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Exhibit 0197 gives data on the number of tools a certain firm buys to use in its
production process. Assume that the tools are expected to last indefinitely, that operating expenses
are negligible, and that the price of the firm's output is expected to remain constant in the future.
At an interest rate of 7 percent, the firm in Exhibit 0197 should select a. | the maximum
number of tools available because price does not decrease as output
increases | b. | the minimum number of tools available because price does not
increase as output increases | c. | three tools | d. | four
tools | e. | five tools | | |
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10.
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Exhibit 0199 shows data on the various dough-mixing machines that a donut shop is
considering buying. Assume that any dough-mixing machine is expected to last indefinitely, that
operating expenses are negligible, and that the price of donuts is expected to remain constant in the
future. The marginal rate of return on the machine with the three-quart bowl is a. | 1
percent | b. | 5 percent | c. | 10
percent | d. | 20 percent | e. | 55
percent | | |
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11.
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Exhibit 0199 shows data on the various dough-mixing machines that a donut shop is
considering buying. Assume that any dough-mixing machine is expected to last indefinitely, that
operating expenses are negligible, and that the price of donuts is expected to remain constant in the
future. If the interest rate is 8 percent and the firm has $3,000 on hand, what should it
do? a. | Buy the machine
with the three-quart bowl, which costs $3,000. | b. | Save $3,000 at
the interest rate of 8 percent. | c. | Buy the machine with the one-quart bowl and save the extra
$2,000. | d. | Buy the machine with the two-quart bowl and save the extra
$1,000. | e. | Buy two machines, with one-quart and two-quart
bowls. | | |
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12.
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IBM's
marginal rate of return on investment curve equals its a. | supply of
loanable funds curve | b. | supply of investment curve | c. | marginal revenue
product curve | d. | marginal revenue cost curve | e. | investment
demand curve | | |
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13.
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When
the marginal rate of return expected from a purchase of equipment is greater than the market interest
rate, the firm should a. | not purchase the equipment | b. | purchase the
equipment | c. | either purchase or not purchase the equipment, depending on the
marginal resource cost | d. | inform stockholders that the company expects a decrease in
earnings from the purchase | e. | seek government assistance in raising market interest
rates | | |
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14.
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The
supply of loanable funds curve reflects a. | the negative relation between the market rate of interest and
the quantity of borrowed funds | b. | the negative relation between the market rate of interest and
the quantity of savings | c. | the positive relation between the market rate of interest and
the quantity of borrowed funds | d. | the positive relation between the market rate of interest and
the quantity of savings | e. | the positive relation between the market rate of interest and
the quantity of present consumption | | |
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15.
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A
technological breakthrough that increases the marginal productivity of capital would increase
the a. | demand for
loanable funds, leading to a lower equilibrium market rate of interest | b. | supply of
loanable funds, leading to a lower equilibrium market rate of interest | c. | demand for
loanable funds, leading to a higher equilibrium market rate of interest | d. | supply of
loanable funds, leading to a higher equilibrium market rate of interest | e. | supply of
loanable funds but have no impact on the equilibrium market rate of
interest | | |
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16.
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The
administration costs of a loan as a proportion of the total cost of the loan
typically a. | decrease as the
size of the loan increases. Therefore, the larger the loan, other things constant, the lower the
interest rate | b. | decrease as the size of the loan increases. Therefore, the
larger the loan, other things constant, the higher the interest rate | c. | increase as the
size of the loan increases. Therefore, the larger the loan, other things constant, the lower the
interest rate | d. | increase as the size of the loan increases. Therefore, the
larger the loan, other things constant, the higher the interest rate | e. | increase as the
size of the loan increases, but this has no impact on the interest rates charged for large loans
compared to small loans | | |
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17.
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The
term structure of interest rates describes the relationship between the rate of interest charged and
the a. | length of time
until repayment of the loan | b. | amount of the loan | c. | riskiness of the
borrower | d. | identity of the borrower | e. | age of the
lender | | |
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18.
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The
procedure of determining the present value of payments to be received in the future is known
as a. | compounding | b. | amortizing | c. | perpetuating | d. | nominalizing | e. | discounting | | |
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19.
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The
present discounted value of $100 to be received in one year and with an interest rate of 10 percent
is closest to a. | $100 | b. | $10 | c. | $110 | d. | $91 | e. | $80 | | |
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20.
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There
is an inverse relationship between the present value of a future amount and the interest rate used
for discounting.
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21.
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Suppose an investment will yield $1,000 after one year and $2,000 after two years.
What is the present value of this investment if the discount rate is 8 percent? a. | $2,479.34 | b. | $2,640.60 | c. | $2,727.27 | d. | $3,000 | e. | $3,520 | | |
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22.
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A
given sum of money received each year for a specific number of years is called a(n) a. | bond | b. | perpetuity | c. | debt | d. | discount | e. | annuity | | |
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23.
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If
the interest rate is 8 percent, a person who is offered the opportunity to buy an annuity paying
$30,000 per year forever should a. | do so if the price is greater than
$375,000 | b. | do so if the price is less than
$375,000 | c. | be willing to pay only $37,037 for it | d. | be willing to
pay $77,037 for it | e. | be willing to pay no more than $300,000 for
it | | |
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24.
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If
ABC Corp. is profitable, a. | it must pay dividends to its
stockholders | b. | pretax profits are either paid as dividends or reinvested in
the corporation | c. | after-tax profits are either paid as dividends or reinvested in
the corporation | d. | it is contractually obligated to retain a portion of its
earnings | e. | it typically uses the profits to buy back its own stock from
the underwriter | | |
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25.
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The
market value of ABC Corp., whose securities are publicly traded, can be found by a. | multiplying the
price of its stock by the number of shares outstanding | b. | dividing the
number of shares outstanding by the price of the stock | c. | adding the total
value of its outstanding stock to the total value of its outstanding bonds | d. | subtracting the
total value of its outstanding bonds from the total value of its outstanding
stock | e. | subtracting the total value of its outstanding stock from the
total value of its outstanding bonds | | |
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26.
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Most
securities traded in the United States are a. | secondhand securities bought by
individuals | b. | secondhand securities bought by institutional
investors | c. | new securities bought by institutional
investors | d. | new securities bought by banks and insurance
companies | e. | new securities bought by individuals | | |
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27.
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The
exchange of secondhand securities a. | all of the following are correct | b. | does not provide
funds to the firm that issued those securities | c. | includes the
initial sale when securities are issued by a firm | d. | involves very
few institutional investors | e. | lowers the liquidity of the
securities | | |
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28.
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Most
modern corporations have a. | many different, unorganized
stockholders | b. | one dominant stockholder and many other subordinate
ones | c. | a few
stockholders | d. | major stockholders acting as managers | e. | many partners
and many stockholders | | |
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29.
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Which
of the following is true if Gordon, who manages a firm in which he owns 2 percent of the firm's
stock, spends $100,000 of potential profit on a new office bar? a. | Gordon will be
fired. | b. | Gordon will lose $20,000 in pretax
profit. | c. | Gordon will lose $2,000 in pretax
profit. | d. | Gordon is decreasing his utility by decreasing his
income. | e. | Gordon is decreasing his income by decreasing his
utility. | | |
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30.
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Controls on management's tendency to serve its own, rather than the stockholders',
interests include a. | the separation
of ownership from control | b. | stockholders' rights to elect the board of directors and tying
managers' pay to profits | c. | transaction costs, judicial intervention, and tying managers'
pay to profits | d. | perquisites and team production | e. | government
regulation and judicial intervention | | |
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