Smartbook Chapter 18 Lesson 8

Which of the following determines whether firms will use borrowed funds for investment projects?

The interest rate in relation to the rate of return on the project

Demand is the only active determinant of land rent because ______.

the supply of land is fixed

Most income earned by Americans in a typical year is derived from ______.

wages

People who borrow money value it for ______.

what it can purchase

What type of profit remains after all explicit and implicit costs have been subtracted from total revenue?

Economic profit

What is the term for payment received by an owner of a factor of production in excess of the opportunity cost of producing that factor?

Economic rent

Risks that are measurable, such as floods and on-the-job accidents, are said to be ______.

insurable risks

Socialists believe that land should be (blank) for the sake of improving society as a whole.

nationalized

The ______ interest rate is the rate of interest expressed in dollars of current value with no adjustment for inflation.

nominal

Land has no (blank) cost; it is a free and nonreproducible resource.

production

A hypothetical interest rate whose only function is to compensate lenders for the opportunities they forgo by not having access to the loaned funds is called the ______.

pure rate of interest

Why do socialists believe that all land should be owned by the state?

So that payments for its use can be used by the government to further the well-being of the entire population.

Which of the following describes the incentive function for suppliers of non-land resources?

- A high price provides an incentive to offer more of the resource. - A low price provides an incentive to offer less of the resource.

A lower equilibrium interest rate results in which of the following?

- An increase in business borrowing for investment - An increase in total output if the economy has unused resources - An increase in total spending in the economy

True or false: Interest rates are rationing devices.

True

What are the three main methods entrepreneurs use to generate economic profits?

- Creating popular new products - Keeping production costs below competitors' costs - Establishing a profitable monopoly

A higher equilibrium interest rate has which of the following effects?

- It discourages business from borrowing for investment. - It reduces investment and total spending.

Which of the following outcomes are most likely when wheat producers bid on land on which to grow their crops?

- Land rent is near zero in non-fertile areas. - Land rent is highest in more fertile areas. - Land rent is low in less fertile areas.

Which of the following are considered insurable risks?

- Loss from theft - Damage from fire

Firms can acquire capital in which of the following ways?

- Purchasing it themselves - Leasing it from households

Which of the following are determinants of demand for land?

- The prices of other resources that are combined with the land - The prices of the products produced on the land - The productivity of the land

Which of the following describe the primary roles of entrepreneurs?

- They introduce new products or new processes of production - They combine resources to produce a good or service - They bear the economic risk associated with production

Businesses are likely to spend borrowed loanable funds on which of the following?

- Warehouses - Machinery

Wages and salaries from labor comprise about ______ percent of all income earned by Americans in a standard year.

70%

Which of the following exemplifies the flow of research and development funds going to firms whose expected rate of return on R&D is the greatest?

Ace Microcircuits has an expected rate of return on R&D of 16% with an interest rate of 8%

Which factor would increase the demand for loanable funds?

Anything that increases the rate of return on potential investments

How does the entrepreneur's pursuit of profit benefit society?

By improving allocative and productive efficiency

True or false: Economic profit is expressed as a positive number.

False

(blank) rates on money loans determine the interest incomes earned by the owners of capital goods.

Interest

Which of the following represents the income earned by households for providing capital to firms?

Interest

What are the critical prices that determine the level and composition of new capital goods investments?

Interest rates

Supply is perfectly inelastic for which factor of production?

Land

Anything that increases the rate of return on potential investments will increase the demand for which of the following?

Loanable funds

Which of the following helps allocate resources among alternative lines of production, distribution, and sales?

Profit

What motivates firms to innovate?

The expectation of economic profit

The pure rate of interest is best approximated by which of the following?

The interest paid on long-term, virtually riskless securities

Which of the following explains the interest rate in terms of the supply of and demand for funds available for lending and borrowing?

The loanable funds theory of interest

The allocation of funds to R&D projects benefits society when which of the following is true?

The projects have high enough expected rates of return to justify the use of scarce resources.

Which of the following conveys the idea that a specific amount of money is more valuable to a person the sooner it can be obtained?

The time-value of money

The supply curve of non-land resources is upward-sloping and provides a(n) (blank) function.

incentive

When the interest rate (blank), more people will delay their consumption today for the future and make more loanable funds available to borrowers.

increases

Businesses borrow loanable funds primarily to increase their stock of (blank) goods.

capital

The reason that money has time value is because of the potential for (blank) interest.

compound

Economic profit is a type of ______.

economic rent

Profit functions as a reward for ______ for taking on the uninsurable risks associated with running a business.

entrepreneurs

The fact that interest is paid on invested funds means that a specific amount of money today is ______ in the future.

equal to a larger amount of money

What is the term that describes the amount to which some current amount of money will grow as interest compounds over time?

future value

The cost of issuing a large loan and a small loan are about the same in dollars, but the cost is ______.

greater as a percentage of the smaller loan

The interest rate on a smaller loan will be ______ the interest rate on a larger loan, assuming equal maturity and risk.

greater than

The (blank) interest rate is the rate of interest expressed in purchasing power after being adjusted for inflation.

real

Because a firm's entrepreneurs receive only the revenue left over after all other factors of production have been paid, they are considered ______.

residual claimants

Differences in land productivity are reflected in ______.

resource demands and economic rents

Economic profit is the reward to residual claimants for assuming financial .

risks

Changes in the general economic environment, changes in the structure of the economy, and changes in government policy are three general sources of ______.

uninsurable risk