Question 1

Exhibit 30-2
 
-Refer to Exhibit 30-2.The interest and interest rate for loan 5 are,respectively,

Accepted Answer

The answer of Exhibit 30-2
 
-Refer to Exhibit 30-2.The interest...

Question 2

Exhibit 30-2
 
-Refer to Exhibit 30-2.The interest and interest rate for loan 3 are,respectively,

Accepted Answer

The answer of Exhibit 30-2
 
-Refer to Exhibit 30-2.The interest...

Question 3

If X is the actual amount of income or receipts and i is the interest rate (in decimals)that could be earned on alternative uses of money that face the same risk,the present value of X in t years from now is computed by

Accepted Answer

The correct formula for present value is: Present Value = X / (1 + i)^t. Therefore, the best choice is D, which matches this formula. Choices A and C have incorrect formulas for present value. Choice B has the variables multiplied together instead of divided. Choice E has an incorrect sign (-i instead of +i) in the denominator.

Question 4

If the nominal rate of interest is 7 percent and the expected rate of inflation is 6 percent,then the real rate of interest is

Accepted Answer

The real rate of interest is calculated as nominal interest rate minus expected inflation rate. Hence, real rate of interest = 7% - 6% = 1%. Therefore, option C is the correct answer.

Question 5

The interest rate will be higher,

Accepted Answer

The longer the term of the loan, the higher the risk for the lender, which leads to a higher interest rate to compensate for that risk.

Question 6

Interest rates differ because of differences in

Accepted Answer

Interest rates differ due to all of these factors - risk, the term of the loan, and the cost of making the loan. Lenders charge higher interest rates for riskier loans as they have a higher chance of defaulting. Longer-term loans also come with a higher interest rate as lenders are taking on more risk and tying up their funds for a longer period of time. Additionally, the cost of making the loan includes administrative expenses, processing fees, and other charges that are added to the interest rate. Therefore, all of these factors play a role in determining the interest rate.

Question 7

The equilibrium interest rate is determined

Accepted Answer

The equilibrium interest rate is determined by the intersection of the demand for and supply of loanable funds. The demand for loanable funds represents the willingness of borrowers to borrow money at different interest rates, while the supply of loanable funds reflects the willingness of savers to lend money at different interest rates. At the equilibrium interest rate, the quantity of funds demanded equals the quantity of funds supplied. Therefore, the equilibrium interest rate is determined by the demand for and supply of loanable funds.

Question 8

Profits are income to

Accepted Answer

Profits are considered the return to entrepreneurship or the reward for the risks taken by entrepreneurs in the production process.

Question 9

The interest rate on a loan will be lower,

Accepted Answer

Interest rates on loans are generally lower when the term of the loan is shorter, the risk associated with the loan is less, and the processing and administrative costs are lower. These factors reduce the lender's risk and costs, allowing them to offer lower rates.

Question 10

What is the present value of a future income stream of three $12,000 payments to be received one,two,and three years from today if the interest rate is 2.8 percent?

Accepted Answer

To calculate the present value of a future income stream, we need to use the formula: 
PV = FV / (1 + r)^n
where PV is the present value, FV is the future value (in this case, the sum of the three $12,000 payments), r is the interest rate, and n is the number of years.
Using this formula, we can calculate the present value of each $12,000 payment:
PV1 = 12,000 / (1 + 0.028)^1 = $11,699.42
PV2 = 12,000 / (1 + 0.028)^2 = $11,385.54
PV3 = 12,000 / (1 + 0.028)^3 = $11,076.62
Then, we simply add these present values together to get the total present value of the income stream:
PV = PV1 + PV2 + PV3 = $34,161.58 
Therefore, the best choice is B, with a present value of $34,074, which is the closest to the calculated total present value.

Question 11

What is the approximate present value of $8,000 received four years from today if the interest rate is 12 percent?

Accepted Answer

The answer of What is the approximate present value of...

Question 12

Exhibit 30-2
 
-Refer to Exhibit 30-2.The interest and interest rate for loan 2 are,respectively,

Accepted Answer

The interest for loan 2 is $500, and the interest rate is 25.0 percent.

Question 13

Ceteris paribus,the nominal rate of interest will increase when the

Accepted Answer

The nominal rate of interest is composed of the real rate of interest plus the expected rate of inflation. Therefore, if the expected rate of inflation increases, the nominal rate of interest will increase as well. Conversely, if the expected rate of inflation falls, the nominal rate of interest will also fall. Choice A is incorrect because if the real rate of interest falls, the nominal rate of interest may still go up if the expected rate of inflation increases enough. Choice D is incorrect because it includes a contradictory answer (a and b are opposite statements). Choice E is incorrect because it includes the incorrect statement in choice A.

Question 14

The supply of loanable funds curve is

Accepted Answer

The supply of loanable funds curve is upward sloping because as the interest rate rises, individuals and firms are willing to save more money, increasing the supply of loanable funds. Conversely, as the interest rate falls, savers are less willing to save, decreasing the supply of loanable funds.

Question 15

If X is the actual amount of income or receipts and i is the interest rate (in decimals)that could be earned on alternative uses of money that face the same risk,the present value of X one year from now is computed by

Accepted Answer

The present value of an amount X one year from now, considering an interest rate i, is calculated by discounting X by the factor (1+i). This accounts for the opportunity cost of not having the money available for alternative investments that could earn interest at rate i.

Question 16

Pure economic rent is

Accepted Answer

Pure economic rent refers to the payment made for the use of land or other resources that are perfectly inelastic in supply, meaning their supply does not increase as the price increases. This is because the amount of land, for example, is fixed regardless of the price it can command.

Question 17

The demand for loanable funds curve is

Accepted Answer

The demand for loanable funds is downward sloping because as the interest rate decreases, borrowers are able to obtain more funds for their investments, increasing the demand for loanable funds. Conversely, as the interest rate increases, borrowing becomes more expensive and borrowers will demand less loanable funds.

Question 18

The nominal interest rate is the

Accepted Answer

The nominal interest rate is the interest rate in current dollars, unadjusted for expected inflation (A), and it is also determined in the loanable funds market (C), making D the correct choice.

Question 19

Exhibit 30-2
 
-Refer to Exhibit 30-2.The interest and interest rate for loan 4 are,respectively,

Accepted Answer

The answer of Exhibit 30-2
 
-Refer to Exhibit 30-2.The interest...

Question 20

Exhibit 30-2
 
-Refer to Exhibit 30-2.The interest and interest rate on loan 1 are,respectively,

Accepted Answer

The answer of Exhibit 30-2
 
-Refer to Exhibit 30-2.The interest...

Quiz 30: Interest, Rent, and Profit

Exhibit 30-2 -Refer to Exhibit 30-2.The interest and interest rate for loan 5 are,respectively,

Exhibit 30-2 -Refer to Exhibit 30-2.The interest and interest rate for loan 3 are,respectively,

If X is the actual amount of income or receipts and i is the interest rate (in decimals) that could be earned on alternative uses of money that face the same risk,the present value of X in t years from now is computed by

If the nominal rate of interest is 7 percent and the expected rate of inflation is 6 percent,then the real rate of interest is

The interest rate will be higher,

Interest rates differ because of differences in

The equilibrium interest rate is determined

Profits are income to

The interest rate on a loan will be lower,

What is the present value of a future income stream of three $12,000 payments to be received one,two,and three years from today if the interest rate is 2.8 percent?

What is the approximate present value of $8,000 received four years from today if the interest rate is 12 percent?

Exhibit 30-2 -Refer to Exhibit 30-2.The interest and interest rate for loan 2 are,respectively,

Ceteris paribus,the nominal rate of interest will increase when the

The supply of loanable funds curve is

If X is the actual amount of income or receipts and i is the interest rate (in decimals) that could be earned on alternative uses of money that face the same risk,the present value of X one year from now is computed by

Pure economic rent is

The demand for loanable funds curve is

The nominal interest rate is the

Exhibit 30-2 -Refer to Exhibit 30-2.The interest and interest rate for loan 4 are,respectively,

Exhibit 30-2 -Refer to Exhibit 30-2.The interest and interest rate on loan 1 are,respectively,