1. Other things constant, if there were an increase in
demand for goods now compared
to goods in the future, we would expect
a. the interest rate to fall.
b. the capital investment rate to rise.
c. current consumption to decline.
d. the demand for loanable funds to increase.
2. The net present value of $1,000 received in the future would
a. decline if the $1,000 were received sooner.
b. increase if the delivery date for the $1,000 were set farther into the future.
c. decrease if the interest rate fell.
d. decrease if the interest rate rose.
3. Which of the following is true?
a. Investment and saving are terms used to describe different aspects of the
b. When investors finance a project with their own funds, they are also saving.
c. Additional saving is required to finance an increase in investment.
d. All of the above are true.
4. The money rate of interest is the
a. real rate of interest minus the inflationary premium.
b. real rate of interest plus the inflationary premium.
c. real rate of interest divided by the inflationary premium.
d. inflationary premium minus the real interest rate.
5. The pure interest yield is real rate of return that one can expect on
a. purely speculative assets.
b. low-risk assets.
c. funds invested in the commodities market.
d. investments that pay no interest.
6. A competitive capital market is important to society because it directs resources
toward projects that
a. can be completed quickly.
b. create wealth.
c. have an outcome that is known with certainty.
d. reduce the value of the resources employed.
7. Economic analysis indicates that when usury laws hold interest below the
a. saving will rise.
b. the quantity of loanable funds demanded by borrowers will decline.
c. high-risk borrowers will find it more difficult to obtain loanable funds.
d. there will be an excess supply of loanable funds relative to demand.
8. Compared to investing in physical capital, human capital investments are more
likely to be influenced by
a. non-monetary considerations.
b. depreciation rates.
c. the rate of return.
d. opportunity costs.
9. If we make additional investments in machines that enhance our ability to produce
goods and services, then
a. the owners of the investments must borrow funds.
b. the owners of the investments must reduce their current consumption.
c. someone will have to reduce current consumption.
d. future consumption will have to be reduced.
10. If the interest rate were 4 percent, the net present value of $100 to be received
one year from now would be