18–21
45.
Refer to the diagram. Suppose that the demand for loanable funds is D0 and the supply of
loanable funds initially is S0. If the supply of loanable funds declines to S1, the equilibrium
interest rate will
A. decrease from G to F.
46. The “time-value of money” refers to the fact that
A. a given amount of money becomes more valuable over time.
18–22
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written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y : Keyboard Navigation
Blooms: Understand
Difficu lty: 02 Medium
Learning Objective: 18-04 Demonstrate how interest rates relate to the time-value of money.
Test Bank: I
T o p i c : Time-Value of Money
47. Which of the following statements best illustrates the time-value of money concept?
D. Jeff would prefer to receive $200 at the end of the year instead of $220 now.
48. On January 1, 2016, Alex deposited $5,000 into a savings account that pays interest of 5
percent, compounded annually. If he makes no further deposits or withdrawals, how much will
Alex have in his account on December 31, 2018 (3 years later)?
A. $5,750.
49.
Year
Beginning Period Value
Total Interest
End Period Value
1
$2,000
A
$2,200
2
$2,200
$420
B
3
C
D
E
Refer to the table representing Kara’s bank account. If $2,000 was deposited into her account at
the beginning of year 1, the value for cell A is
A. $10.
50.
Year
Beginning Period Value
Total Interest
End Period Value
1
$2,000
A
$2,200
2
$2,200
$420
B
3
C
D
E
Refer to the table representing Kara’s bank account. If $2,000 was deposited into her account at
the beginning of year 1 and no further deposits or withdrawals were made, the value for cell B
A. cannot be determined.
18–24
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 18-04 Demonstrate how interest rates relate to the time-value of money.
Test Bank: I
T o p i c : Time-Value of Money
Type: Table
51.
Year
Beginning Period Value
Total Interest
End Period Value
1
$2,000
A
$2,200
2
$2,200
$420
B
3
C
D
E
Refer to the table representing Kara’s bank account. Assuming that $2,000 was deposited into
her account at the beginning of year 1 and no further deposits or withdrawals were made, the
value for cell D
D. cannot be determined.
52.
Year
Beginning Period Value
Total Interest
End Period Value
1
$2,000
A
$2,200
2
$2,200
$420
B
3
C
D
E
Refer to the table representing Kara’s bank account. Assuming that $2,000 was deposited into
her account at the beginning of year 1 and no further deposits or withdrawals were made, the
value for cell E
18–25
A. cannot be determined.
53.
Year
Beginning Period Value
Total Interest
End Period Value
1
$2,000
A
$2,200
2
$2,200
$420
B
3
C
D
E
Refer to the table representing Kara’s bank account. Assuming that $2,000 was deposited into
her account at the beginning of year 1 and no further deposits or withdrawals were made, the
interest rate Kara is receiving on her account
A. is 5 percent.
54. If Kelly deposits $10,000 into an account that pays 8 percent interest, compounded
annually, and she makes no further deposits or withdrawals, how much will Kelly have in her
account at the end of 5 years?
18–26
A. $14,000
55. “Present value” refers to the
D. interest rate specified when a loan contract is signed.
56. The value today of a specific sum of money to be received in the future is referred to as
A. the future value of that sum of money.
57. The amount to which some current amount of money will grow as interest compounds over
18–27
time is known as
D. the time-value of money.
58. The “future value” of a sum of money refers to
A. the estimated value of that money invested in a stock portfolio at some future date.
59.
Year
Beginning Period Value
Total Interest
End Period Value
1
$1,000
$60
$1,060
2
$1,060
A
B
3
C
D
$1,191
Refer to the table representing Darcy’s bank account. If she deposited $1,000 into her account
at the beginning of year 1 and made no further deposits or withdrawals, how much interest
would Darcy receive in Year 2 only?
18–28
A. $60
60.
Year
Beginning Period Value
Total Interest
End Period Value
1
$1,000
$60
$1,060
2
$1,060
A
B
3
C
D
$1,191
Refer to the table representing Darcy’s bank account. Assuming that $1,000 was deposited into
her account at the beginning of year 1 and no further deposits or withdrawals were made, what
interest rate is being paid on Darcy’s account?
D. 60 percent
61.
Year
Beginning Period Value
Total Interest
End Period Value
1
$1,000
$60
$1,060
2
$1,060
A
B
3
C
D
$1,191
Refer to the table representing Darcy’s bank account. If she deposited $1,000 into her account at
the beginning of year 1 and made no further deposits or withdrawals, the $1,191 value at the
end of year 3 represents the
A. discounted value of the $1,000 deposit made at the beginning of year 1.
62.
Year
Beginning Period Value
Total Interest
End Period Value
1
$1,000
$60
$1,060
2
$1,060
A
B
3
C
D
$1,191
Refer to the table representing Darcy’s bank account. If she deposited $1,000 into her account at
the beginning of year 1 and made no further deposits or withdrawals, what is the value for cell
D?
A. $67.40
18–30
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 18-04 Demonstrate how interest rates relate to the time-value of money.
Test Bank: I
T o p i c : Time-Value of Money
Type: Table
63.
Year
Beginning Period Value
Total Interest
End Period Value
1
$1,000
$60
$1,060
2
$1,060
A
B
3
C
D
$1,191
Refer to the table representing Darcy’s bank account. Assuming that she deposited $1,000 into
her account at the beginning of year 1 and made no further deposits or withdrawals, which
cell(s) represents the future value(s) of the initial deposit if the money remains in the account
for three years?
A. cell B only
64. Other things equal, interest rates are
A. higher on large loans than on small loans.
18–31
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 18–05 Explain the role of interest rates in allocating capital, modulating R
and D spending, and helping to determine the economys total output of goods and services.
Test Bank: I
T o p i c : Role of Interest Rates
65. Which of the following generalizations is false? Other things equal,
A. interest rates are higher if lenders are imperfectly, rather than purely, competitive.
66. The pure rate of interest is approximated by the
A. rate that savings and loan associations charge on mortgage loans.
67. A lower equilibrium interest rate
A. increases saving, reduces total spending, and increases total output.
18–32
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y : Keyboard Navigation
Blooms: Understand
Difficu lty: 02 Medium
Learning Objective: 18–05 Explain the role of interest rates in allocating capital, modulating R
and D spending, and helping to determine the economys total output of goods and services.
Test Bank: I
T o p i c : Role of Interest Rates
68. The equilibrium interest rate
D. affects the size of total output but not the composition of that output.
69. The equilibrium interest rate
D. increases when the expected rate of return on R&D spending falls.
70. Other things equal, an increase in the equilibrium interest rate will
A. increase R&D spending.
71. Changes in the equilibrium interest rate will
D. have no perceptible effect on either the size of the domestic output or the allocation of
capital goods among industries.
72. The real rate of interest is the interest rate
A. charged on long-term government bonds.
18–34
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Difficu lty: 02 Medium
Learning Objective: 18–05 Explain the role of interest rates in allocating capital, modulating R
and D spending, and helping to determine the economys total output of goods and services.
Test Bank: I
T o p i c : Role of Interest Rates
73. The real interest rate can be estimated by
A. subtracting the pure interest rate from the nominal interest rate.
74. In year 1 the price level is constant and the nominal rate of interest is 6 percent. But in year
2 the inflation rate is 3 percent. If the real rate of interest is to remain at the same level in year 2
as it was in year 1, then in year 2 the nominal interest rate must
A. rise by 9 percentage points.
75. The XYZ Corporation determines it can make a real (inflation-adjusted) return on an
investment of 9 percent. The nominal rate of interest is 13 percent and the rate of inflation is 7
percent. We can conclude that the
18–35
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written consent of McGraw-Hill Education.
A. investment will be profitable.
B. investment will be unprofitable.
C. real rate of interest is 4 percent.
D. real rate of interest is 2 percent.
76. Which of the following is incorrect?
A. The nominal interest rate is the rate of interest expressed in terms of current dollars.
D. During periods of inflation, the nominal interest rate will exceed the real interest rate.
77. Suppose that in some year nominal interest rates are less than the rate of inflation. This
means that
A. money demand exceeds money supply.
18–36
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written consent of McGraw-Hill Education.
and D spending, and helping to determine the economys total output of goods and services.
Test Bank: I
T o p i c : Role of Interest Rates
78. In making an investment decision, a business firm is most interested in the
A. nominal interest rate.
79. Effective usury laws cause
D. the quantity of loanable funds supplied to exceed the quantity demanded.
80. Usury laws
A. allocate funds from low-productivity to high-productivity investments.
18–37
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y : Keyboard Navigation
Blooms: Understand
Difficu lty: 02 Medium
Learning Objective: 18–05 Explain the role of interest rates in allocating capital, modulating R
and D spending, and helping to determine the economys total output of goods and services.
Test Bank: I
T o p i c : Role of Interest Rates
81. Effective usury laws cause
A. a surplus of money in money markets.
82. Effective usury laws
A. subsidize lenders.
83. A major purpose of usury laws is to make more funds available to low-income borrowers.
Economic analysis suggests that usury laws
A. are effective in achieving this goal.
84. Economic profit is most closely associated with
A. the process of saving and investing.
85. Which of the following represents an uninsurable risk to a business firm?
A. the possibility that its warehouse will burn down
18–39
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written consent of McGraw-Hill Education.
Test Bank: I
T o p i c : Economic Profit
86. Economic profit might result from
A. easy entry into industries.
87. A normal profit is
A. the average profitability of a firm over one complete business cycle.
88. Pure, or economic, profit is
D. the return to any resource the supply of which is perfectly inelastic.
18–40
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
Difficu lty: 02 Medium
Learning Objective: 18-06 Relate why economic profits occur, and how profits, along with
losses, allocate resources among alternative uses.
Test Bank: I
T o p i c : Economic Profit
89. Economic profit affects
A. the allocation of resources but not the level of resource use.
90. The largest single share of all income earned by Americans consists of
D. corporate profits.
91. Currently, capitalist income, that is, corporate profits, interest, and rent, accounts for about
what percentage of the income paid to American resource suppliers?