A firm is considering the purchase of a capital good that will generate an additional $400 income each year for 4 years (after which time the capital good is useless and has no scrap value). The capital good will cost $1,600. If the interest rate is 3 percent, it follows that the firm should
a.purchase the capital good.
b.not purchase the capital good.
c.purchase the capital good only on the condition that the expected inflation rate is greater than the nominal interest rate.
d.not purchase the capital good since the expected inflation rate is less than the real interest rate.
e.There is not enough information to answer the question.
152.A firm is considering the purchase of a capital good that will generate an additional $400 income each year for 4 years (after which time the capital good is useless and has no scrap value). The interest rate is 3 percent. It follows that the firm should not purchase the capital good if its price is greater than (approximately)
153.The longer the term of a loan, the __________ the interest rate charged for the loan; the more risk associated with a loan (from the lender's point of view), the __________ the interest rate charged for the loan.
154.The higher the cost of processing a loan, the __________ the interest rate charged for the loan; the lower the expected inflation rate, the __________ the nominal interest rate.
155.Jane has an old car that she expects will last for only two more years. She says she derives $900 worth of services from the car each year. She expects the scrap value of the car to be so low that it is not worth considering. If the interest rate is 6 percent, it is not likely that she will sell the car unless she is paid more than
156.Jaime has an old car that he expects will last for only three more years. He says he derives $1,000 worth of services from the car each year. He expects the scrap value of the car to be so low that it is not worth considering. If the interest rate is 7 percent, it is not likely that he will sell the car unless he is paid more than
157.Economic rent is
a.the payment a renter pays his or her landlord.
b.payment in excess of fixed costs.
c.payment in excess of opportunity costs.
d.the same as interest if we are discussing a capital good purchase.
e.none of the above
158.The supply of factor X is perfectly inelastic and it receives a price of $100. It follows that
a.the entire $100 is pure economic rent.
b.part of the $100 is pure economic rent.
c.factor X does not receive any economic rent.
d.any payment above the price of $100 is economic rent.
e.none of the above
159.Land rents are high in both New York City and in London. It follows that
a.because land rents are high in both cities, prices (of goods and services) will be high in both cities.
b.because land rents are high in both cities, we can expect prices (of goods and services) to be low in order to counter the high land rents.
c.landowners must be more greedy in New York City and London than in cities or towns where land rents are lower.
d.b and c
e.none of the above
160.A person says, "Prices (for meals at restaurants, clothes, taxis, etc.) are high in Paris, France because land rents are so high in Paris." This person
a.confuses economic rent and pure economic rent.
b.confuses cause and effect.
c.believes that land rents are price determining, when in fact land rents are price determined.
d.b and c
e.a and c
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