Home / Questions / The term "roundabout methods of production" refers to a.Firm A purchasing a product from
The term "roundabout methods of production" refers to
a.Firm A purchasing a product from Firm B and reselling it to consumers.
b.firms first producing capital goods and then using those capital goods to produce consumer goods.
c.firms selling unassembled products so that the consumer completes the production process.
d.banks and other financial institutions making loans available to producers so that the producers can make goods available to consumers; thus in a roundabout way the banks are making the goods available to consumers.
22.Roundabout methods of production are said to be productive. What does this mean?
a.Goods are best produced by many people working together-as in a circle.
b.If you go round and round thinking about something, you will usually come up with the right way to do it-so you minimize on mistakes.
c.If you take the most direct route to producing a good, you will save time, and time is something that producers want to save since "time is money."
d.If you take time out to produce a capital good, with that capital good you can produce more than you could produce without it.
23.As the interest rate (price for loanable funds) decreases, businesses will
a.find it less profitable to invest in capital goods, because the lower interest rate means that they will earn a lower return on their investments.
b.find it less profitable to invest in capital goods, because their costs of production will be higher.
c.increase their borrowings of loanable funds, because the cost of borrowing has declined relative to the benefits of borrowing.
d.decrease their borrowings of loanable funds, because there will now be cheaper ways to produce goods than to employ roundabout methods of production.
e.b and c
24.If the price for loanable funds is less than the return on capital, then firms will
a.borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital decreases and its return rises.
b.borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital increases and its return falls.
c.not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will fall.
d.not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will rise.
25.If the return on capital is 12 percent and the price for loanable funds is 9 percent, then
a.firms will not be willing to borrow loanable funds until either the return on capital decreases or the price for loanable funds increases, because the market for loanable funds is not in equilibrium and businesses will be wary of further investment.
b.firms will realize that if they borrow loanable funds and invest in capital goods, it will cause the return on capital to decrease, so they won't want to borrow the funds.
c.savers will realize that they can earn more if they invest their savings in capital, so they will withdraw their savings and supply them to firms at 14 percent.
d.none of the above
26.If the return on capital is 12 percent and the price for loanable funds is 14 percent, then
a.currently businesses will not borrow loanable funds to invest in capital goods.
b.eventually the return on capital will decrease to the point where businesses will find it profitable to borrow loanable funds.
c.the return on capital will fall as the supply of capital decreases over time, and simultaneously, the price for loanable funds will increase as savers make even more savings available.
d.a and b
27.Jimmy borrowed $30,000 to add a room to his house. He financed the loan over 3 years at 6 percent per year. He expects a 2 percent inflation rate each year for the next 3 years. It follows that he expects to pay an annual real interest rate of
a.8 percent.
b.9 percent.
c.11 percent.
d.4 percent.
28.Which of the following is true?
a.Larger loans are likely to be cheaper to process (per dollar) than smaller loans; therefore, larger loans will carry a lower interest rate than smaller loans, ceteris paribus.
b.Larger loans are likely to be more expensive to process (per dollar) than smaller loans; therefore, larger loans will carry a higher interest rate than smaller loans, ceteris paribus.
c.Larger loans are likely to be cheaper to process (per dollar) than smaller loans; therefore, larger loans will carry a higher interest rate than smaller loans, ceteris paribus.
d.Larger loans are likely to be more expensive to process (per dollar) than smaller loans; therefore, larger loans will carry a lower interest rate than smaller loans, ceteris paribus.
29.If the price for loanable funds is greater than the return on capital, then firms will
a.borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital decreases and its return rises.
b.borrow in the loanable funds market and invest in capital goods, and as this happens, the quantity of capital increases and its return falls.
c.not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will fall.
d.not borrow in the loanable funds market, and over time the capital stock will decrease and the return on capital will rise.
30.Which of the following is true?
a.A major corporation would tend to pay a higher interest rate for a $10,000 loan than a single parent working for a fast food restaurant.
b.The more risky the loan, the higher the interest rate charged, ceteris paribus.
c.The less risky the loan, the higher the interest rate charged, ceteris paribus.
d.The duration (length) of a loan is unrelated to the interest rate charged for the loan.
e.c and d
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