Chapter 13
Supplemental Instruction
Iowa State University / Leader: / Katie
Course: / Econ 101
Instructor: / Kreider
Date: / December 4, 2011
  1. Financial intermediaries play an important role because

a)without them, households would not save.

b)Without them, firms would not borrow.

c)Without them, there would be no market for financial capital.

d)They are better than households at assessing risk.

e)All of the above.

  1. The main economic difference between the firm’s input of physical capital and its input of labor is

a)physical capital is tangible whereas labor services are intangible

b)the stock of physical capital provides a flow of services even after it has been paid for

c)a firm’s addition to physical capital is an investment, but a worker’s addition to human capital is not.

d)The capital stock is a fixed factor that cannot be varied in the long run

e)Labor provides services but physicals capital does not

  1. Supply of financial capital from household is derived from

a)mortgage loans

b)checking

c)savings

d)home equity

e)none of the above

  1. Firms finance their capital needs

a)from retained earnings

b)from bank credit

c)from bonds and stocks

d)all of the above

e)none of the above

  1. Present value is the

a)value today of a discounted future payment stream

b)future value of a discounted current payment stream

c)future value of a discounted future payment stream

d)current value of a discounted current payment stream

e)none of the above

  1. The present value of a capital asset will increase if

a)the MRP values per period decrease

b)a greater proportion of MRP values are received farther into the future

c)the interest rate decreases

d)the purchase price of the capital asset decreases

e)none of the above

  1. The demand curve for capital shifts to the right as

a)more capital is accumulated

b)the interest rate decreases

c)technology improves capital productivity

d)diminishing returns to capital occur

e)Both a and c

  1. The high the interest rate

a)firms will find capital expansion to be more profitable

b)the lower a firm’s optimal capital stock

c)the higher the present value of the income stream produced by a capital good

d)the greater the shift in the firm’s demand for capital curve

e)none of the above

  1. Which of the following increase present value?

a)The stream of MRP is shortened

b)MRP’s are received further into the future compared to same value received earlier

c)MRP increase in total

d)Interest rates increase

e)None of the above