Overview

Multiple Choice Questions

1. It is difficult when you make decisions that require you to weigh uncertain future costs and benefits because:
   A.you can’t directly compare costs and benefits that show up now with those that show up in the future.
   B. the value of money changes over time.
   C. the future is uncertain.
   D. All of these choices make it difficult.

2. Because the value of money changes over time:
   A.it is difficult to make a decision weighing uncertain costs and benefits.
   B. it is difficult to compare current costs with future ones.
   C. we need to use interest rates to make accurate comparisons.
   D. All of these statements are true.

3. Which of the following decisions are complicated by the value of money changing over time?
   A.Buying a house
   B. Buying stock
   C. Going to university
   D. All of these decisions force us to compare current costs with future benefits.

Blooms: Understand
Learning Objective: 11-01 Explain why money is worth more now than in the future, and how the interest rate represents this relationship.
Topic: 11-03 Timing Matters

4. Which of the following decisions are complicated by the value of money changing over time?
   A.Buying a $100 concert ticket
   B. Buying a $100 stock
   C. Buying a $100 sweater
   D. Buying a $100 blender

Blooms: Understand
Learning Objective: 11-01 Explain why money is worth more now than in the future, and how the interest rate represents this relationship.
Topic: 11-03 Timing Matters

5. Rational people having preferences for immediate benefits and delayed costs is another way of saying that:
   A.money is worth more to us now than in the future.
   B. money is worth less to us now than in the future.
   C. the value of money does not change over time.
   D. rational people have insatiable wants.

6. The interest rate:
   A.is the opportunity cost to a bank of lending money.
   B. is the price of borrowing money for a specified period of time.
   C. is expressed as a percentage per dollar borrowed and per unit of time.
   D. All of these choices describe the interest rate.

Blooms: Understand
Learning Objective: 11-01 Explain why money is worth more now than in the future, and how the interest rate represents this relationship.
Topic: 11-04 Interest Rates

7. The interest rate:
   A.is expressed as a percentage per dollar borrowed and per unit of time.
   B. tells us how much less money is worth today than in the future.
   C. exists only because lending is risky.
   D. All of these choices describe the interest rate.

Blooms: Understand
Learning Objective: 11-01 Explain why money is worth more now than in the future, and how the interest rate represents this relationship.
Topic: 11-04 Interest Rates

8. The interest rate you typically earn on a deposit at a bank:
   A.represents the price of your loan.
   B. represents the risk of investing.
   C. is the opportunity cost to you of lending money.
   D. is the opportunity cost to a bank of lending money.

Blooms: Understand
Learning Objective: 11-01 Explain why money is worth more now than in the future, and how the interest rate represents this relationship.
Topic: 11-04 Interest Rates

9. Different banks:
   A.may offer loans at different rates.
   B. all offer loans at the same interest rate.
   C. are mandated to follow the Fed’s set interest rate.
   D. never offer loans at exactly the same rates.

Blooms: Understand
Learning Objective: 11-01 Explain why money is worth more now than in the future, and how the interest rate represents this relationship.
Topic: 11-04 Interest Rates

10. When people are deciding whether to deposit money in a bank:
    A.they will respond exactly the same to any given interest rate.
    B. some will require a higher interest rate to deposit the same amount of money.
    C. no one ever deposits exactly the same as another person in response to the same interest rate.
    D. they will deposit the same amount in response to any given interest rate.