1. The charging of interest rates is often viewed with contempt. Do interest rates serve any useful purpose?
2. How does an increase in interest rates affect the present value of a future payment?
3. How does an increase in the size of a future payment affect the present value of the future payment?
4. Two payments of $1,000 are to be made. One of them will be paid one year from today and the other will be paid two years from today. Which has the greater present value? Why?
5. The essay on the viatical settlements industry suggests that investors pay only 80% of the face value of a life insurance policy that is expected to be paid off in six months. Why? Would it not be fairer if investors paid the full value?
6. How would each of the following events affect the demand curve for capital?
7. A prospective cut in taxes imposed on business firms
8. A reduction in the price of labor
9. An improvement in technology that increases capital's marginal product
10. An increase in interest rates
11. If developed and made practical, fusion technology would allow the production of virtually unlimited quantities of cheap, pollution-free energy. Some scientists predict that the technology for fusion will be developed within the next few decades. How does an expectation that fusion will be developed affect the market for oil today?
12. Is the rent paid for an apartment economic rent? Explain.
13. Film director Brett Ratner (Rush Hour, After the Sunset, and others) commented to aNew York Times(November 13, 2004, p. A19) reporter that, "If he weren't a director, Mr. Ratner said he would surely be taking orders at McDonald's." How much economic rent is Mr. Ratner likely earning?
14. Suppose you own a ranch, and that commercial and residential development start to take place around your ranch. How will this affect the value of your property? What will happen to the quantity of land? What kind of return will you earn?
15. Explain why higher interest rates tend to increase the current use of natural resources.