1. Which of the following statements are true?
A. Positive economic profits will lead to entry of investment capital into an industry.
B. Economic profits can be negative even if accounting profits are positive.
C. Both a and b are true.
D. Neither a nor b are true.
2. Which of the following statements best describe the function of financial markets in a competitive economy?
A. Financial markets provide a way to reinsert consumer savings into the circular flow of money through the economy.
B. Financial markets provide a means of funding investments that earn returns that are equal to or greater than the returns required by investors.
C. Financial markets provide a mechanism for determining the optimal value of different investment opportunities.
D. All of the above are true.
3. Investors expect that profit levels among companies will generally increase at higher rates than before. Which of the following best describes the impact of this changing expectation in the market for funds?
A. Shortages of funds and rising interest rates.
B. Shortages of funds and falling interest rates.
C. Surpluses of funds and falling interest rates.
D. Surplus of funds and rising interest rates.
4. A wave of new technologies is causing companies to invest additional capital into restructuring their production facilities to take advantage of these technologies. Which of the following is the most likely impact on the market for funds?
A. Shortages of funds and rising interest rates.
B. Shortages of funds and falling interest rates
C. Surpluses of funds and rising interest rates.
D. Surpluses of funds and falling interest rates.