ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 13, Problem 3.7P
To determine
identify the factors that contribute to the changes in the interest rates across consumers
Concept Introduction:
Interest rate: the rate charged per period for borrowed money, deposited or lend expressed as a percentage of principal
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17. What do real interest rates account for that nominal interest rates do not?
6. What factors determine the real rate of interest? If the money supply is increased, what happens to the level of interest rates?
1. A consumer, who is initially a lender, remains a lender even after a decline in interest rates. Is this consumer better off or worse off after the change in interest rates? If the consumer becomes a borrower after the change is he better off or worse off?
2. What is the present value of $100 one year from now if the interest rate is 10%? What is the present value if the interest rate is 5%?
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- Suppose Ford Motor Company issues a five year bond with a face value of 5,000 that pays an annual coupon payment of $150. What is the interest rate Ford is paying on the borrowed funds? Suppose the market interest rate rises from 3 to 4 a year after Ford issues the bonds. Will the value of the bond increase or decrease?arrow_forwardDescribe some buyers and some sellers in the market for U.S. dollars.arrow_forwardImagine that you are in the position of buying loans in the secondary market (that is, buying the right to collect the payments on loans) for a bank or other financial services company. Explain why you would be willing to pay more or less for a given loan If: The borrower has been late on a number of loan payments Interest rates In the economy as a whole have risen since the bank made the loan The borrower Is a firm that has just declared a high level of profits Interest rates in the economy as a whole have fallen since the bank made the loanarrow_forward
- 9. Salaries in the financial sector are often composed of a flat wage, and a bonus paid when firm does well. Does this unusual structure make workers in the financial sector happy?arrow_forward1. Expected Value Omar's Fruit Shop sells only apples and bananas. Each week, Omar puts either apples or bananas on sale. He is trying to figure out which fruit he should put on sale this week. Omar gets all of his business from people who walk by his fruit shop and stop in. He performs some market research and asks 800 different people if they would purchase apples, bananas, or no fruit if they walked by and apples were on sale. He does the same for bananas being on sale. This week a total of 400 people will walk by Omar's Fruit Shop. The following table shows the profit for each type of fruit depending on which fruit Omar puts on sale: Apples on sale Bananas on sale Profit from apples $0.25 $0.40 Profit from bananas $0.45 $0.30 The following table shows the results from his market research. Customer choice Apples on sale Bananas on sale Apples 604 92…arrow_forward3. In cases below, answer questions below. 3.a. People’s preference for saving increased (so people would save more.) Which curve (demand or supply) would shift to which direction (left or right)? How would investment change: Decrease or Increase? Curve: Direction: Change in investment: 3.b. Prospect for profit from investments increased. How would the equilibrium quantity of loanable fund change: Decrease or Increase? How would the equilibrium interest rate change: Decrease or Increase? How would the saving would change: Decrease or Increase? Quantity: Interest rate: Change in savingarrow_forward
- To determine how U.S. interest rates reacted to this announcement, use the FRED database at thelink referenced above and choose the weekly format. a.) Adjust the graph to see what happened to the interest rate in the week including May 16,1995. How does this movement in the interest rate compare with neighboring weeks,specifically the preceding week and the subsequent week? In your answer to thisquestion, please include a copy of the graph. b.) What type of retaliation by the government of Japan for the proposed tariff canexplain this change in interest rates? Explain why Japanese retaliation would result inthis change in interest rates. c.) About one month later, President Clinton announced that the two countries had reachedan agreement, which ended the threat of the tariffs being imposed. What happened to the interest rates during the month of June? In your answer to this question, pleaseinclude a copy of the graph. Please explain why averting a trade war would have thiseffect on the…arrow_forwardIf an economic expansion in the economy caused an increase in the demand for loanable funds, what would be the effect on the interest rate and the quantity of funds loaned in the credit market? Question 20 options: Interest rates would decrease and the quantity of funds loaned would increase Interest rates and the quantity of funds loaned would decrease Interest rates and the quantity of funds loaned would increase Interest rates would increase and the quantity of funds loaned would decreasearrow_forward
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