Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 18, Problem 5DQ
To determine
Market for the lonable funds.
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Suppose that the demand for laonable funds for car in the Milwaukee area is $11million per month at an interest rate of 10 percent per year, $12million at an interest rate of 9 percent per year, $13million at an interest rate of 8 percent per year and so on. a. If the supply of loanable funds is fixed at $17million, what will be the equilibrium interest rate?
b. If the government imposes a usury law and says that car loans cannot exceed 3 percent per year, how big will the monthly shortage (or excess demand) for car loans be?
c. How big will the monthly shortage for car loans be if the usury limit is raised to 7 percent per year?
Suppose that the demand for loanable funds for car loans in the Milwaukee area is $10 million per month at an interest rate of 10 percent per year, $11 million at an interest rate of 9 percent per year, $12 million at an interest rate of 8 percent per year, and so on. If the supply of loanable funds is fixed at $15 million, what will be the equilibrium interest rate? If the government imposes a usury law and says that car loans cannot exceed 3 percent per year, how big will the monthly shortage (or excess demand) for car loans be? What if the usury limit is raised to 7 percent per year?
Theodore D. Kat is applying to his friendly,
neighborhood bank for a mortgage of $200,000. The
bank is quoting 6%. He would like to have a 25-year
amortization period and wants to make payments
monthly. What will Theodore’s payments be?
48
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Chapter 18 Solutions
Economics (Irwin Economics)
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- Suppose that the interest rate at which Joanne can borrow and lend is 10 percent per year, but she can earn $22,000 with a high school degree. Her tuition and books at college cost $6,000 and her living expenses are $15,000 per year. Savings are deposited at the end of the year they are earned and receive (compound) interest at the end of each subsequent year. Similarly, the loans are taken out at the end of the year in which they are needed, and interest does not accrue until the end of the subsequent year. Now that the interest rate has risen, should Joanne go to college or go to work?arrow_forwardThree students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the students’ investment projects: Student Return (Percent) Carlos 4 Felix 7 Janet 15 Assume borrowing and lending is prohibited, so each student uses only personal saving to finance his or her own investment project. Complete the following table with how much each student will have a year later when the project pays its return. Student Money a Year Later (Dollars) Carlos Felix Janet Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate rr. A student would choose to be a lender in this market if his or her expected rate of return is than rr. Suppose the interest rate is 6 percent. Among these three students, the quantity of loanable funds supplied would be ,…arrow_forwardFinal answers must be in 4 decimal places. Analyn borrowed Php 5,000 from a bank and agreed to pay the loan at the end of 9 months. The bank discounted the loan and gave him Php 4,000 in cash. (a) What was the rate of discount? (b) What was the rate of interest? (c) What was the rate of interest for one year? Use only these formulas I=Pin F=P+I F=P+Pin F= P(1+in)arrow_forward
- 4. Does the I in C+I+ G Nx include purchases of stocks and bonds? Why or why not? Lo2 t nnmnonent of I inarrow_forwardInterest 6% lonable fund is 4trillion. Suppose there was a change in the tax laws to encourage savers to save more and as a result, assume the equilibrium interest rate falls by 2 % point. By how much the equilibrium loanable funds saved and invested would rise or fall?arrow_forward-Assume an interest rate of 5%. What is the maximum amount an individual would be willing to give up today in exchange for $1, paid 30 years in the future? -Suppose the government has promised to pay $100 billion dollars in benefits 10 years from now. Assuming an interest rate of 4%, what is the present discounted value (PDV) of the obligation? Answer in billions of dollars, rounded to two decimal places.arrow_forward
- 1 a. Suppose there are two types of investment in the economy: business fixed investment and residential investment. Suppose that loanable fund market is in equilibrium and the government grants an investment tax credit only for business investment. How does this policy affect the supply and demand for loanable funds, the equilibrium interest rate and equilibrium quantity of loanable funds? Use graph to explain your answearrow_forwardAccording to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? O. 1971 O. 1972 O. 1973 O. 1974 O. 1975arrow_forwardExplain all will rate 1) Suppose that people in the economy don't equally share ownership of the capital and that individual capital owners either lost all of their capital or none. As a result of the capital destruction, does the rental income for people who still own capital increase, decrease, or stay the same? a) Increase b) Decrease c)Stay the same 2) As a result of the capital destruction, does the labor income for workers increase, decrease, or stay the same? a) Increase b) Decrease c)Stay the same 3) As a result of the capital destruction, does share of national income paid to labor increase, decrease, or stay the same? a) Increase b)Decrease c)Stay the samearrow_forward
- 8 If nco>0 greater than zero do we say nco is positive? When we way nco>0 means that we have foregin money right? And if nco is less than zero do we way nco is negative? If nco is less than zero we call capital inflow Why do we say so? What dose capital out and inflow mean?arrow_forward5. Suppose the interest rate on a taxable corporate bond is 7 percent while a municipal, tax exempt bond has an interest rate of 5 percent, and they are similar in every other way.a. Assuming the income tax rate is 30 percent, calculate the after tax interest rate on the corporate bond. Is it higher or lower than the after tax return on the municipal bond?b. What is the income tax rate that equalizes the after tax return between the corporate bond and the municipal bond.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
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