Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 26, Problem 7PA
Subpart (a):
To determine
The Investment and the loanable fund market of the economy.
Subpart (b):
To determine
The Investment and the loanable fund market of the economy.
Subpart (c):
To determine
The Investment and the loanable fund market of the economy.
Subpart (d):
To determine
The Investment and the loanable fund market of the economy.
Subpart (e):
To determine
The Investment and the loanable fund market of the economy.
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Students have asked these similar questions
Three 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:
Harry
5 percent
Ron
8 percent
Hermione
20 percent
a. If borrowing and lending are prohibited, each student uses only personal savings to finance his or her own investment project, how much will each student have a year later when the project pays its return?
b. Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate r. What would determine whether a student would choose to be a borrower or lender in this market?
c. Among these three students, what would be the number of loanable funds supplied and quantity demanded at an interest rate of 7 percent? At 10 percent?
d.At what interest rate would the loanable funds market among these three students be in equilibrium? At this interest rate,…
Suppose that the city of New York issues bonds to raise money to pay for a new tunnel linking New Jersey and Manhattan. An investor named Susan buys one of the bonds on the same day that the city of New York pays a contractor for completing the first stage of construction. Is Susan making an economic or a financial investment? What about the city of New York?
Three 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
,…
Chapter 26 Solutions
Principles of Economics (MindTap Course List)
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Similar questions
- In the late 1990s, the U.S. government moved from a budget deficit to a budget surplus and the trade deficit in the U.S. economy grew substantially. Using the national saving and investment identity, what can you say about the direction in which saving on/or investment must have changed in this economy?arrow_forwardSuppose 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?arrow_forwardAs the interest rate increases, the opportunity cost of _____. a. borrowing decreases b. past consumption decreases c. current consumption increases d. saving increases e. saving decreasesarrow_forward
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