EP ECONOMICS,AP EDITION-CONNECT ACCESS
20th Edition
ISBN: 9780021403455
Author: McConnell
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 28, Problem 7P
Subpart (a):
To determine
The expected return rate and investment.
Subpart (b):
To determine
The expected return rate and investment.
Subpart (c):
To determine
The expected return rate and investment.
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Assume there are no investment projects in the economy that yield an expected rate of return of 25 percent or more. But suppose there are $10 billion of investment projects yielding expected returns of between 20 and 25 percent; another $10 billion yielding between 15 and 20 percent; another $10 billion between 10 and 15 percent; and so forth. Cumulate these data and present them graphically, putting the expected rate of return on the vertical axis and the amount of investment on the horizontal axis. What will be the equilibrium level of aggregate investment if the real interest rate is (a) 15 percent, (b) 10 percent, and (c) 5 percent? Explain why this curve is the investment demand curve.
Assume there are no investment projects in the economy that yield an expected rate of return of 25 percent or more. But suppose
there are $10 billion of investment projects yielding expected returns of between 20 and 25 percent; another $10 billion yielding
between 15 and 20 percent; another $10 billion yielding between 10 and 15 percent; and so forth.
a. Cumulate these data and present them graphically using the graph below, putting the expected rate of return (and the real interest
rate) on the vertical axis and the amount of investment on the horizontal axis.
Instructions: Use the tool provided 'ID' to plot the investment demand curve (plot 6 points total).
30
Tools
ID
20
15
10
10
20
30
40
50
60
Investment (billions of dollars)
Instructions: Enter your answers as a whole number.
b. What will be the equilibrium level of aggregate investment if the real interest rate is:
15 percent: $
billion
10 percent: $
billion
5 percent: $
billion
Expected rate of return, percent
25
When analyzing how borrowing and lending affect the consumer's budget constraint,
we measure spending in the current time period on the horizontal axis and spending
in the future time period on the vertical axis. Assume that the interest rate at which
the consumer can lend and borrow is 10%, income in period 1 is $1000 and income
in period 2 is $1200. The point of maximum current consumption can be expressed
as
1000+ 1200/1.1.
1000(1.1) + 1200.
1000+ 1200 + .1
1000/1.1 + 1200/1.1 + 1.
Chapter 28 Solutions
EP ECONOMICS,AP EDITION-CONNECT ACCESS
Ch. 28.2 - Prob. 1QQCh. 28.2 - Prob. 2QQCh. 28.2 - Prob. 3QQCh. 28.2 - Prob. 4QQCh. 28.5 - Prob. 1QQCh. 28.5 - Prob. 2QQCh. 28.5 - Prob. 3QQCh. 28.5 - Prob. 4QQCh. 28 - Prob. 1DQCh. 28 - Prob. 2DQ
Ch. 28 - Prob. 3DQCh. 28 - Prob. 4DQCh. 28 - Prob. 5DQCh. 28 - Prob. 6DQCh. 28 - Prob. 7DQCh. 28 - Prob. 8DQCh. 28 - Prob. 9DQCh. 28 - Prob. 1RQCh. 28 - Prob. 2RQCh. 28 - Prob. 3RQCh. 28 - Prob. 4RQCh. 28 - Prob. 5RQCh. 28 - Prob. 6RQCh. 28 - Prob. 7RQCh. 28 - Prob. 8RQCh. 28 - Prob. 9RQCh. 28 - Prob. 1PCh. 28 - Prob. 2PCh. 28 - Prob. 3PCh. 28 - Prob. 4PCh. 28 - Prob. 5PCh. 28 - Prob. 6PCh. 28 - Prob. 7PCh. 28 - Prob. 8PCh. 28 - Prob. 9PCh. 28 - Prob. 10P
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