Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
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Question
Chapter 4, Problem 5WWMD
To determine
The graphical representation of interest rates since 1975 and to analyze the tendency of interest rates to move together.
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For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain!
a bond of the U.S. government or a bond of an East European government
a bond that repays the principal in year 2015 or a bond that repays the principal in year 2040
a bond from Coca-Cola or a bond from a software company you run in your garage
a bond issued by the federal government or a bond issued by New York State
2. Many workers hold large amounts of stock issued by the firms at which they work. Why do you suppose companies encourage this behavior? Why might a person not want to hold stock in the company where he works?
3. Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10,000; C = 6,000; T = 1,500; G = 1,700. The economists also estimate that the investment function is: I =3,300 –100r where r is the country’s real interest rate, expressed as a percentage. Calculate private saving, public saving,…
What group of people benefits from a higher interest rate? Explain how they benefit.
Discuss briefly how do interest rates affect the economy?
Chapter 4 Solutions
Macroeconomics (9th Edition)
Ch. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 8RQCh. 4 - Prob. 9RQCh. 4 - Prob. 10RQ
Ch. 4 - Prob. 1NPCh. 4 - Prob. 2NPCh. 4 - Prob. 3NPCh. 4 - Prob. 4NPCh. 4 - Prob. 5NPCh. 4 - Prob. 6NPCh. 4 - Prob. 7NPCh. 4 - Prob. 8NPCh. 4 - Prob. 9NPCh. 4 - Prob. 1APCh. 4 - Prob. 2APCh. 4 - Prob. 3APCh. 4 - Prob. 4APCh. 4 - Prob. 5APCh. 4 - Prob. 6APCh. 4 - Prob. 7APCh. 4 - Prob. 5WWMDCh. 4 - Prob. 6WWMD
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- Describe how interest could be good or bad, depending on the situation, and explain why interest rates are currently so low?arrow_forwardUsing the loanable funds theory, illustrate the effect of the following on the level of interest rates.A. An increase in expected future income. B. An increase in income levels which would result in an increase in the level of savings.arrow_forwardWhich of the following situations represent investment or saving? Explain. Your family takes out a mortgage and buys a new house. You use your $200 paycheck to buy stock in AT&T. Your roommate earns $100 and deposits it in his account at a bank. You borrow $1,000 from a bank to buy a car to use in your pizza delivery business. For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain. A bond that repays the principal in year 2030 or a bond that repays the principal in year 2040. 2 . A bond from Coca-Cola or a bond from a software company you run in your garage.arrow_forward
- What determine the Structure of Interest Rates and name the three primary shapes of the Structure of Interest Rates?arrow_forwardOne of the biggest problems for any economy is to figure out how to get or transfer money from people or firms who want to save (savers) to people or firms who want to borrow (investors). Explain how financial markets can help to solve this problem efficiently. Discuss how financial markets function and which tools they can offer to solve this problem. Discuss how financial systems are of crucial significance to adequate capital formation, which is indispensable to a speedy economic growth and development.arrow_forwarddiscuss the relationship between the coupon rate, the market rate of interest and the price of bond?arrow_forward
- If the demand for loanable funds by the business sector decreases because of a recession and the demand for loanable funds by government increases by an amount greater than the decreased demand. How is the equilibrium interest rate affected? Use diagram to show the change.arrow_forwardLet's say that due to political turmoil in the US and abroad, people all over the world start to lose confidence in American securities. Both Americans and foreigners prefer to do their financial investment elsewhere. As a result, we'd expect the supply of loanable funds to shift to the right and the real interest rate to fall the supply of loanable funds to shift to the left and the real interest rate to rise the supply of bonds to shift to the right and the real interest rate to fall the supply of bonds to shift to the left and the real interest rate to risearrow_forwardSuppose that Aaron, the owner of Jack Brown's Burger Bar, wants to open a new restaurant. To open the restaurant, he will need to raise $250,000. Suppose Aaron decides to sell one year bonds with a $10,000 face value. If the price of the bond is $8500, the interest rate on the bond is %. Give your answer to two decimal places..arrow_forward
- Explain in a few paragraphs why interest rates have recently been increased in Australia? Use economic theory and models.arrow_forwardGraphically Show each scenario of the market for loanable funds and graph the supply and demand for each of the 4 scenarios. Draw the shift occurring (Supply or Demand) and explain what happens to the equilibrium interest rate in for each of the 4 scenarios 1. A breakthrough in medical technology results in many hospitals wanting to buy new equipment. 2. The government budget deficit is reduced by 50%. 3. Foreign investors buy residential property in the United States. 4. People around the world are worried about financial stability in their countries and choose to move their wealth to U.S. financial markets.arrow_forward
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