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![(2) Your paycheque for the year is higher this year than last year. Does that mean that your real
income has increased?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe00f0bc6-6697-4069-9369-63c08245d245%2F45a2d077-f2b1-40b8-851b-e269313aecb0%2F3hg5b1w_processed.jpeg&w=3840&q=75)
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2) Increasing income does not always imply that real income has increased. If the paycheck has increased, it implies that the current wage has increased which is nominal concept.
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- 9. The price of money Suppose that Rajiv borrows $50,000 at 5% per year to purchase equipment for his business. Complete the following table by calculating the amounts that Rajiv will have to repay in full if he borrows for three different periods (months), assuming compound interest. Period (Months) 30 40 45 Amount (Dollars)Suppose that the typical consumer has a salary of $30,000 in 2017. His salary grows by 2% per year. What can we say about his ability to pay for his consumption basket over time?23. James borrowed $600 from the bank at some rate per annum and that amount becomes double in 2 years. Calculate the rate at which James borrowed the money. Amount of Rs 12800 was invested by Mr Rohan dividing it into two different
- You work for a bank that has just made two loans. In one, you lent $900 today in return for $1200 in one year. In the other, you lent $900 today in return for $10000 in 20 years. The difference between the loan amount and repayment amount is based on an interest rate of 8% per year. Imagine that immediately after you make the loans, news about economic growth is announced that increases inflation expectations, so that the market interest rate for loans like these jumps to 10%. Loans make up a major part of a bank’s assets, so you are naturally concerned about the value of these loans. What is the effect of the interest rate change on the value to the bank of the promised repayment of these loans?Increase or decrease(Present Value of an Annuity) Why is $10,000 a close approximation of the price of an annuity that pays $1,000 each year for 30 years at 10 percent annual interest?
- Suppose that you eam $250 in year 1 and will ean $448 in year 2. If you borrow money against your future income you will have and additional $400 to spend in year 1, and If you lend all of your current income you will have and additional $280 to spend in year 2. In both years you consume only food which costs $1 per kilogram in each year. What is the interest rate that you borrow and lend at? R= F2 where F is the amount of food consumed this F1 Let your MRS for food in year 1 with food in year 2 be given by the formula year and Fo is the amount of food consumed next year. Calculate your consumption bundie: F1 = F2 = %3! Suppose the interest rate at which you can borrow and lend changes to 40%. Calculate your new consumption bundle: %3D Which interest rate is preferred? O The initial interest rate found in part 1 The new interest rate, 40%The value of land in Manhattan was around $150 billion in 2008. Imagine that it is 1626 and you are the economic advisor to the Dutch when they are considering whether to buy Manhattan from the Manhasset Indians. Further,assume that the relevant interest rate for calculating the present value is 4%per year. Would you advice the Dutch that a purchase price of $24 is a good deal or not? How would your answer change if the interest rate were 6%? And 8%? (Hint: for each interest rate,calculate the present value in 1626 of the land value as of 2008. Then compare that with the purchase price in 1626. For example, simplify by assuming that the owners collect no rents on the land. As an advanced further question,assume that the rent equals 2% of the value of the land each year.)Intro In order to save for your retirement, you want to save $2,000 every year for 15 years, starting one year from now. The annual interest rate on your savings account is 8%. Part 1 How much money will you have in your account in 15 years? 0+ decimals Submit
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