Answered: (a) The market interest rate is 10%.… | bartleby

Microeconomic Theory

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.3P

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a, b and c

Consider an individual with income of nothing in period 1 and $100 in period 2. Assume
the price of the (single) output is $1 in both periods.
(a) The market interest rate is 10%. Draw the individual's lifetime budget constraint.
What is the present value of their (lifetime) income?
(b) Is the individual likely to be a saver or a borrower?
(c) Suppose the market interest rate now rises to 20%. Draw the new budget line and
compare it to the old one. Is the individual likely to save more or less (or borrow less
or more), following the increase in the interest rate?

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Calculate the value of APC when Consumption is given to be $230 and the income is $500
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(investment, savings) is the source of the demand for loanable funds. As the interest rate falls, the quantity of loanable funds demanded (decrease , increase) . Suppose the interest rate is 2.5%. Based on the previous graph, the quantity of loanable funds supplied is (greater, less) than the quantity of loans demanded, resulting in a (surplus, shortage) of loanable funds. This would encourage lenders to (rise, lower) the interest rates they charge, thereby (decrease , increase) the quantity of loanable funds supplied and (decrease , increase) the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of _____% .
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(Saving,investment) is the source of the demand for loanable funds. As the interest rate falls, the quantity of loanable funds demanded (decreases, increase). Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is (greater,less) than the quantity of loans demanded, resulting in a (surplus,shortage) of loanable funds. This would encourage lenders to (raise,lower) the interest rates they charge, thereby (increasing, decreasing) the quantity of loanable funds supplied and (increasing, decreasing) the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of ______%.
A family of four has an income of $15,000 today and will earn $24,000 tomorrow. If the family consumes $11,500 in the first period and $15,000 in the second period, what is the interest rate. (this question deals with intertemporal choice from microeconomics) (also I am seeking the formula to find the interest rate)
3. Supply and demand for loanable funds The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. Supply Demand 100 200 300 400 500 LOANABLE FUNDS (Billions of dollars) A INTEREST RATE (Percent) m 0 0 600
Economics Which of the following situations represent saving? a) Mike borrows $8,000 from a bank and buys a truck for his personal use. b) John uses his $500 paycheck to buy stock in Microsoft. c) Austin borrows $9,000 from a bank to buy a truck to use in his lawn mowing business. d) Your roommate earns $2000 and spends it
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An individual lives for 5 years - 4 years of work followed by 1 year of retirement. He earns $25,000 during each year of work but $0 during retirement. The interest rate is 5% Assume that the individual wants his consumption to be the same in each of the 5 years. a. What utility function would justify this choice of consumption pattern? b. Write out the intertemporal budget constraint in present value form.c. What level of consumption does he choose?d. What is the value of his assets at the beginning of retirement?
JosephmigratedtoCanadafromGhana5yearsago.Hecurrently works in sales but is considering quitting work for two years to earn an MBA degree. His current job pays $40,000 per year (after taxes), but he could earn $55,000 per year (after taxes) if he had an MBA. Tuition is $10,000 per year, and the cost of an apartment near campus is equal to the $10,000 he is currently paying. His discount rate is 6 percent per year. He just turned 48 and plans to retire when he turns 60, whether or not he earns his MBA degree. Based on this information, should he go for an MBA degree? Explain carefully with appropriate calculations.

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