Ben earns $7,200 this year and zero income the next year. Ben also has an investment opportunity in which he can invest $3,100 and receive $7,000 next year. Suppose Ben consumes $3,000 this year, invests in the project, and consumes $8,205 next year. a. What is the market rate of interest? (Hint: The new market interest rate line EF is parallel to AH.) Market rate % b-1. Suppose the interest rate increases. What will happen to Ben's consumption for this year? If interest rate increases, Ben's consumption [(Click to select) ✓ b-2. Is Ben better off or worse off than before the interest rate rise? Ben is (Click to select) off than before the interest rise.

Ben earns $7,200 this year and zero income the next year. Ben also has an investment opportunity in which he can invest $3,100 and receive $7,000 next year. Suppose Ben consumes $3,000 this year, invests in the project, and consumes $8,205 next year. a. What is the market rate of interest? (Hint: The new market interest rate line EF is parallel to AH.) Market rate % b-1. Suppose the interest rate increases. What will happen to Ben's consumption for this year? If interest rate increases, Ben's consumption [(Click to select) ✓ b-2. Is Ben better off or worse off than before the interest rate rise? Ben is (Click to select) off than before the interest rise.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: Figure 7.2 45° C, S Y=200 In Figure 7.2, if income is $200, then: consumption is also $200. saving…

A: The consumption function shows the functional association between the gross national income and…

Q: Anna has an income of $1000 this year, and she expects an income of $2500 next year. She can borrow…

A: Formula for the present value is given as: P = F(1+_r)tP : Present valueF: Future valuer: rate of…

Q: Find the disposable income when the consumption is $210 in the saving our $ 190

Q: The firm you work for wants you to provide some insight into the investment environment in Mexico…

A: Marginal Revenue Product of Capital (Capital) can be defined in terms of marginal revenue or the…

Q: Like a good economist, you calculated the cost of getting your college degree, including the…

A: As a prudent economist, considering the full cost of a college degree involves not only direct…

Q: What are the major economic functions of the interest rate? How might the fact that many businesses…

A: Answer - Major economic functions of the interest rate :- The interest rate has many economic…

Q: Q. 18 Dave deposits $2000 into the bank as deposits in 2016. The bank promises him a nominal…

A: Deposited - $2000 Nominal Interest rate = 5% = 0.05 Goods: 2 can of Coca-Cola 5 hamburgers

Q: C=800+0.8Y XN=500 -0.2Y I = 1200 G=2000 Refer to the information above to answer this question. What…

A: The (Aggregate demand) measures the total demand for goods and services in an economy. It sums up…

Q: Nick and Steve both obey the two-period Fisher model of consumption. Nick earns $300 in the first…

A: Given: Earning of Nick: 1st period=$300, 2nd period=$300 Consumption: 1st period= $200 Earning of…

Q: Assume Marco is initially borrowing and investing 100, with a return on investment of 50% and an…

A: Investment and borrowing are the key ways through which individuals and businesses try to reach…

Q: thetical economy, no investment projects are undertaken when the real interest rate is 12 percent or…

A: We have: If rate of interest is 12% or more, then the quantity of investment is 0 If rate of…

Q: Disposable Income ($) Consumption ($) 1,000 800 1,100 880 1,200 960 1,300 1,040 1,400 1,120

A: The disposable income is the portion of the income which is left after the deduction of the taxes.…

Q: 7. Consider a two-period model in which a family works in the first period and earns $120,000 and…

A: Intertemporal Budget Constrain is given by the equation : c1 + c2/(1+r) = Y1 + Y2/(1+r) We know ,…

Q: If Y = C+I, saving, S, is defined as S=Y-C and C=cY, what is the ratio of saving to income, S/Y a.…

A: The objective of the question is to find the ratio of saving to income, S/Y, given the equations Y =…

Q: Suppose that an economy's net investment flow is I(t) = 2t + 10t1/2. Letting K(0) is the initial…

A: Definition: Capital accumulation is the development in growth through investments or benefits.…

Q: As the real interest rate falls: a) the supply of loanable funds increases. b) the quantity supplied…

A: a) The supply of loanable funds increases.This is correct. When real interest rates fall, it becomes…

Q: In a hypothetical economy, no investment projects are undertaken when the real interest rate is 18…

A: In a hypothetical economy, each project is worth $1 million. No investment projects are undertaken…

Q: Selim has no income in period 1 (consumption now) and an income of 1800₺ in period 2 (consumption…

A: here we calculate the maximum amount the Salim can borrow in period 1 by the following method as…

Question

Ben earns $7,200 this year and zero income the next year. Ben also has an investment opportunity in which he can
invest $3,100 and receive $7,000 next year. Suppose Ben consumes $3,000 this year, invests in the project, and
consumes $8,205 next year.
a. What is the market rate of interest? (Hint: The new market interest rate line EF is parallel to AH.)
Market rate
%
b-1. Suppose the interest rate increases. What will happen to Ben's consumption for this year?
If interest rate increases, Ben's consumption (Click to select) ✓
b-2. Is Ben better off or worse off than before the interest rate rise?
Ben is (Click to select) ✓off than before the interest rise.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduce the problem

VIEW

Step 2: Calculate market interest rate

VIEW

Step 3: Answer part B

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is a decrease in the tax rate on interest income, from 20% to 15%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to and the level of investment spending to
Economics,
Assume that in this economy consumption (C) is given by the equation C = 600 + 0.6(Y – T). Investment (I) is given by the equation I = 2,000 – 100r, where r is the real rate of interest in percent terms. Taxes (T) are 500 and government spending (G) is also 500. What are the values of private saving, public saving, and national saving?
Suppose that y =100 (income today) • y' = 150 (income tomorrow) 10% (interest rate on bonds) %3D r = • t = 10 (taxes today) • t' = 10 (taxes tomorrow) Suppose that c = 100. Is the consumer borrowing or saving, today? And what will her budget constraint look tomorrow? The consumer is borrowing. Her budget constraint tomorrow will be c' = 150 -10 - 10*(1.1) = 129 The consumer is saving. Her budget constraint tomorrow will be c' = 150 -10 + 10*(1.1) = 151 O The consumer is neither borrowing nor saving - she is breaking even. Her budget constraint tomorrow will be c' = 150 -10 = 140 O The consumer is saving. Her budget constraint tomorrow will be c' = 150 + 10*(1.1) = 161 %D
Harper is a short-lived human who only lives for two years: current year and next year. In the current year, Harper has an income of $189 and has to pay $36 in taxes. Harper expects that he can receive an income of $132 and has to pay $27 in taxes next year before he dies. The real interest rate between current and next year is 7%. What is Harper's lifetime wealth (in $)? Round your answer to at least 2 decimal places
Suppose Poornima is an avid reader and buys only comic books. Poornima deposits $3,000 in a bank account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a comic book is priced at $15.00. Initially, the purchasing power of Poornima's $3,000 deposit is comic books. For each of the annual inflation rates given in the following table, first determine the new price of a comic book, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Poornima's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest comic book. For example, if you find that the deposit will cover 20.7 comic books, you would round the purchasing power down to 20 comic books under the assumption that Poornima will…
Find the saving when the income is 50 and consumption is 60
Suppose that the government puts out a tax incentive that encourage people to save more money. Assume that this does not lead to a change in Y* or G, but does lead to a decrease in Consumption. 7. What would we expect to happen to interest rates? Explain your answer. 8. Would this change in interest rates increase or decrease the present value (PV) of the investment that this question is considering? Explain your answer.
Exercise 5.2 Given the intertemporal production possibilities frontier to the right. Point A represents a production combination of present and future goods. Using the point drawing tool, show a production combination consistent with a decrease in the real interest rate. Label this point 'B'. Carefully follow the instructions above and only draw the required object. Selected: Point tool * Delete Clear Futurn Consumption ? • FC₂ (0,9.93) ........... A PC Present Consumption Q Q G Question Help ▼ O
Assume an economy with 1000 consumers. Each consumer has income in the current period of 50 units and future income of 60 units, and pays a lump-sum tax of 10 in the current period and 20 in the future period. The market real interest rate is 8%. Of the 1000 consumers, 500 consume 60 units in the future, while 500 consume 20 units in the future. a) Determine each consumer's current consumption and current saving. b) Determine aggregate private saving, aggregate consumption in each period, government spending in the current and future periods, the current-period government deficit, of the quantity of debt issued by the government in the current period. c) Suppose that current taxes increase to 15 for each consumer. Repeat parts (a) and (b) and explain your results.
How do you explain why investment falls as interest rate rises
Cindy takes a summer job and earns an after-tax income of $5,000. Her living expenses during the summer were $1,000. What was Cindy's saving during the summer and the change, if any, in her wealth? >>> If your answer is negative, include a minus sign. If your answer is positive, do not include a plus sign. Cindy's saving during the summer is $