(Q#3) There is an improvement in the interest returns that can be earned from long term Bank CD's. Moreover, the stock market and real estate markets have strengthened and are expected to continue to rise in value providing strong investment returns. Note: consider the desire to hold financial wealth in the form of money balances that very little interest: (a) the quantity of money balances demanded will increase (b) the quantity of money balances demanded will decrease

(Q#3) There is an improvement in the interest returns that can be earned from long term Bank CD's. Moreover, the stock market and real estate markets have strengthened and are expected to continue to rise in value providing strong investment returns. Note: consider the desire to hold financial wealth in the form of money balances that very little interest: (a) the quantity of money balances demanded will increase (b) the quantity of money balances demanded will decrease

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Your 13-year old cousin comes to you again to ask more questions about the time value of money (TVM): “Hey cousin, I want to learn about annuities, growing annuities, perpetuities, and growing perpetuities. 1.Can you please explain what they are? 2.What are their differences? 3.Also, I wonder how all these TVM techniques can be used in real life. How are these techniques applied in finance? Can you provide examples?”
Q3. Suppose that the money demand function is given by: Md=$Y (.25-i), where $Y is $100. (a) Derive the bond demand function (B) assuming that wealth is $50. (b) Calculate Md and Bd at interest rates of 5% (use .05) and 10% (use .10). SHOW WORK. (c) How does an increase in the interest rate affect the amount of money people are willing to hold, according to your calculations? How does an increase in the interest rate affect the quantity of bonds people are willing to hold? (d) Suppose the supply of money is currently $20.. Show that the equilibrium interest rate is 5% (.05). (e) Suppose the central bank wants the equilibrium interest rate to rise to 15% (.15). At what level should it set monetary policy? SHOW WORK. What kind of monetary policy (expansionary or contractionary) does this imply?
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Suppose you purchase a $1,500 TIPS on January 1, 2020. The bond carries a fixed coupon rate of 5.5 percent. Over the first two years, semiannual inflation is 1.5 percent, 1.5 percent, 4 percent, and 3 percent, respectively. What is the principal at the end of month 6?
Question 1 government purchases are 2000. Desired consumption and desired investment are as follows: An economy has full-employment real output of 9000, and Real Interest Rate (%) Desired Consumption Desired Investment 1 6100 1500 1.5 6000 1400 2 5900 1300 2.5 5800 1200 1100 3 5700 In this economy, suppose that the real money demand function is 0.01Y L(Y, r + t®) = r+ne> where Y is real output, r is the real interest rate, and T is the expected rate of inflation. Real output is constant at the full-employment level over time. The real interest rate is fixed in good markets equilibrium per year. a. Interpret the income elasticity of money demand and the interest elasticity of money demand, as well as the real money demand function. b. Suppose that the nominal supply is growing at the rate of 25% per year and this growth rate is expected to persist forever. Currently, the nominal money supply is M-1500. What are the values of the real money supply, the nominal interest rate and the…
Assume that the expected inflation rises to Еπ₂. Consequently, the expected return on one-year discount bonds (discussed in Question 2) relative to other assets falls for any given price and interest rate. The demand for these bonds falls, and the supply rises. The new equations for the demand and the supply of these bonds are as follows: New demand for bonds: P₂ = -0.7Q₂ + 1050 New supply of bonds: P2 = Q₂ + 850 1. Calculate the new expected equilibrium quantity of bonds. Round your answer to two decimal places. [1] 2. Calculate the new expected equilibrium price of bonds. Round your answer to two decimal places. [1] 3. Calculate the new equilibrium interest rate in this market. Round your answer to two decimal places. [1]
All other things equal, if the demand for bonds increases, the price of bonds will will increase increase and the quantity of money held for speculative purposes will :: stay the same :: increase :: decrease interest rates decrease
To understand the important role played by banks in the economy, we need to imagine a world without banks. REQUIRED: A. Explain how economic transactions between household savers of funds and corporate users of funds would occur in a world without financial intermediaries. Identify and explain three economic disincentives that probably would dampen the flow of funds between household savers of funds and corporate users of funds in an economic world without financial intermediaries. Identify and explain the two functions in which FIs may specialize that would enable the smooth flow of funds from household savers to corporate users. In what sense are the financial claims of FIs considered secondary securities, while the financial claims of commercial corporations are considered primary securities?
U(C1, C2) = c₁0.8 20.4 where c₁ is the quantity of current consumption goods and c₂ is the quantity of future consumption goods. Consider a consumer whose income is y₁ = 100 in the current period and y₂ = 140 in the future period. The consumer pays lump-sum taxes t₁ and t₂ == = 20 in the current period 10 in the future period. The real interest rate is r = 0.1, or 10%, per period. (a) Write down the consumer's budget constraint for each period and derive the consumer's lifetime budget constraint. What is the value of the consumer's lifetime wealth? [Note: Lifetime wealth is the present value of the consumer's lifetime disposable income] (b) Draw the lifetime budget line on the (C1, C2) plane with c₁ on the horizontal axis and C₂ on the vertical axis. Include the values of the intercepts and the endowment point in your graph. What is the slope of the budget line? (c) What are the two conditions that the consumer's optimal choice of (C1, C2) must satisfy? Find the consumer's optimal…
Consider a bond without an expiration date that makes a fixed interest payment of $210 per year. Complete the following table by calculating the interest rate on the bond at different sale prices. (Hint: The effective interest rate on a bond is a ratio of the interest payment to the sale price of the bond times 100.) Price of Bond Interest Rate (Dollars) (Percent) 1,200 1,000 750 600 Use the blue points (circle symbol) and the preceding table to plot the relationship between bond prices and interest rates on the following graph. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. The line showing the relationship between bond prices and interest rates has a _____(POSITIVE/NEGATIVE) slope; in other words, there is _______(INVERSE / A DIRECT) relationship between bond prices and interest rates. NOTE- THIS QUESTION IS DIVIDED INTO SUBPARTS . PLEASE ANSWER…
Which one of the following statements regarding the demand for money is correct? (a) A positive relationship exists between the quantity of money demanded and the prevailing interest rate in an economy; (b) The demand for money is made up of the sum of all the money balances that participants in the economy would like to have; (c) For a given interest rate, an increase in nominal income increases the demand for money; (d) Two key factors that impact on the demand for money by individuals are savings and investments available to participants.
Question 2: Consider a model exactly like that in Question 1 - where the person receives income $48,326 - in period 1 and additional income $44,928 in period 2 except let's now suppose that the person faces a liquidity constraint. Specifically, she can still save at an interest rate of 4%, but if she borrows, then she must pay an interest rate of 8%. (a) If the person wants to save, the relevant interest rate is 4%. For what values of 8 is it optimal to save? [Hint: You already know the answer from Question 1.] (b) If the person wants to borrow, the relevant interest rate is 8%. (i) Suppose the interest rate is 8%, and solve for the optimal c₁ and c₂ as a function of 8. (ii) If the interest rate is 8%, for what values of 8 is it optimal to borrow? [Note: Please report your answer to 5 decimal points.] (c) Given the liquidity constraint, for what values of 8 is it optimal to neither borrow nor save? [Hint: Two conditions must hold: (i) 8 must be such that the person does NOT want to…