Suppose that in year 1, Acme Corporation can make a real (inflation-adjusted) return on an investment of 3 percent. Assume the nominal interest rate is 8 percent and the inflation rate is 4 percent. Instructions: Enter your answer as a whole number. a. Using this information, we can conclude that the investment would not be profitable b. Suppose that in year 2, the real interest rate changes to 7 percent while inflation remains constant at 4 percent. In year 2, the nominal interest rate must be * percent.

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
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Chapter1: Making Economics Decisions
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Suppose that in year 1, Acme Corporation can make a real (inflation-adjusted) return on an investment of 3 percent. Assume the
nominal interest rate is 8 percent and the inflation rate is 4 percent.
Instructions: Enter your answer as a whole number.
a. Using this information, we can conclude that the investment would not be profitable
b. Suppose that in year 2, the real interest rate changes to 7 percent while inflation remains constant at 4 percent.
In year 2, the nominal interest rate must be
percent.
Transcribed Image Text:Suppose that in year 1, Acme Corporation can make a real (inflation-adjusted) return on an investment of 3 percent. Assume the nominal interest rate is 8 percent and the inflation rate is 4 percent. Instructions: Enter your answer as a whole number. a. Using this information, we can conclude that the investment would not be profitable b. Suppose that in year 2, the real interest rate changes to 7 percent while inflation remains constant at 4 percent. In year 2, the nominal interest rate must be percent.
After graduation, you face a choice. You can work for a multinational consulting firm and earn a starting salary (including benefits) of
$45,000, or you can start your own consulting firm using $6,000 of your own savings. If you keep your money in a savings account,
you can earn an interest rate of 5 percent. You choose to start your own consulting firm. At the end of the first year, you add up all of
your expenses and revenues. Your expenses include $14,000 for rent, $1,600 for office supplies, $22,000 for labor, and $4,900 for
telephone expenses. After operating your consulting firm for a year, your total revenues are $102,000.
Instructions: Enter your answers as a whole number.
a. What is your accounting profit?
2$
b. What is your economic profit?
%24
Transcribed Image Text:After graduation, you face a choice. You can work for a multinational consulting firm and earn a starting salary (including benefits) of $45,000, or you can start your own consulting firm using $6,000 of your own savings. If you keep your money in a savings account, you can earn an interest rate of 5 percent. You choose to start your own consulting firm. At the end of the first year, you add up all of your expenses and revenues. Your expenses include $14,000 for rent, $1,600 for office supplies, $22,000 for labor, and $4,900 for telephone expenses. After operating your consulting firm for a year, your total revenues are $102,000. Instructions: Enter your answers as a whole number. a. What is your accounting profit? 2$ b. What is your economic profit? %24
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