Will's expenditures on food for three consecutive years, along with other values, are presented in the following table. Expenditures on food Consumer price index Year 2 $5,800 1 $5,000 160.0 168.0 X 3 $6,600 Refer to Table 24-4. Suppose Will's Year 1 food expenditures in Year 3 dollars amounted to $5,670. Suppose also that the real interest rate in Year 3 was 3 percent. Then, in Year 3, a. the inflation rate was 8 percent and the nominal interest rate was 11 percent. b. the inflation rate was 8 percent and the nominal interest rate was 5 percent. c. the inflation rate was 9 percent and the nominal interest rate was 12 percent. d. the inflation rate was 9 percent and the nominal interest rate was 6 percent.

Will's expenditures on food for three consecutive years, along with other values, are presented in the following table. Expenditures on food Consumer price index Year 2 $5,800 1 $5,000 160.0 168.0 X 3 $6,600 Refer to Table 24-4. Suppose Will's Year 1 food expenditures in Year 3 dollars amounted to $5,670. Suppose also that the real interest rate in Year 3 was 3 percent. Then, in Year 3, a. the inflation rate was 8 percent and the nominal interest rate was 11 percent. b. the inflation rate was 8 percent and the nominal interest rate was 5 percent. c. the inflation rate was 9 percent and the nominal interest rate was 12 percent. d. the inflation rate was 9 percent and the nominal interest rate was 6 percent.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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
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Suppose you know the following facts about consumer behavior of Amy in 2019. In a year, Amy spends $10000 on basic household items regardless of how much she is earning. For every dollar of disposable income earned, Amy spends 50% on extra purchases. Amy pays taxes in the amount of $1000, and receives no transfers. Use this information to: Derive Amy’s consumption function in nominal terms. Suppose the price level index in the economy for 2019 is estimated to be P = 2. Rewrite the consumption function in real terms.
The table below shows the total expenditure on a basket of goods and services. Use this information to calculate index numbers for the cost of a basket of goods and services in each period. Assume Period 1 is the base year. Round to one decimal place. Provide your answer below: Period 1 Period 2 Period 3 Period 4 Total Expenditure $1,100 $1,350 $1,400 $1,450 Period 1 Period 2-Period 3 = Period 4 = | Index Number
Adam's expenditures on food for three consecutive years, along with other values, are presented in the following table. Expenditures on food Consumer price index Year 1 2 $5,000 $5,300 175 182 3 $6,150 X Refer to Table 24-4. Suppose Will's Year 1 food expenditures in Year 3 dollars amounted to $7,140. Suppose also that the real interest rate in Year 3 was 8 percent. Then, in Year 3, a. the inflation rate was 45 percent and the nominal interest rate was 29 percent. b. the inflation rate was 45 percent and the nominal interest rate was 37 percent. c. the inflation rate was 37 percent and the nominal interest rate was 45 percent. d. the inflation rate was 37 percent and the nominal interest rate was 29 percent.
) A college is considering investing $6 million to add 10,000 seats to its football stadium. The athletic department forecasts it can sell all these extra seats at each game for a ticket price of $20 per seat, and the team plays six home games per year. If the school can borrow at an interest rate of 14%, should the school undertake this project? (Show your math!) What would happen if the school expected a losing season and could sell tickets for only 5,000 of the seats?
Consider a closed economy with a gross domestic product (Y) of 800, consumption expenditure (C) of 500, government expenditure (G) of 100 and tax revenues (T) of 190. The figures are in billions of dollars. Suppose the investment expenditure function is I = 300 – 50r, where r is the real interest rate expressed as a percentage. a) State the equation between Y and the three components of expenditure. b) Calculate private saving (Sp), public saving (Sg), and national saving (S). c) Calculate investment (I). d) Calculate the equilibrium real interest rate and quantity of loanable funds. e) If the government ran a budget deficit of $30 billion in the next period, explain how this would affect the market for loanable funds.
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Step 2 Determine the equilibrium real interest rate. The table below is broken down by Month, Real Interest Rate (%), Loanable Funds (trillions of $), Exogenous Change, Equilibria (increases, decreases, or no change. Use the data table to determine the equilibrium real interest rate after certain factors change: Equilibria (increases, decreases, or no change) Month Real Interest Loanable Funds Exogenous Rate (%) (trillions of $) Change 3 no change no change January 3% April 3% 4 increased fund ? supply decreased fund July 4% supply December 3% 3 increased fund ? demand
(Figure: Market for Loanable Funds 2) Based on the graph, if business taxes increase, the demand for loanable funds curve will shift from to and the new equilibrium will be at point holding supply constant at So. So Real Interest Rates (%) Do; D₁; c Do; D₁; b D₁; Do; a a b Loanable Funds ($) d S₁ Do D₁
2. In a two-period model, Jennifer expects to earn income of £15,000 in the second period but nothing in the current period; whereas Martin has income of £15,000 in the current period (everything adjusted for inflation). The real interest rate for both borrowing and lending is 30%. a) What is the present value of Jennifer’s future income? b) Show diagrammatically why Martin is better off than Jennifer. c) Show diagrammatically the impact of a fall in the interest rate for both Martin and Jennifer. Is it possible for a fall in interest rates to make Jennifer better off than Martin? d) Comment briefly on the implication of your answer to part (c) for the effectiveness of monetary policy carried out by changing the central bank interest rate.
3. Effects of a government budget deficit Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Real Interest Rate (Percent) 7 National Saving (Billions of dollars) 55 Domestic Investment (Billions of dollars) Net Capital Outflow (Billions of dollars) 30 -15 6 50 40 -10 5 45 50 -5 4 40 60 0 3 35 70 5 2 30 80 10 Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol) to plot the supply of loanable funds. Finally, use the black point (cross symbol) to indicate the equilibrium in this market. Market for Loanable Funds 10 O Demand 8 O Supply *+ Equilibrium 20 40 80 60 QUANTITY OF LOANABLE FUNDS REAL INTEREST…