To explain:
The significance of loanable funds market to basic
Explanation of Solution
In modern macroeconomy, loanable funds market is a big source of national GDP because here huge volume of transaction of funds takes place. The expenditure method of accounting
Savings is residual part of income after consumption.Iis normally defined as buying of things which will be used to generate more products and services in the future. In terms of national accounting,stocks,bonds,mutual funds and other cash equivalents are not categorized as assets,but rather categorized as savings.Savings from this view facilitate the acquisition of capital that is included in investments. Savings is done from household sector.
In a closed economy where there is no export or activity to interfere with the level of domestic savings, individual savings generate the provision of loanable funds accessible for investment reasons on an aggregate basis.The quantity of saved money available in the economy is equal to the quantity of financing available for business activities.The greater the savings level,typically the reduced the comparative rate of interest,ceteris paribus.On a
In loanable funds market,the financial intermediaries can help to increase the incentive to save by creating economic products that give easy liquidation but provide a greater return than a savings account. In this way,financial intermediaries in loanable funds market are an important element for transforming savings into investment.Savings like mutualfunds, and insurance annuities, sold by financial intermediaries consists of stocks,and bonds which in turn pay for investment capital,which improves the productivity,effectiveness,and production of products and services in the macroeconomy.
Loanable fund market:
Loanable fund market is the situation in which the needy or demander of funds and the supplier of funds meet and exchange the funds at a determined interest rate. It plays important role in finding basic GDP in macroeconomy.
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Chapter 22 Solutions
Principles of Economics (Second Edition)
- 2. What is the payoff from a long futures position where you are obligated to buy at the contract price? What is the payoff from a short futures position where you are obligated to sell at the contract price?? Draw the payoff diagram for each position. Payoff from Futures Contract F=$50.85 S1 Long $100 $95 $90 $85 $80 $75 $70 $65 $60 $55 $50.85 $50 $45 $40 $35 $30 $25 Shortarrow_forward3. Consider a call on the same underlier (Cisco). The strike is $50.85, which is the forward price. The owner of the call has the choice or option to buy at the strike. They get to see the market price S1 before they decide. We assume they are rational. What is the payoff from owning (also known as being long) the call? What is the payoff from selling (also known as being short) the call? Payoff from Call with Strike of k=$50.85 S1 Long $100 $95 $90 $85 $80 $75 $70 $65 $60 $55 $50.85 $50 $45 $40 $35 $30 $25 Shortarrow_forward4. Consider a put on the same underlier (Cisco). The strike is $50.85, which is the forward price. The owner of the call has the choice or option to buy at the strike. They get to see the market price S1 before they decide. We assume they are rational. What is the payoff from owning (also known as being long) the put? What is the payoff from selling (also known as being short) the put? Payoff from Put with Strike of k=$50.85 S1 Long $100 $95 $90 $85 $80 $75 $70 $65 $60 $55 $50.85 $50 $45 $40 $35 $30 $25 Shortarrow_forward
- The following table provides information on two technology companies, IBM and Cisco. Use the data to answer the following questions. Company IBM Cisco Systems Stock Price Dividend (trailing 12 months) $150.00 $50.00 $7.00 Dividend (next 12 months) $7.35 Dividend Growth 5.0% $2.00 $2.15 7.5% 1. You buy a futures contract instead of purchasing Cisco stock at $50. What is the one-year futures price, assuming the risk-free interest rate is 6%? Remember to adjust the futures price for the dividend of $2.15.arrow_forward5. Consider a one-year European-style call option on Cisco stock. The strike is $50.85, which is the forward price. The risk-free interest rate is 6%. Assume the stock price either doubles or halves each period. The price movement corresponds to u = 2 and d = ½ = 1/u. S1 = $100 Call payoff= SO = $50 S1 = $25 Call payoff= What is the call payoff for $1 = $100? What is the call payoff for S1 = $25?arrow_forwardMC The diagram shows a pharmaceutical firm's demand curve and marginal cost curve for a new heart medication for which the firm holds a 20-year patent on its production. Assume this pharmaceutical firm charges a single price for its drug. At its profit-maximizing level of output, it will generate a total profit represented by OA. areas J+K. B. areas F+I+H+G+J+K OC. areas E+F+I+H+G. D. - it is not possible to determine with the informatio OE. the sum of areas A through K. (...) Po P1 Price F P2 E H 0 G B Q MR D ōarrow_forward
- Price Quantity $26 0 The marketing department of $24 20,000 Johnny Rockabilly's record company $22 40,000 has determined that the demand for his $20 60,000 latest CD is given in the table at right. $18 80,000 $16 100,000 $14 120,000 The record company's costs consist of a $240,000 fixed cost of recording the CD, an $8 per CD variable cost of producing and distributing the CD, plus the cost of paying Johnny for his creative talent. The company is considering two plans for paying Johnny. Plan 1: Johnny receives a zero fixed recording fee and a $4 per CD royalty for each CD that is sold. Plan 2: Johnny receives a $400,000 fixed recording fee and zero royalty per CD sold. Under either plan, the record company will choose the price of Johnny's CD so as to maximize its (the record company's) profit. The record company's profit is the revenues minus costs, where the costs include the costs of production, distribution, and the payment made to Johnny. Johnny's payment will be be under plan 2 as…arrow_forwardWhich of the following is the best example of perfect price discrimination? A. Universities give entry scholarships to poorer students. B. Students pay lower prices at the local theatre. ○ C. A hotel charges for its rooms according to the number of days left before the check-in date. ○ D. People who collect the mail coupons get discounts at the local food store. ○ E. An airline offers a discount to students.arrow_forwardConsider the figure at the right. The profit of the single-price monopolist OA. is shown by area D+H+I+F+A. B. is shown by area A+I+F. OC. is shown by area D + H. ○ D. is zero. ○ E. cannot be calculated or shown with just the information given in the graph. (C) Price ($) B C D H FIG шо E MC ATC A MR D = AR Quantityarrow_forward
- Consider the figure. A perfectly price-discriminating monopolist will produce ○ A. 162 units and charge a price equal to $69. ○ B. 356 units and charge a price equal to $52 for the last unit sold only. OC. 162 units and charge a price equal to $52. OD. 356 units and charge a price equal to the perfectly competitive price. Dollars per Unit $69 $52 MR 162 356 Output MC Darrow_forwardThe figure at right shows the demand line, marginal revenue line, and cost curves for a single-price monopolist. Now suppose the monopolist is able to charge a different price on each different unit sold. The profit-maximizing quantity for the monopolist is (Round your response to the nearest whole number.) The price charged for the last unit sold by this monopolist is $ (Round your response to the nearest dollar.) Price ($) 250 225- 200- The monopolist's profit is $ the nearest dollar.) (Round your response to MC 175- 150 ATC 125- 100- 75- 50- 25- 0- °- 0 20 40 60 MR 80 100 120 140 160 180 200 Quantityarrow_forwardThe diagram shows a pharmaceutical firm's demand curve and marginal cost curve for a new heart medication for which the firm holds a 20-year patent on its production. At its profit-maximizing level of output, it will generate a deadweight loss to society represented by what? A. There is no deadweight loss generated. B. Area H+I+J+K OC. Area H+I D. Area D + E ◇ E. It is not possible to determine with the information provided. (...) 0 Price 0 m H B GI A MR MC D Outparrow_forward
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