EBK PRINCIPLES OF ECONOMICS
7th Edition
ISBN: 8220102958395
Author: Mankiw
Publisher: CENGAGE L
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Chapter 26, Problem 7PA
Subpart (a):
To determine
The Investment and the loanable fund market of the economy.
Subpart (b):
To determine
The Investment and the loanable fund market of the economy.
Subpart (c):
To determine
The Investment and the loanable fund market of the economy.
Subpart (d):
To determine
The Investment and the loanable fund market of the economy.
Subpart (e):
To determine
The Investment and the loanable fund market of the economy.
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Three students have each saved $1,000.each has an investment opportunity in which he or she can invest upto $2,000.Here are the rates of return on the students investment project:a.If borrowing and lendind are prohibited,so each student uses only personal saving to finance his or her own investment project ,how much will each student have a year later when the project pays its return?b.Now suppose their school opens up a market for loanable funds in which students ran borrow and lend among themselves at an interest rate r.What would determine whether a student would choose to be a borrower or lender in this market?c.Among these three students,what would be the quantity of loanable funds supplied and quantity demanded at an interest rate of 7 percent?At 10percent?d.At what interest rate would the loanable funds market among these three students be in equilibrium?At this interest rate,which student(s) would borrow and which student(s) would lend?e.At the equilibrium interest rate,how…
Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the students’ investment projects:
Student
Return
(Percent)
Carlos
4
Felix
7
Janet
15
Assume borrowing and lending is prohibited, so each student uses only personal saving to finance his or her own investment project.
Complete the following table with how much each student will have a year later when the project pays its return.
Student
Money a Year Later
(Dollars)
Carlos
Felix
Janet
Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate rr.
A student would choose to be a lender in this market if his or her expected rate of return is than rr.
Suppose the interest rate is 6 percent.
Among these three students, the quantity of loanable funds supplied would be
,…
Suppose that the demand for laonable funds for car in the Milwaukee area is $11million per month at an interest rate of 10 percent per year, $12million at an interest rate of 9 percent per year, $13million at an interest rate of 8 percent per year and so on. a. If the supply of loanable funds is fixed at $17million, what will be the equilibrium interest rate?
b. If the government imposes a usury law and says that car loans cannot exceed 3 percent per year, how big will the monthly shortage (or excess demand) for car loans be?
c. How big will the monthly shortage for car loans be if the usury limit is raised to 7 percent per year?
Chapter 26 Solutions
EBK PRINCIPLES OF ECONOMICS
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- Three students have each saved $1000. Each has an investment opportunity in which he or she can invest up to $2000. Here are the rates of return on the students’ investment projects: Harry 5 percent Ron 8 percent Hermione 20 percent If borrowing and lending are prohibited, so each student can use only personal saving to finance his or her own investment project, how much will each student have a year later when the project pays its return? Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate r. What would determine whether a student would choose to be a borrower or lender in this market? Among these three students, what would be the quantity of loanable funds supplied and quantity demanded at an interest rate of 7 percent? At 10 percent? At what interest rate would the loanable funds market among these three students be in equilibrium? At this interest rate, which student(s)…arrow_forward1. Why it is not ideal to invest according to what the board lot is telling you?2. What should be the minimum capital investment to maximize your investment? Why?arrow_forwardTo pay off your student loan, you must pay $10,000 at the end of the year for the next three years. The interest rate is 5 percent a year. What is the present value of these payments? A. $30,000.00 B. $27,232.48 C. $8,638.28 D. $29,100.00arrow_forward
- If and when the demand of loanable funds shifts to the left: Group of answer choices 1. This is good news for people who rely on the interest earnings from their savings but bad news for people who have outstanding home loans. 2. This is bad news for people who rely on the interest earnings from their savings but good news for people who have outstanding home loans. 3. This is good news both for people who rely on the interest earnings from their savings as well as those who have outstanding home loans. 4. This is bad news both for people who rely on the interest earnings from their savings as well as those who have outstanding home loans.arrow_forwardGeometric gradient. C.1.) A graduating class of civil engineers decides they will present the engineering college with a gift of $100,000 at their twenty-fifth reunion. There are 50 in the class and they can invest at 8 percent. They plan to start out giving a small amount at the end of the first year and in- crease their gifts to the class fund by 10 percent each year. Find the amount each graduate would donate at the end of the first year in order to reach their class goal of $100,000 at the end of 25 years. (Ans. C= $10.03)arrow_forwardGive at least three examples of how savings can be channeled into productive investment. Why is investment so important for an economy? What do you sacrifice when you save today?arrow_forward
- 4.4 how am i supposed to show this, are there going to be two lines crossing over eachother?arrow_forward17. You bought a house a year ago for $250,000, borrowing $200,000 at 10% on a 30-year term- loan (with monthly payments). Interest rates have since come down to 9%, You can refinance your mortgage at this rate, with a closing cost that will be 3% of the loan. Your opportunity cost is 8%. Ignore tax effects. a. How much are your monthly payments on your current loan (at 10%)? b. How would your monthly payments be if you could refinance your mortgage at 9% (with a 30-year term loan)? You plan to stay in this house for the next 5 years. Given the refinancing cost (3% of the loan), would you refinance this loan? C.arrow_forwardDescribe the capital stock of your university in terms of tangible and intangible concepts. How would you go about measuring its value?arrow_forward
- Recently, the economies of North Korea and Norway have begun to grow very rapidly. This increases their citizens’ income and wealth as well. In turn, these citizens increase their savings not only in their country, but also in the United States. In this case, which of the following statements is correct? A. The supply of loanable funds decreases as savings increase. B. The supply of loanable funds increases as savings increase. C. The demand of loanable funds decreases as savings increase. D. Both supply and demand of loanable funds increase as savings increase.arrow_forwardRecently, the economies of North Korea and Norway have begun to grow very rapidly. This increases their citizens’ income and wealth as well. In turn, these citizens increase their savings not only in their country, but also in the United States. In this case, which of the following statements is correct? A. The supply of loanable funds decreases as savings increase. B. The supply of loanable funds increases as savings increase. C. The demand of loanable funds decreases as savings increase. D. Both supply and demand of loanable funds increase as savings increase. Clear my choicearrow_forwardPick South America - Northern Africa. Does this country also experience similar or different changes in savings during the pandemic? Discuss the impacts and illustrate with a loanable fund market diagram.arrow_forward
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