A new technology is developed that increases firms' expected profits.Draw a curve that shows the effect of this event.10-Draw a point at the new equilibrium quantity of loanable funds and the newequilibrium real interest rate.8-When a shortage or a surplus arises in the loanable funds market6-A. the nominal interest rate is pulled to the new equilibrium levelOB. the supply of loanable funds changes to return the economy to itsoriginal real interest rate4-OC. the demand for loanable funds changes to return the economy to itsoriginal real interest rateOD. the real interest rate is pulled to the new equilibrium level2-Real interest rate (percent per year)SLFDLF0Loanable funds (trillions of 2009 dollars)>>> Draw only the objects specified in the question.G

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Answered: A new technology is developed that…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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II. PROBLEMS Suppose that the economy has the following money supply and demand equations: Money Supply: M = 8000 Money Demand: M= 10,000 – 40,000r where money is in billions of dollars and interest rates, r, is written as a decimal (e.g., an interest rate of 10% would be written as .1 in the equation). A. Determine the equilibrium interest rate and quantity of money. B. What will happen in the money market if the interest rate is currently 10%? What is the amount of excess supply of or excess demand for money? C. Show in graph that at this interest rate (10%) there is disequilibrium in the money market. 2. Assume that a particular bank has excess reserves of Php800,000 and checkable deposits of Php1,500,000. If the reserve ratio is 20%, what is the size of the bank's actual reserves? 3. Suppose that GRAB Bank is a newly created bank in your hometown. Consider the following transactions: Owners of the bank sold shares of stocks to the public (which includes owners' equity) amounting to…
An economy is making a rapid recovery from steep recession, and businesses foresee a need for large amounts of capital investment. Why would this development affect real interest rates? Real interest rates are expected to ✓ (Click to select) (Click to select) Therefore the e rise fall remain constant [he investment activity will shift the demand for funds curve (in Figure 5.1) to the est rate will (Click to select)
The payoffs of an investment are dependent on the state of the economy. The economy can have two states, recession or growth, with equal probability. If the payoff in the event of growth is $140 and in the event of recession is $80, what is the expected payoff for the investment? a.$100 b.$130 c.$120 d.$110
1. Assume that you expect the economy's rate of inflation to be 3 percent, giving an RFR of 6 percent and a market return (RM) of 12 percent. a. Draw the SML under these assumptions. b. Subsequently, you expect the rate of inflation to increase from 3 percent to 6 percent. What effect would this have on the RFR and the RM? Draw another SML on the graph from Part a. c. Draw an SML on the same graph to reflect an RFR of 9 percent and an RM of 17 percent. How does this SML differ from that derived in Part b? Explain what has transpired.
Problem 2: Monetary Theory [13 Points] Suppose that an economy begins in long-run equilibrium. Suppose also that there is an increase in Aggregate Demand (AD) as a result of an increase in Net Exports (NX). 9. Does the economy enter an inflationary gap or a recessionary gap? Explain your answer using an AD-AS figure. [2 points] 10. What happen to Money Demand as a result of this shift in the AD-AS model. Does this create a surplus or shortage in the Money Market? Does this create a surplus or a shortage in the bond market? Explain your answer using a MD-MS figure. [3 points] 11. If the Central Bank wants to prevent further inflation, what action could it take? What does it need to do with the Money Supply (MS) to maintain equilibrium in the money market? Explain your answer using both an AD-AS figure and a MD-MS figure. [3 points] 12. If the Central Bank knew that there would be a lag between their decision and their effect on AD, how would this change your answer to Q11 (if at all)?…
Consider the following information: State ofEconomy Probability of Stateof Economy Rate of Returnif State Occurs Recession .24 –.10 Normal .46 .12 Boom .30 .31 Calculate the expected return.
You are given the following information: State of Probability of Rate of Return Economy State of Economy If State Occurs Depression Recession .13 -102 22 .062 Normal .48 .133 Boom .17 .214 a. Calculate the expected return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected return b. Standard deviation % %
If the Fed ____ the interest rates when inflationary expectations remain unchanged, the most likely result is that the value of dollar will ____ and the economy may ____. A. increases; appreciate; weaken B. decreases; appreciate; weaken C. increases; depreciate; strengthen D. decreases; appreciate; strengthen
Assume a finite state economy with three assets whose payoff matrix is given by 30 20 50 D = 20 15 35 (a) Suppose that the asset prices are $28, $18, and $47, respectively. Is there an arbitrage opportunity in the market? (b) If the price of the third asset reduces to $46, is there an arbitrage oppor- tunity in the market?
2) Calculate the expected rate of return and standard deviation for a security with the following possible outcomes: State of the Economy Probability of State Return if State Occurs Depression 0.2 -5% Recession 0.4 3% Slow growth 0.3 7% Moderate growth 0.1 10%
Consider the following information: State of Economy Recession Boom Probability of State of Economy .20 .80 Expected return Rate of Return if State Occura Calculate the expected return. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. % -.13 .19
Suppose that in the market for reserves, the federal funds rate is 2.4% and the discount rate is 8%. If the Federal Reserve Bank decides to raise the discount rate, then the curve should shift and afterwards, the equilibrium rate will O demand; rise demand; not change supply; rise O supply; not change

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