Answered: First Call Inc. is a cellular phone…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter8: Savings,investment And The Financial System

Section: Chapter Questions

Problem 1PA

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First Call Inc. is a cellular phone company. It plans to build an assembly plant that costs $10 million if the real interest rate is 6% a year. If the real interest rate is 5% a year, First Call Inc. will build a larger plant that costs $12 million. And if he real interest rate is 7% a year, First Call will build a smaller plant that costs $8 million.

a. Draw a graph of First Call’s demand for loanable funds curve.

b. First Call expects its profit from the sale of cellular phones to double next year. If other things remain the same, explain how this increase in expected profit influence it’s demand for loanable funds

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