Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 18, Problem 4DQ
To determine
Interest rate on different types of loans.
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The Atlantic Investment Tax Credit is a 10% tax credit
available to businesses that make specific investments in
the Atlantic region and the Gaspe Peninsula. The graph
shows the market for loanable funds.
Show the impact of this tax credit by moving the proper
curve appropriately in the graph.
The new equilibrium interest rate is
The quantity of loanable funds is $
1
Incorrect
5
Incorrect
I
billion
Which statement accurately describes the impact of
the Atlantic Investment Tax Credit?
%
Firms find that more investments are profitable and
increase their demand for loanable funds. As a
result, the interest rate rises.
Interest rate (%)
10
10
3
2
0
0
5
10 15 20 25 30 35
Quantity of loanable funds (in billions)
40
Supply
45
Demand
50
Theodore D. Kat is applying to his friendly,
neighborhood bank for a mortgage of $200,000. The
bank is quoting 6%. He would like to have a 25-year
amortization period and wants to make payments
monthly. What will Theodore’s payments be?
48
LO3
The following table shows the average nominal interest rates on six-month Treasury bills between 1971 and 1975, which determined the nominal
interest rate that the U.S. government paid when it issued debt in those years. The table also shows the inflation rate for the years 1971 to 1975. (All
rates are rounded to the nearest tenth of a percent.)
Nominal Interest Rate
Inflation Rate
Year
(Percent)
(Percent)
1971
4.5
4.2
1972
4.5
3.3
1973
7.2
6.3
1974
8.0
11.0
1975
6.1
9.1
Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org.
On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 1971 to 1975. Next, use the green
points (triangle symbol) to plot the real interest rates for those years.
8.0
7.0
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- QUESTION 19 You lend your sister's daughter $2,000 for a year, if at the end of the year she pays you $2,180. The interest rate you are charging her is O 1.1%. O 9%. O 10%. O 20%.arrow_forwardAssume that the global average real interest rate is 5%. Britain witnesses severe inflation, where the current inflation rate is 10%. To curb inflation they decide to increase interest rates to 17%. Then the real rate of interest in Britain is results in increased the US dollar ($). which is for British bonds and in turn causes the British pound (£) to O 10%; higher; supply; depriciate 7%; higher; demand; appreciate O 7%; higher; demand; depriciate 5%; lower; supply; appreciate than the global average, which againstarrow_forward5. Suppose after you graduate from Algoma University, you find a job that pays you $75,000 a year. Further suppose that you take out a home equity loan of $360,000 for 30 years at an annual interest rate of 3.5 percent, with payments to be made monthly. What will your monthly payments be? If the interest rate increases from 3.5 percent to 5.0 percent, how much will your monthly payments increase? Instead of 30 years, you decide to pay your loan in 25 years, what will your monthly payments be if the interest rate remains at 3.5 percent or increases to 5.0 percent. Develop a chart comparing these monthly payments. Show your work.arrow_forward
- Figure 10-6 Real interest rate 6% 5 4 3 2 1 0 30 Select one: O O O O 60 90 _____ 120 150 a. supply; rise; decreasing; increasing b. supply; fall; increasing; decreasing c. demand; fall; decreasing; decreasing d. demand; rise; increasing; decreasing 180 will Refer to Figure 10-6. The loanable funds market is in equilibrium, as shown in the figure above. As a result of an increase in the government budget deficit, the thereby the equilibrium real interest rate and the equilibrium quantity of loanable funds. S Quantity of loanable funds (millions of dollars) for loanable fundsarrow_forward4. Does the I in C+I+ G Nx include purchases of stocks and bonds? Why or why not? Lo2 t nnmnonent of I inarrow_forward9. In how may months will a loan of P2.M be paid if the monthly payment is P94,146.94? Select the correct response: O 24 22 O 16 O 20arrow_forward
- What is the value of n with interest 10% that makes the present value equal to O? 100 100 3. lo00 Given formula: (1+i)"-1 P=A- iX(1+i)"arrow_forwardWhat is the present value of a payment of $5,000 at the end of one year and a second payment of $7,000 at the end of two years if the interest rate is 5 percent? O A. $11,201.84 O B. $11,111.11 O C. $10,985.14 O D. $12,250.32arrow_forwardQuestion 38 Long-term bonds are generally I less risky than short-term bonds and so pay higher interest. less risky than short-term bonds and so pay lower interest. more risky than short-term bonds and so pay higher interest. more risky than short-term bonds and so pay lower interest. Question 39 On which bond is default most likely? P Type here to search 40 i3 esc (@ %23 LOarrow_forward
- Real interest rate (percent per year) O 00 2 0 DLF 150 300 450 600 750 900 Loanable funds (billions of 2009 dollars) In the above figure, the demand for loanable funds curve is drawn for the average expected profit. If the real interest rate is constant at 6 percent and the expected profit rises, the amount of loanable funds demanded will be O less than $450 billion. $450 billion. between $300 billion and $450 billion. O greater than $450 billion.arrow_forward2. Suppose a small company considers expanding its business. Buying new machinery and related equipment will cost $200,000 (which the owner has available from past profits). Owner has calculated that that investment will raise revenues by $23,000 per year. The owner also estimates that it will become necessary to replace the new machinery after 8 years. Should the owner buy the additional machinery if the real interest rate is 3 percent? What if it were 3.5 percent? Since this is company's cash flow, should the owner care about the interest rate at all?arrow_forwardAssume that investment, government expenditures, taxes are autonomous. C 2000+ 0.65* (Y-T) I 900 - 50i G 400 T 1500 M 1000 P2 L 0.50Y-25iarrow_forward
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