Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Question
Chapter 24, Problem 15APA
To determine
Identify the values of
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NSo
NS1
i4
Quanti
Investi
and Saving ($)
I* I1 12 13
FIGURE 2
Refer to Figure 2. Suppose national saving is
reflected by NSo and investment demand is
reflected by IoP. Now suppose the government
implements a policy that decreases tax on
savings. What is the effect in the market for
financial capital?
Select one:
Real Interest Rate
In the United States, corporate profits tend to
move _____. This means that when the economy
is experiencing
-- corporate profits decrease.
You are the CEO of a manufactory firm based in the Country of Eldorado. Suppose the
corporate tax rate in Eldorado is 30%, your company Earnings before Interest and Taxes
(EBIT) is £450million in 2018 and you have interest expenses of £125million.
a. What is your firm's 2018 net income?
b. What is the sum of your firm's 2018 net income and interest payments?
c. Assume now your firm had no interest expenses, what would its 2018 net income
be? Compare the result with your answer in part b.
d. Calculate your firm's interest tax shield in 2018.
e. "The total value of the unlevered firm exceeds the value of the firm with leverage
due to the present value of the tax savings from debt." Is this statement true or
false? Explain.
Chapter 24 Solutions
Macroeconomics
Ch. 24.1 - Prob. 1RQCh. 24.1 - Prob. 2RQCh. 24.1 - Prob. 3RQCh. 24.1 - Prob. 4RQCh. 24.2 - Prob. 1RQCh. 24.2 - Prob. 2RQCh. 24.2 - Prob. 3RQCh. 24.2 - Prob. 4RQCh. 24.2 - Prob. 5RQCh. 24.3 - Prob. 1RQ
Ch. 24.3 - Prob. 2RQCh. 24.3 - Prob. 3RQCh. 24.3 - Prob. 4RQCh. 24.3 - Prob. 5RQCh. 24.3 - Prob. 6RQCh. 24.4 - Prob. 1RQCh. 24.4 - Prob. 2RQCh. 24.4 - Prob. 3RQCh. 24 - Prob. 1SPACh. 24 - Prob. 2SPACh. 24 - Prob. 3SPACh. 24 - Prob. 4SPACh. 24 - Prob. 5SPACh. 24 - Prob. 6SPACh. 24 - Prob. 7SPACh. 24 - Prob. 8SPACh. 24 - Prob. 9SPACh. 24 - Prob. 10SPACh. 24 - Prob. 11SPACh. 24 - Prob. 12SPACh. 24 - Prob. 13APACh. 24 - Prob. 14APACh. 24 - Prob. 15APACh. 24 - Prob. 16APACh. 24 - Prob. 17APACh. 24 - Prob. 18APACh. 24 - Prob. 19APACh. 24 - Prob. 20APACh. 24 - Prob. 21APACh. 24 - Prob. 22APACh. 24 - Prob. 23APACh. 24 - Prob. 24APACh. 24 - Prob. 25APACh. 24 - Prob. 26APACh. 24 - Prob. 27APACh. 24 - Prob. 28APACh. 24 - Prob. 29APACh. 24 - Prob. 30APA
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- Real Interest Rate 1₂ 1. 4 FIGURE 25-2 1 11 12 13 -10 Quantity of Investment and Saving (5) Refer to Figure 25-2. Suppose national saving is reflected by NS, and investment demand is reflected by Now suppose the government implements a policy that encourages investment. What is the effect in th market for financial capital? Select one: a. National saving shifts to NS₁, investment demand shifts to 1₁D, and the quantity of national saving rises t b. There is no effect on NS or ID and the quantity of national saving supplied remains at I". c. National saving shifts to NS₁, and the quantity of national saving supplied rises to 12. d. Investment demand shifts to 1₁D and the quantity of national saving supplied rises to 1₁. e. Investment demand shifts to 1₁D, national saving shifts to NS₁, and the quantity of nationalarrow_forwardExplain what happens in an economy when the financial markets limit access to capital. How does this affect economic growth and employment?arrow_forwardThe graph below depicts the loanable funds market in the United States. The interest rate is measured in percent, and quantity is measured in billions of dollars. The supply curve, S₁, represents the savings by U.S. households. The demand curve, D₁, represents investment spending by U.S. firms on capital projects. 2 W S #3 80 E D S $ 4 888 R Interest Rate 15 Suppose the current interest rate is 5%. At this interest rate, there is an 12 OF 15 QUESTIONS COMPLETED F 15 14 13 12 11 10 F4 . 8 7 • 4 3 2 % 5 FS T Loanable Funds Market G MacBook Air ^ 6 Y & 7 H 152 D1 17 Quantity billions of dollars) U #00 * 8 of $ 11 16 이 J 4 1 9 billion. 19 K 0 O SUBMIT F10 Parrow_forward
- Use Figure: The Market for Loanable Funds with Government Borrowing. After an increase in government borrowing, the equilibrium interest rate will rise from 6% to Interest rate (%) 12 10 8 5 4 2 O %, and the amount of private savings will Supply of loanable funds Demand for loanable funds 10 20 30 40 50 60 70 80 90 100 Quantity of loanable funds (billions of dollars)arrow_forward(Figure: Loanable Funds Expansion) Which of the following reasons could cause the demand curve for loanable funds to shift to the right from DLF to D'LF in the figure? SLF 1₁ 10 Qo Q₂ DLF S'LF •D¹LF QLF The economy is expected to boom, thereby increasing investment returns. Rising interest rates make it more attractive for savers to save. Larger investment projects with potentially higher returns get funded. Falling interest rates make it less expensive for firms to borrow. ►arrow_forward36. Gray College, a private not-for-profit institution, received a contribution of $100,000 for faculty re- search. The donation was received in Year 5 and $80,000 was spent in Year 5. As a result of these transactions, Gray College should report on its Year 5 statement of activities a: a. $20,000 increase in temporarily restricted net assets. b. $100,000 increase in temporarily restricted net assets. c. $80,000 increase in temporarily restricted net assets. d. $100,000 increase in unrestricted net assets. 37. Clay University, a not-for-profit university, earned $300,000 from bookstore revenue and spent $100,000 for faculty research in Year 5. The $100,000 for faculty research came from a $150,000 research grant received in the previous year. What is the effect of these events on unrestricted net assets in Year 5? a. Increase $300,000. b. Increase $400,000. c. Increase $450,000. d. Increase $200,000.arrow_forward
- ming - Google Chrome atic/nb/ui/evo/index.html?deploymentld=D56736719115714608139104112999&elSBN=9781337096607&id3D709153691&snapshotld=D1586258& Q Search this course CENGAGE MINDTAP Homework (Ch 13) es The following table contains data for a hypothetical closed economy that uses the dollar as its currency. A-Z Suppose GDP in this country is $1,330 million. Enter the amount for investment. Value National Income Account (Millions of dollars) Government Purchases (G) 350 Taxes minus Transfer Payments (T) 455 Tips 700 Consumption (C) Investment (I) 280 ips Fial of bonga ITED Complete the following table by using national income accounting identities to calculate national saving. In your calculations, use data from the preceding table. National Saving (S) %3| million A+ 9:45 PM o search 4/3/202 hp f5 I f6 ins prt sc fg fg f12 II delete home end & 8. num backspace lock T. home %24arrow_forwardQuestion 33 Figure 26-4 This figure shows the loanable funds market for a closed economy. INTEREST RATE (Percent) 15 10 5 E 60 P с 120 180 D LOANABLE FUNDS (Dollars) S₂ D₂ Refer to Figure 26-4. Starting at point A, the enactment of an investment tax credit would likely cause the quantity of loanable funds traded to a. increase to $180 and the interest rate to fall to 5% (point D). b. increase to $180 and the interest rate to rise to 15% (point C). C. decrease to $60 and the interest rate to fall to 5% (point B). d. decrease to $60 and the interest rate to rise to 15% (point E).arrow_forward1. Tom Tom corporations supplied $275 billion in bonds to investors at an average market rate of 11.5%. This month, an additional $25 billion in bonds became available, and market rates increased to 12.%. Assuming a Loanable Funds Framework for interest rates, and that the demand curve remained constant, derive a linear equation for the demand for bonds, using prices instead of interest rates.arrow_forward
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