Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 37, Problem 1DQ
To determine
Given scenarios represent the economic investment or financial investment.
Expert Solution & Answer
Explanation of Solution
Susan is making a financial investment because she simply exchanges her asset with an existing asset in order to have some expected financial gains. There is no addition or replacement of capital stock.
On the other hand, New York City is making economic investment because it is issuing bonds for raising money in order to pay for the new tunnel linking New Jersey and Manhattan. There is simply addition of new capital stock in the form of new tunnel (linking New Jersey and Manhattan).
Economics Concept Introduction
Concept introduction:
Economic investment: This type of investment includes new addition of capital stock or replacement of the capital stocks that has been worn out.
Financial investment: This type of investment includes either purchasing an asset or building an asset in order to have some expected financial gains.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Manipulate the graph to show what will happen to supply and
demand in the market for loanable funds when the
government budget deficit increases, changing the
equilibrium quantity of loanable funds by 3
percentage points.
Ceteris paribus, what is the new interest rate?
interest rate:
Ceteris paribus, private investment would
increase.
not change.
decrease.
%
20
10
9
Supply
8
Interest rate (%)
7
CO
5
LO
3
2
1
0
0
2
Demand
4 6 8 10 12 14 16 18 20 22 24 26 28
Quantity of loanable funds (% of GDP)
Suppose that the demand for loanable funds for car loans in the Milwaukee area is $12 million per month at an interest rate of 1O
percent per year, $13 million at an interest rate of 9 percent per year, $14 million at an interest rate of 8 percent per year, and so on. If
the supply of loanable funds is fixed at $15 million, what will be the equilibrium interest rate?
Instructions: Enter your answer as a whole number.
percent per year
5. 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.
Chapter 37 Solutions
Economics (Irwin Economics)
Ch. 37 - Prob. 1DQCh. 37 - Prob. 2DQCh. 37 - Prob. 3DQCh. 37 - Prob. 4DQCh. 37 - Prob. 5DQCh. 37 - Prob. 6DQCh. 37 - Prob. 7DQCh. 37 - Prob. 8DQCh. 37 - Prob. 9DQCh. 37 - Prob. 10DQ
Ch. 37 - Prob. 11DQCh. 37 - Prob. 12DQCh. 37 - Prob. 1RQCh. 37 - Prob. 2RQCh. 37 - Prob. 3RQCh. 37 - Prob. 4RQCh. 37 - Prob. 5RQCh. 37 - Prob. 6RQCh. 37 - Prob. 7RQCh. 37 - Prob. 8RQCh. 37 - Prob. 9RQCh. 37 - Prob. 10RQCh. 37 - Prob. 1PCh. 37 - Prob. 2PCh. 37 - Prob. 3PCh. 37 - Prob. 4PCh. 37 - Prob. 5PCh. 37 - Prob. 6P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- A Company's stock currently pays a dividend of $5 dollars per year and you expect that dividend to grow by 3% every year, forever, such that next year you expect the dividend to be 5.15, to be 5.3045 the year after that, and so on. If your discount rate is 9%, a fair price for this stock today is_____.If your discount rate were to fall to 7%, holding all else the same, the fair price of the stock would increase to_________.arrow_forwardPlease use the graph to answer the questions. Given the market conditions, what will the prevailing interest rate be? O 6% 18% O 2% 10% Given the market conditions, how much money is borrowed in the loanable funds market? O $10 billion. $50 billion O$90 billion O $70 billion $30 billion. Interest rate (%) 18- 16- 14- 12. 10. 8- 6- + et 0 Demand Supply 60 70 80 90 10 20 30 40 50 Quantity of loanable funds (in billions of dollars)arrow_forwardThe 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 50arrow_forward
- O If the market interest rate (i) increases today, the Price of a Bond (P) today will decline. The following are correct statements about the impact of Market Interest Rate (i*) on value and return of a typical Coupon Bond, EXCEPT: The YTM of a Bond and the Market Interest Rate (i*) are the same value, even in the Short Term. O For a long term bond, if the Market Interest rate (i*) is expected to increase, the current Price of such Bond will Decline. For a two period Bond, if the Market Interest rate (i*) is expected to increase in the next period, the Expected Total Return (RET) on such bond will decline. Long Term Bonds are considered more risky than Short Term bonds, in part due to the risk associated to changes in future interest rates.arrow_forward5. LO 2,5 A consumer receives income y in the current period and income y' in the future period, and pays taxes of t and t' in the current and future periods, respectively. The consumer can borrow and lend at the real interest rate r. This consumer faces a constraint on how much he or she can borrow, much like the credit limit typically placed on a credit card account. That is, the consumer cannot borrow more than x, where x < we-y+t, with we denoting lifetime wealth. Use diagrams to determine the effects on the consumer's current consumption, future consumption, and saving of a change in x, and explain your results.arrow_forwardIS-MP Analysis: Interest Rates and Output — End of Chapter Problem The federal funds rate is 4%, and inflation is 3%. The real interest rate that people can borrow money at is 1.5%. a. Given the data provided, move the MP curve to the appropriate position. Real interest rate (%) 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -5 -4 -3 -2 -1 0 1 2 3 MP curve 4 5arrow_forward
- 6. An investor purchases a 30-year U.S. government bond for $840. The bond’s couponrate is 10 percent and, it still had twelve years remaining until maturity. If the investorholds the bond until it matures and collects the $1000 par value from the Treasuryand his marginal tax rate is 25 percent (we assume that the bond is taxable), what willbe his after-tax (effective) yield to maturity? Make sure to show your work.arrow_forward4. Does the I in C+I+ G Nx include purchases of stocks and bonds? Why or why not? Lo2 t nnmnonent of I inarrow_forward5. Suppose the interest rate on a taxable corporate bond is 7 percent while a municipal, tax exempt bond has an interest rate of 5 percent, and they are similar in every other way.a. Assuming the income tax rate is 30 percent, calculate the after tax interest rate on the corporate bond. Is it higher or lower than the after tax return on the municipal bond?b. What is the income tax rate that equalizes the after tax return between the corporate bond and the municipal bond.arrow_forward
- If the discount rate on 3-month commercial paper is 4.9% while the yield on 3-month CDs is 5%, the real difference between them in basis points (in terms of yield) is: (You may need to look up how many basis points there are in a percentage point) Select one: a. 39 O b. 0.39 O c. 0.1 O d. 10 O e. 3.9arrow_forwardAssume that the global average real interest rate is 5%. Britain witnesses severe inflation, where the current inflation rate is 10%. To curb inflation they decide to increase interest rates to 17%. Then the real rate of interest in Britain is results in increased the US dollar ($). 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_forwardNeed help. Assume that securitization combined with borrowing and irrational exuberance in Hyperville have driven up the value of asset-backed financial securities at a geometric rate, specifically from $4 to $8 to $16 to $32 to $64 to $128 over a six-year time period. Over the same period, the value of the assets underlying the securities rose at an arithmetic rate from $4 to $6 to $8 to $10 to $12 to $14. If these patterns hold for decreases as well as for increases, by how much would the value of the financial securities decline if the value of the underlying asset suddenly and unexpectedly fell by $6? Instructions: Give your answer as a whole number.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506893Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning