Answer:
a. real interest rate is 0.217 or 21.7%.
b. saving = 134
, investment is 332
, consumption is 3666.
Explanation:
a) Y = Cd + Id + Gd
Where Y= output
Cd= consumption
Id= Investment purchases
Gd=Government purchases
Y= (3600 - 2000r + 0.10Y) + (1200 - 4000r) + 1000
Y=5800-6000r+0.10Y
0.9Y=5800-6000r
At full employment Y=5000
Putting the value of Y in the above equation
0.9*5000=5800-6000r
5800-4500=6000r
r=0.217
Therefore real interest rate is 0.217 or 21.7%.
(b) Sd = Y - Cd - G
where Sd is national saving
Sd = Y - (3600 - 2000r + 0.1Y) - 1200
Sd = 5000-(3600 - 2000*0.217 + 0.1*5000) - 1200 =5000-3600+434-500-1200 = 134
Therefore, saving = 134
Id= 1200-4000*0.217 =332
Therefore, investment is 332
Cd= 3600-2000r+0.10Y=3600-434+500=3666
Therefore, consumption is 3666.
Answer:
The supply of savings increases.
Explanation:
We know that the supply of loanable funds is dependent upon the amount of deposits in the savings account. Supply curve of loanable funds represents the direct relationship between the quantity supplied and the interest rate. It is a upward sloping curve which indicates that an increase in the interest rate will lead to increase the quantity supply of loanable funds.
There is a change in the supply of loanable funds if there is any change in the savings behavior of the customers. If the savings of the customers increases then as a result the supply of savings also increases.
Answer: a. 11.5%
Explanation:
Fad followers are those investors who follow a trend when it emerges and as such their betas will be less than that of informed traders because the informed traders would have acted first.
Using the Capital Asset Pricing Model to calculate expected return.
Er = Rf + b( Rm - Rf)
Er = Expected return
Rf = Risk Free Rate
b = Beta
Rm = Market Return.
The Expected Return for the Informed Investors is,
= 4% + 1.4 ( 10% - 4%)
= 4% + 1.4 ( 6%)
= 12.4%
With the Fad followed expected to have a lower beta and therefore a lower expected return than the Informed Investors, the only suitable option is the 11.5%.
Answer:
Explanation:
Outstanding number of days is the period over which the loan balance remains unpaid. Since this loan earns 5% interest, required adjusting entry for this company would be to Debit<em> interest expense</em> <em>account</em> and Credit the interest <em>payable account. </em>It is an accounting requirement that all expenses be debited . On the other hand, interest payable is the amount that a company owes a lender and is therefore credited as the corresponding journal entry to the interest expense .
