Question: 1. You have agreed to borrow $2,000 from the bank for one year. The nominal rate of interest is 8.5% and the real interest rate is 6 At the end of the year, inflation was 3.5 How does this affect the borrower (you) and the lender (the bank Who is better off?
2. In a simple economy with no government and no foreign sector, autonomous consumer spending is $100 and planned investment spending is S300. The marginal propensity to consume is 0.75
a. Solve for the equilibrium level of real GDP
b. If real GDP is $2,000, what is unplanned inventory investment?
3. You have recently graduated from high school and are debating whether you should attend college or immediately enter the workforce. Assume that you can spend $50,000 today for tuition and receive your college degree in only one year. When you graduate you will receive a job that pays you $100,000 immediately and $100,000 the following year. If you begin working immediately, you can earn $35,000 today and each of the next two years. If the annual interest rate is 10 should you go to college
4. Suppose the economy is in income-expenditure equilibrium. How will each of the following situations affect planned investment and unplanned inventory investment.
a. The Federal Reserve decreases interest rates.
b. Major economic indicators decrease business optimism about future growth in real GDP.