Suppose a bond such as a Treasury bill, or T-bill, promises to pay $1000 a year,...

Suppose a bond such as a Treasury bill, or T-bill, promises to pay $1000 a year, and the interest rate is 15%. Given this information, we know that the bond's price must be:

Answer the following questions using the following data

Y=C+I+G

C=120+0.5(Y-T)

I=100-10r

T=40

= Y-20r

M=600

P= 2

Identify the each of the variables and briefly explain their meanings.
Find the IS curve and the LM curve and graph them in a diagram.
Determine the equilibrium interest rate and output.
Calculate the The multiplier in this economy

Suppose an economy represented by the fallowing equilibrium equation 0.8 y = 2500 and suppose that government decrease spending (G) by 100, what will happen to the output in the economy.

Illustrate the following situations in the different graphs;
1. Changes in equilibrium when money supply increase and decrease
2. Changes in equilibrium when government impose the tax and cut the tax (T)
3. Changes in equilibrium when government reduces/increases the expenditure (G)

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Peter and Mark are considering buying a Treasury Bill that promises to pay $100 000 in...

Peter and Mark are considering buying a Treasury Bill that promises to pay $100 000 in 91 days. Peter has a time value of money of 8% per annum and Mark has a time value of money of 6% per annum.  a) Identify, with reason(s) which one of the two will be willing to pay more for the Treasury Bill. b) Suppose the Treasury Bill was for 182 days, what would this change in maturity do to the price...

A Treasury bill is a discount bond issued by the U.S. Treasury. Suppose that on January...

A Treasury bill is a discount bond issued by the U.S. Treasury. Suppose that on January 1, 2012, a one-year Treasury bill with $1000 face value is sold at $970.87. Investors expect that the inflation rate will be 2% during 2012, but at the end of the year, the inflation turns out to have been 1%. What is the nominal interest rate on the bill (measured as the yield to maturity), the expected real interest rate, and the actual real...

Was 10-year Treasury bond called Treasury Bill, Note, or Bond? What was the term ... that...

Was 10-year Treasury bond called Treasury Bill, Note, or Bond? What was the term ... that indicates the situation in which the yield of Treasury bonds sharply decreases because U.S. Treasury bonds are the safest assets? What is the meaning of finance? Is it not a gamble to earn more money using some seed money?

Suppose today two-year US treasury bill is 2.15% and the two-year UK treasury bill is 1.0%....

Suppose today two-year US treasury bill is 2.15% and the two-year UK treasury bill is 1.0%. Further suppose today spot exchange rate is USD 1.25 per Euro and you know you will receive one million euro exactly two years from now and you will have to exchange those Euros in USD at that time. Can you engineer a guaranteed exchange rate at which you will be able to exchange the Euros for USD two years from now? Explain the arrangements.

How much would you pay for a treasury bill that matures in one year and pays...

How much would you pay for a treasury bill that matures in one year and pays $10,000 if you require a 3% discount rate (excel version please).

A 10-year U.S. Treasury bond with a par value of $ 1000 is currently selling for...

A 10-year U.S. Treasury bond with a par value of $ 1000 is currently selling for $ 1025. The bond carries a 7.5% p.a. coupon payable annually. If purchased today and held to maturity, what is its expected yield to maturity? Does your answer change if the coupon payments of 7.5% p.a. are made half-yearly (i.e. 3.75% every half -year)? How & why? Could you please show me step by step calculations so I can understand? thank you.

4.U.S. Treasury bonds pay coupon interest semiannually. Suppose a Treasury bond matures in two years, the...

4.U.S. Treasury bonds pay coupon interest semiannually. Suppose a Treasury bond matures in two years, the annual coupon rate is 2.6 percent, the face value is $1,000, and the annual yield to maturity is 3.5 percent. a. What is the duration of the bond? b. What is the modified duration? c. What is the dollar duration? d. What would be the change in price of the bond if there was a 10 basis point change in the return?

Suppose the interest rate on a 1-year Canadian Treasury bill is 1.53 percent and the interest...

Suppose the interest rate on a 1-year Canadian Treasury bill is 1.53 percent and the interest rate on a 1-year U.S. Treasury bill is 1.7 percent. Assuming uncovered interest parity holds, we would expect a) the Canadian dollar to appreciate against the U.S. dollar 0.17 percent. b) the Canadian dollar to depreciate against the U.S. dollar by 0.17 percent. c) the nominal exchange rate between Canadian dollars and the U.S. dollar ($Ca/$US) to grow by 0.17 percent. d) Both a...

1. A zero-coupon British bond promises to pay GBP 100,000 in one year. The current exchange...

1. A zero-coupon British bond promises to pay GBP 100,000 in one year. The current exchange rate is USD 2.00 / GBP and inflation is forecast at 5 percent in the US and 2 percent in the UK. The appropriate discount rate for a bond of this risk would be 10 percent if it paid in USD. What is the appropriate price of the bond today in USD? 2. A US-based manufacturer is considering an international investment opportunity that will...

3A) A junk bond promises to pay 16% interest, but it is expected to default (be...

3A) A junk bond promises to pay 16% interest, but it is expected to default (be worthless and thus, have a negative 100% rate of return) with a probability equal to 0.1. The expected rate of return is (in percent): answer: ___________ 3B) An investment costs $2.5 million today and is expected to be worth $3 million in one year. What is the maximum interest rate that the investor would be willing to pay for a loan to finance this...

Subjects