In a given year in Demandland, a new law is passed that gives individuals tax breaks if they put a higher than average amount of their income into savings accounts at banks. Meanwhile, new federal regulations aimed at improving environmental standards were updated to require much higher efficiency ratings from all industrial machines, with the penalty for firms that don’t replace inefficient machines being large fines. We would expect what to happen in the market for loanable funds:

a. Quantity to fall and the interest rate to fall.

b. Quantity to rise and the interest rate to rise.

c. Quantity to fall and the interest rate rise.

d. Quantity to rise and the change in the interest rate to be unclear.

1. Suppose that the current i on 1-year bonds is 4% and the expected interest rate on all one- year bonds to be issued in the next five years is also 4%. Suppose that the illiquidity premium is:

ln,t = (0.1)(n-1) (%)
What will the interest rates on 2-, 3-, 4-, and 5-year bonds be, based on the liquidity-premium theory?
• Draw the yield curve for these set of bonds.

How much interest is payable each year on a loan of P15,000 for a spray paint tank if interest rate is 10% per year when half of the loan principal will be repaid as a lump sum amount at the end of three years and the other half will be repaid in one lump sum amount at the end of 6 years? How much interest will be repaid over the 6-year period?

In problem above, if the interest has not been paid each year but allowed to compound, how much interest would be due to the lender as a lump sum at the end of the sixth year? How much extra interest is being paid here as compared to the interest calculated in problem above. What is the
reason for the difference?

Scenario: Suppose you are earning $57,000 a year as a sales representative for a car dealership at some point you decide to open a used car dealership to sell used cars. You invest $30,000 of savings that have been earning you $2000 per year. And you decide that your new firm will occupy a parking lot that you own and have been renting out for $6000 per year. You hire one clerk to help you in the store, paying her $38,000 annually and annual utilities $23,000. Include your entrepreneurial talent that is worth $8,00.00. A year after you opened the car dealership, you total up your account and find the following

                        (A) Total Sales Revenue $550,00

                        (B) Cost of Buying Used Cars            $300,00

                       (C) Clark Salaries                                  $38,000

                        (D) Total Utilities $23,000

Refer to the above table calculate the Economic Profit

Scenario: Suppose you are earning $57,000 a year as a sales representative for a car dealership at some point you decide to open a used car dealership to sell used cars. You invest $30,000 of savings that have been earning you $2000 per year. And you decide that your new firm will occupy a parking lot that you own and have been renting out for $6000 per year. You hire one clerk to help you in the store, paying her $38,000 annually and annual utilities $23,000. Include your entrepreneurial talent that is worth $8,00.00. A year after you opened the car dealership, you total up your account and find the following

                        (A) Total Sales Revenue $550,00

                        (B) Cost of Buying Used Cars            $300,00

                       (C) Clark Salaries                                  $38,000

                        (D) Total Utilities $23,000

Refer to the above table, what is the Explicit Cost?

Koza Automotive purchased a CNC machine for $20,000 in year 0. The useful life of the machine is 10 years, at the end of which the machine is estimated to have a salvage value of zero. The machine generates net annual revenues of $6,000. The annual operating and maintenance expenses are estimated to be $1,000. If their MARR is 15%, how many years will it take before this machine becomes profitable?

According to Article , “U.S. Debt Is Set to Exceed Size of the Economy Next Year, a First Since World War II,” what happened to the government spending from April to June of 2020? What happened to the national saving as a result? Assume that saving depends on the real interest rate, plot the effect of this fiscal policy on the real interest rate and the amount of investment in the market for loanable funds.

Pineapples grow in Hawaii all year round and there are many farms and gardens that produce pineapples for the local market. The demand curve for pineapples in Hawaii is given by Q = 240−2P, where Q is in tons of pineapples. The marginal cost of producing an additional ton of pineapples is constant and equal to $50 for all producers in the market.

(a) Given that there are many producers of pineapples in Hawaii and that pineapples are a homogeneous good, let’s assume that the market for pineapples is perfectly competitive. Calculate and show on a graph the equilibrium quantity sold in the market, total sur- plus, and deadweight loss. (Hint: recall the relationship between the supply curve and marginal cost curves of firms.)

(b) Now suppose one of the pineapple producers, Noa, inherits a large sum of money and decides to buy out all of the island’s land on which pineapples can be grown (including all the farms and gardens of his competitors). That is, Noa becomes a monopolist in the market for pineapples in Hawaii. Calculate and show on a graph the new equilibrium quantity and price; consumer, producer, and total surplus; and deadweight loss. [For this problem it will help to recall that when the demand curve is linear, the monopolist’s marginal revenue curve is a line with the same “y-intercept” as the demand curve, but a slope that’s twice as steep as the demand curve.]

(c) If Noa produces Q tons of pineapples, his total cost is 250 + 50Q. Calculate Noa’s profit if he operates at his profit-maximizing quantity and price.

(d) Sketch Noa’s average total cost function on a new graph. Does Noa experience increasing, decreasing, or constant returns to scale?