What are three ways that lenders increase the rate of interest paid relative to what it appears to be?
What will be an ideal response?
One way lenders increase the interest paid relative to what it appears to be is to deduct the interest to be paid from the loan when it is initially paid. This leaves the borrower with fewer funds to work with over the borrowing period at the same amount of interest.
Another way lenders increase the interest paid is to lend over a 360-day year instead of a full 365-day year. This reduces the amount of time the borrower has to use the funds by 5 days, effectively increasing the interest rate.
The last way lenders increase the interest paid on a loan is to compound the interest rate. If a loan is compounded semiannually, that means interest must be paid twice a year. The interest accrued at the end of the first half is then added to the total loan and the interest rate accrued at the end of the second half is taken against the original loan plus the first semiannual interest charge. This again increases the effective rate of interest.
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The funds being lent in the federal funds market are:
A) reserves at the Fed. B) tax revenue earned by the federal government. C) bank deposits of domestic households. D) investments of foreign firms.
The table above shows the marginal costs and marginal benefits of college education. If the market for college education is perfectly competitive and unregulated, at the equilibrium quantity, the marginal social benefit is
A) zero. B) $14,000. C) $19,000. D) $16,000.
The largest component of output growth in the U.S. is
a. labor productivity growth. b. capital growth c. labor growth. d. knowledge growth. e. None of the above.
Which of the following is a similarity between a tax and a subsidy in a competitive market without any externalities? a. Both result in deadweight loss
b. Both result in a decrease in demand. c. Both result in an increase in price. d. Both result in an increase in government revenue.