Suppose Jackie is considering purchasing an asset that will have a future value of $650 in 4 years. The interest rate is 8% and the price of the asset is $500. Should Jackie buy the asset? Why or why not?
What will be an ideal response?
The present value of the asset according to the future value and current interest rate is $477.77 [$650/(1.08)4]. Jackie should not buy the asset because the price is higher than the present value of the asset. Jackie could earn a higher rate of return simply saving her money at the current interest rate.
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If transfer payments increase then we would most likely conclude what about government spending as a result of this increase?
A. We cannot reasonably conclude anything about government spending. B. Since transfer payments have gone up this has caused government spending to decrease. C. Since transfer payments have gone up this has caused government spending to increase. D. Government spending would not change if transfer payments increase.
When a tax is placed on the buyers of a product, buyers pay
a. more and sellers receive more than they did before the tax. b. more and sellers receive less than they did before the tax. c. less and sellers receive more than they did before the tax. d. less and sellers receive less than they did before the tax.
If the demand for loanable funds shifts to the right, then the equilibrium interest rate
a. and quantity of loanable funds rises. b. and quantity of loanable funds falls. c. rises and the quantity of loanable funds falls. d. falls and the quantity of loanable funds rises.
The market and public sector are similar in that
A) there is competition among the participants in both sectors. B) the resources used in both sectors are scarce. C) the participants in both sectors react to incentives. D) All of the above are true.