Homework Answers
Ans: A ) The cost of borrowing decreases and the consumption function shifts up.
Explanation:
When the interest rate decreases then the cost of borrowing decreases . As a result both investment and consumption function shifts up or forward. Opposite will be the case when interest rate increases. It means , people will consume less and save more when interest rate increases. It also increases the cost of borrowing.
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When the interest rate decreases, O A. the cost of borrowing decreases and the consumption function...
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Macroeconomic Canadian education Chapter 4 Money and Inflation 65 The Real Cost of Borrowing and the...
Macroeconomic Canadian education
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If household wealth increases, the consumption function O A. may shift up or down depending on the size of the increase in wealth. O B. does not change because it is income and not wealth that affects consumption. O C. shifts downward since, for the same level of income, individuals need to spend less. O D. shifts upward since, for the same level of income, individuals can spend more.
A discount bond will have a negative nominal interest rate when the: A. bond is sold long before its maturity date. B. current bond price is greater than its face value. OC sum of the annual coupon payments and the face value of the bond is higher than its current price. O D current bond yield is smaller than its yield to maturity Which of the following statements is true? O A. Both a coupon bond and a perpetuity can...
When a recession ends, O A. the household sector decreases spending substantially. O B. firms increase the amount of borrowing O C. interest rates decrease. O D. households decrease spending on durable goods.
Foreign Exchange Risk and the cost of Borrowing Swiss Francs. The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying a very different effective rate of interest than what it expected. Using the same baseline values of a debt principal of SF1.4 million, a one-year period, an initial spot rate of SF1.5300/$, a 4.515% cost of debt, and a 35% tax rate, what is the effective after-tax cost of debt for one year for...
Macroeconomic Canadian education
Chapter 4 Money and Inflation 65 The Real Cost of Borrowing and the Real Interest Rate In this exercise, we see why the real cost of borrowing is equal to the real interest rate. 5. Since a borrower's actual dollar payments are based on the nominal interest a. rate, it is sometimes difmicult to see why the real cost of borrowing is equal to the real interest rate. Consider a family that buys a new house for...
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