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QUESTION 1 Lets assume that the country has the following production function Y depreciation rate of 4%, calculate the stead
QUESTION 9 According to what we learned in class, why would long-term bonds have a higher interest rate then short term bonds
QUESTION 12 A decrease of demand in the loanable funds market A. results in the same equilibrium as an increase in savings. B
QUESTION 14 According to your book, the supply in the loanable funds market is determined by and the demand in the loanable f
QUESTION 17 What would happen in the market for loanable funds if the government were to increase borrowing? A. supply of sav
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Answer #1

1. b
(The formula used is
K/F(K) = Saving rate/depreciation rate = investment rate/depreciation rate = 40%/4% = 0.4/0.04 = 10
So, K/K1/2 = 10
So, K1-(1/2) = K1/2 = 10
So, K = 102 = 100)

9. D
(Longer maturity means longer period for default and greater compensation is required for being without money for a longer period.)

12. C
(As demand decreases, interest rate also decreases and savings will be increased.)

14. A
(Supply is determined by saving and demand by investment.)

17. D
(As borrowing increases, demand curve will shift outward.)

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