Question

5 Construction ABC, Inc. is deciding whether to purchase new cranes. The table below depicts the expected rate of return on the number of cranes purchased. Construction ABC, Inc.'s Investment Demand Expected Rate of Return Rs (percent) 18% Cranes eBook 15 12 3 Print 9 4 References 5 3 6 The bank has offered the firm a loan to fund the purchase of the new cranes at a real interest rate of 12% What is the quantity of cranes demanded? Instructions: Enter your answer as a whole number crane(s) LO

Answer 1

15. 2 cranes.

This is because the rate of return should be equal to or greater than the real interest rate.

19.

	Income	expenditure	Cumulative expr.
A		10000	10000
B	10000	7500	17500
C	7500	5625	23125
D	5625	4218.75	27344
E	4218.75	3164.06	30508
F	3164.06	2373.04	32881
G	2373.04	1779.78	34661
H	1779.78	1334.84	35995

b. Cumulative expr = 35995

c. Multiplier = 1/1-MPC

Multiplier = 1/1-0.75

Multiplier = 4

d. Change in real GDP = change in value * multiplier

Real GDP = 10000 */ 4 = $40,000