1. A government of Lalalend is planning to invest in a machine that is going to considerably reduce pollution. The machine is expected to have a useful life of five years, after which the machine can be sold as scrap for an estimated 5000. The government plans to issue bonds to pay for the machine and intends to treat the interest rate on the bonds as the relevant discount rate for evaluating the project. The machine will cost the 175,000, all of which must be paid at the beginning of the project. The new machine will reduce costs of production in the economy by 50,000 per year, for each year of the machines life. The estimated supply and demand for loanable funds are given by these equations:

   MD = 25,000,000 - 125,000,000r MS = 2,500,000 + 62,500,000r

   Given the information above, should the firm undertake the investment in the machine?

   Support your answer using numbers.

2. John has recently undertaken an investment project. In September 2017, he borrowed

   50,000, and then he borrowed another 65,000 in September 2018. His loan has an annual interest rate of 4.25% compounded monthly. What is the future value of the debt at the end of September 2019? What is it going to be in March 2020?

3. Suppose GDP is 28 trillion, consumption is 17 trillion, taxation is 2.7 trillion and public saving is 1.2 trillion. Assuming this economy is open, calculate private saving, government spending, investment, and net export. Comment on this economys trade balance.

4. Critically discuss determinants of productivity in the context of developed vs developing countries. Explain also what can, a government policy, do to raise productivity and living standards.