Chapter 16 or 29 Interest, Rent, & Profit: Pre-Class & In - Class Activities Packet Name/I.D. Number: Section: Date: Part 2. Matching: Match the Key terms in Column "A" with the definitions in Column "B" by writing the block (upper) case letter of your choice under column "A" and match the definitions in column "B" with the meanings or examples or real world applications in column "C" by writing the small (lower) case letter of your choice under column "B". Column "A" Column "B" Column "C" 1. Loanable Fund A. The interest rate determined by the forces a. It is also known as present discounted value. The current value of expected income stream or cash flows at a given rate of return. of supply & demand in the loanable funds b. The payment for a fixed supply of resource like land or an art work by 2. Positive Rate of market. a deceased artist which cannot be increased or used for any other Time Preference purpose. B. Payment in excess of opportunity costs. . C. The percentage increase in the purchasing power that the lender 3. Roundabout C. The current worth of some future dollar receives when the borrower repays the loan with interest. Examples: Method of amount of income or receipts TIPS (Treasury Inflation-Protected Security - In addition to a fixed rate of payment, TIPS also pays Investors inflation adjusted principal amount at Production D. The production of capital goods that maturity) & I-Bonds ("Saving Bonds") issued by the U.S. Treasury pay interest payment, that is, adjusted for inflation twice a year. 4. Nominal Interest enhance productive capabilities d. The process whereby machinery and equipment are produced first Rate E. Funds that someone borrows and another and then with the help of these machinery and equipment, the desired person lends, for which the borrower pays an consumer (finished) goods are produced. 5. Real Interest Rate e. It is the interest rate in current dollars on loans or deposits published interest rate to the lender. on newspapers or web pages by banks and other depository institutions. F. A preference for the earlier over the later It is equal to; Real interest rate + Expected inflation rate. 6. Present Value availability of goods f. The supply of savings by savers and banks make such kind of funds available to the general public. G. The nominal interest rate adjusted for g. The difference between the actual payment for a factor and its 7. Economic Rent expected inflation, that is, the nominal interest expected payment. For example, the difference between Efficiency wage and Minimum or living wage. If the minimum or living wage is $7.25/hr or rate minus the expected inflation rate. $10.25/hr and a company pays $15.25/hr as efficiency wage for a worker (i.e., the difference is $8.00/hr or $5 /hr respectively). 8, Pure Economic Rent H. A category of economic rent where the payment is to a factor that is in fixed supply. h. The inclination of the consumer towards current consumption over the future consumption
