Subject : macroeconomics Direction: Show your solution

1. Investment Problem Cost of bldg.. =5M Gross Revenue = 9.5 M Operating expense = 4M Nominal interest rate = 12% Ongoing inflation rate = 8% a.) How much is the total profit? b.) Determine the expected rate of return (r) c.) Determine the real interest rate d.) Determine the interest cost e.) How much will be added to the firm's profit? 2. In a closed economy with no government, a $1 billion increase in initial spending leads to a $5 billion increase in total income or output. a. What is the multiplier? b. What is the value of marginal propensity to save? c. What is the value marginal propensity to consume