Question
Suppose a business owner is trying to decide whether to invest in a new piece of machinery. The machine costs $160,000, and it is expected
- Suppose a business owner is trying to decide whether to invest in a new piece of machinery.
The machine costs $160,000, and it is expected to generate revenue of $200,000.
a. Solve for the expected rate of return on this machine.
- If the interest rate the business owner has to pay is 20%, will the business owner buy this machine?
- If the interest rate the business owner has to pay is 25%, will the business owner buy this machine?
- If the interest rate the business owner has to pay is 30%, will the business owner buy this machine?
- In a given economy potential GDP is at $415,000. If equilibrium/actual GDP is
$300,000, determine how large of a recessionary gap this economy has. If the MPC is .8,
solve for how much investment spending alone will have to change to close this gap.
- If the current equilibrium GDP value is $290,000 and investment spending decreases by
$40,000 with an MPC of 0.8, solve for the new equilibrium GDP.
- Given the following income data, please answer the questions below:
Real GDP Consumption Ig Government Exports Imports
$150000 $170000 $9000 $8000 $6000 $13000
$250000 $260000 $9000 $8000 $6000 $13000
$350000 $350000 $9000 $8000 $6000 $13000
$450000 $440000 $9000 $8000 $6000 $13000
$550000 $530000 $9000 $8000 $6000 $13000
- Solve for net exports in each row.
- Solve for aggregate expenditures (AE) in each row.
- State the value for the equilibrium GDP.
- If imports were to increase by $20000 so they are now equal to $33000, solve for net exports again.
- With this new export value, solve for aggregate expenditures in each row.
- State the value for the new equilibrium GDP.
- Solve for the multiplier (you can solve for either the actual or simple multiplier).
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