1. Suppose you are looking to buy a bond that promises to pay $600,000 on the date of maturity in one year.

1a. If you bid for the bond and wind up paying a price of $590,000, solve for the interest rate on this bond. Round your answer to four decimal places.

1b. If on the next day, you bid for the bond and pay a price of $575,000, solve for the interest rate on the bond now. Round your answer to four decimal places.

1c. What is the relationship between the bond price and the interest rate on the bond?

2. Suppose that the aggregate demand and aggregate supply schedules for a hypothetical economy are as shown in the following table

Amount of Real GDP Demanded Price Amount of Real GDP Supplied

$600 $500 $1200

$700 $400 $1000

$800 $300 $800

$900 $200 $600

$1000 $100 $400

2a. Use the above data to graph the aggregate supply and aggregate demand curves.

2b. What are the equilibrium price and equilibrium level of real GDP?

2c. When this economy reaches its equilibrium GDP in this example, is it also operating at potential GDP? Explain why or why not.