Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 18 Jan 2018 My Price 10.00

`division of Mountain Banks

Real rate of interest To estimate the real rate of interest, the economics division of Mountain Banks—a major bank holding company—has gathered the data summarized in the following table. Because there is a high likelihood that new tax legislation will be passed in the near future, current data as well as data reflecting the probable impact of passage of the legislation on the demand for funds are also included in the table. (Note: The proposed legislation will not have any impact on the supply schedule of funds. Assume a perfect world in which inflation is expected to be zero, funds suppliers and demanders have no liquidity preference, and all outcomes are certain.)

 

Currently

With passage
of tax legislation

Amount of funds
supplied/demanded
($ billion)

Interest rate
required by
funds suppliers

Interest rate
required by
funds demanders

Interest rate
required by
funds demanders

$ 1

2%

7%

9%

5

3

6

8

10

4

4

7

20

6

3

6

50

7

2

4

100

9

1

3

 

a. Draw the supply curve and the demand curve for funds using the current data.

b. Using your graph, label and note the real rate of interest using current data.

c. Add to the graph drawn in part a the new demand curve expected in the event that the proposed tax legislation becomes effective.

d. What is the new real rate of interest? Compare and analyze this finding in light of your analysis in part b.

 

Answers

Maurice Tutor
(5)
Status NEW Posted 18 Jan 2018 06:01 PM My Price 10.00

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