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Unformatted text preview: government, and foreigners and are influenced by the interest rate to determine the demand, it is an inverse relationship Suppliers are the savers (households, corporations and government) Corporate savings are comprised of retained earnings which are comprised of the net earnings of the corporation minus the dividends they have paid out Where the two intersect creates the equilibrium funds supplied at the interest rate which creates a price of borrowed money PV= FVx 1/(1+i)^n is the formula for present value of future dollars Example- FV= 20,000 at end of 5 years, i=10% per year, PV= 20,000x 1/(1+.1)^5 PV= 12,418.43 Therefore, the value of this 20,000 in future dollars is 12,418.43 in current dollars Same investment that we have rejected today becomes more desirable if interest rate goes down because the present value of the income from investment will become larger...
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This note was uploaded on 05/16/2008 for the course ECON 0005 taught by Professor Abdullah during the Fall '07 term at Tufts.
- Fall '07