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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 Fall '07
 ABDULLAH
 Finance, Economics, disposable personal income, NDP, Disposable personal income=

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