PP_Slides_Class_8_Wednesday_February_6

PP_Slides_Class_8_Wednesday_February_6 - Good Afternoon!...

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Good Afternoon!! Class 8 Wednesday, February 6
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1. Which is not investment? a. the purchase of 100 shares of IBM b. the construction of a new factory c. the purchase of a new delivery truck d. the purchase of inventory
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1. If the going rate of interest were 10 percent and the expected profit rate were 18 percent, then the opportunity cost of a firm carrying out a $100,000 project for one year with its own funds would be a. 0 b. $8,000 c. $10,000 d. $14,000
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1. If gross investment is greater than depreciation, then net investment is ___ and the economy is ____. a. positive expanding b. positive shrinking c. negative expanding d. negative shrinking
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Interest Rates and Investment Experiment
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Investment project plant exotic bulbs -pay $1,000 buy 1,000 bulbs $1 each -next year harvest 1,020 bulbs sell $1 each -make 2% ($1020-$1000)/$1000 = .02 = 2% if 1% inflation year later sell for $1.01 1020 *$1.01=$1030 -make 3% ($1030-$1000)/$1000 = .03 = 3%
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Nominal return ($1030-$1000)/$1000 = 3% Real return (1020 bulbs – 1000 bulbs)/1000 bulbs = 2% real = nominal – inflation 2% = 3% - 1%
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Real = Nominal – Inflation Table 1 Numbers Built into Experiment
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PP_Slides_Class_8_Wednesday_February_6 - Good Afternoon!...

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