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
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
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%
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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