Busin ess Ma cr o e c on o m i cs , T ut or ia l 7
M.P .: Ma cr o e c on o m i cs , 9
Ed . Cha pt er 7
M.P.: CHAPTER 7:
FINANCE, SAVING, AND INVESTMENT
Class Problems And Applications
Michael is an Internet service provider. On December 31, 2007, he bought an existing business with
servers and a building worth $400,000. During his first year of operation, his business grew and he
bought new servers for $500,000. The market value of some of his older servers fell by $100,000.
What was Michael’s gross investment, depreciation, and net investment during 2008?
What is the value of Michael’s capital at the end of 2008?
Lori is a student who teaches golf on the weekend and in a year earns $20,000 after paying her taxes. At
the beginning of 2007, Lori owned $1,000 worth of books, CDs, and golf clubs and she had $5,000 in a
savings account at the bank. During 2007, the interest on her savings account was $300 and she spent a
total of $15,300 on consumption goods and services. There was no change in the market values of her
books, CDs, and golf clubs.
How much did Lori save in 2007?
What was her wealth at the end of 2007?
The table shows an economy’s demand for
loanable funds and the supply of loanable funds
schedules, when the government’s budget is balanced.
If the government has a budget surplus of $1
trillion, what are the real interest rate, the
quantity of investment, and the quantity of
private saving? Is there any crowding out in
b. If the government has a budget deficit of $1