Microsoft Word - Solution-Chapter-7

Microsoft Word - Solution-Chapter-7 - Chapter 24 1. Michael...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
C h a p t e r 2 4 1. 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. a. What was Michael’s gross investment, depreciation, and net investment during 2008? Michael’s gross investment was $500,000, his depreciation was $100,000, and his net investment was $400,000. b. Wha t is the value of Michael’s capital at the end of 2008? Michael’s capital at the end of 2008 is equal to his capital at the beginning of 2008, $400,000, plus his net investment during the year, also $400,000, for a total of $800,000. 2. 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. a. How much did Lori save in 2007? Lori’s saving equals her disposable income minus her consum ption expenditure. Lori’s disposable income is $20,000 plus the interest on her savings account, $300, for a total of $20,300.Her consumption expenditure is $15,300, so her saving is $5,000. b. What was her wealth at the end of 2007? Lori’s wealth at the e nd of 2007 is equal to the value of her wealth at the beginning of 2007 plus her saving during the year. At the beginning of 2007 Lori’s wealth is $6,000— the value of her books, CDs, golf clubs, and savings account. Lori saved $5,000 during 2007 so her wealth at the end of 2007 is $11,000.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
3. First Call, Inc. is a cellular phone company. It plans to build an assembly plant that costs $10 million if the real interest rate is 6 percent a year. If the real interest rate is 5 percent a year, First Call will build a larger plant that costs $12 million. And if the real interest rate is 7 percent a year, First Call will build a smaller plant that costs $8 million. a. Draw a graph of First Call’s demand for loanable funds curve. Figure 7.1 shows First Call’s demand for loanable funds curve. b. First Call expects its profit from the sale of cellular phones to double next year. If other things remain the same, explain how this increase in expected profit influences First Call’s demand for loanable funds. When First Call expects its profit to increase, First Call increases its investment. The increase in its investment leads First Call to increase its demand for loanable funds. 4.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/14/2011 for the course ECON 103 taught by Professor Gispy during the Spring '11 term at Prairie State College .

Page1 / 17

Microsoft Word - Solution-Chapter-7 - Chapter 24 1. Michael...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online