6. Study Questions and Problems #6 True or False: As measured by the government, free health care, free public housing, day care, and job training for the poor will not reduce the poverty rate. True, because all of these measures increase disposable income. O True, because all of these measures are in-kind transfers. False, because all of these measures directly increase cash income. False, because none of these measures are in-kind transfers.
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- 1. TRUE / FALSE : Household decisions depend on the real values for wages and rent rather than the nominal values for wages and rent. On the Source of funds side of the household budget constraint what 2 sources can a household get their their income from 2. 3.2) Fred has income of $100,000 this year and $120,000 next year. Fred can borrow at an interest rate of 8% or lend at an interest rate of 2%. Draw Fred's budget constraint between spending this year and spending next year labeling all significant points.1. Suppose you’ll have an annual nominal income of $40,000 for each of the next 3 years, and theinflation rate is 5 percent per year. a. Find the real value of your $40,000 salary for each of the next 3 years. b. Suppose you have a COLA (Cost of Living Adjustment) of 5 percent per year in yourcontract, which raises your $40,000 salary by 5 percent for each of the next 3 years. Giventhe 5 percent inflation rate for each of those 3 years, what is the real value of your salary foreach year?
- 1. Suppose the government borrows $20 million more next year than this year. a. How does the elasticity of the supply of loanable funds affect the size of thesechanges? b. How does the elasticity of the demand of loanable funds affect the size of thesechanges?5. Interest, inflation, and purchasing power Suppose Dalton is a fashionista and buys only denim jackets. Dalton deposits $2,000 into a savings account that pays an annual nominal interest rate of 10%. Assume this interest rate is fixed, and so it will not change over time. On the day she makes her deposit, suppose that a denim jacket has a price of $20.00. Initially, Dalton's $2,000 deposit has a purchasing power of denim jackets. For each of the annual inflation rates given in the following table, first determine the new price of a denim jacket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Dalton's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest denim jacket. For example, if you find that the deposit will cover 20.7 denim jackets, you would round the…An increase in the real interest O A. increases savings for borrowers, and decreases the savings of lenders. O B. decreases savings for borrowers, but has an uncertain effect on the savings of lenders. O C. increases savings for borrower, but has an uncertain effect on the savings of lenders. O D. has an uncertain effect on the savings of both borrowers and lenders. O E. reduces savings for both borrowers and lenders.
- Suppose the tax rate on interest income from saving were reduced. a. The income effect, but not the substitution effect, would tend to reduce private saving. b. The substitution effect, but not the income effect, would tend to reduce private saving. c. Both the income and substitution effect would tend to reduce private saving. d. Neither the income nor the substitution effect would tend to reduce private saving.The table below shows the amount of savings and borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates. InterestRate QuantitySupplied QuantityDemanded5% 98 2216% 129 1917% 160 1608% 178 1429% 196 12410% 214 106 What is the equilibrium interest rate and quantity of loaned funds? r = % Q = Suppose there is a decrease in demand of money, what will happen to interest rates and quantity? Increase in Interest Rates, Increase in Quantity?Increase in Interest Rates, Decrease in Quantity?Decrease in Interest Rates, Increase in Quantity?Decrease in Interest Rates, Decrease in Quantity?Interest Rate 0 Multiple Choice O O A O S₁ BC Quantity Refer to the diagram. Suppose that the demand for loanable funds is D₁ and the supply of loanable funds initially is S₁. If the supply of loanable funds increases to So, the equilibrium quantity of funds borrowed will increase from E to F. increase from A to B. increase from B to C. So decrease from G to F. Do D₁
- Go to this website (http://www.measuringworth.com/ppowerus/) for the Purchasing Power Calculator at measuringWorth.com. How much money would it take today to purchase what one dollar would have bought in the year of your birth?3. transfer payments are characterized as: a. Dissaving b. One-way disbursements of income. c. Injections d Gross Investment8. Interest, inflation, and purchasing power Suppose Yvette is a cinephile and buys only movie tickets. Yvette deposits $1,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed-that is, it won't change over time. At the time of her deposit, a movie ticket is priced at $10.00. Initially, the purchasing power of Yvette's $1,0000 deposit is movie tickets. For each of the annual inflation rates given in the following table, first determine the new price of a movie ticket, assuming it rises at the rate of inflation. Then enter the corresponding purchasing power of Yvette's deposit after one year in the first row of the table for each inflation rate. Finally, enter the value for the real interest rate at each of the given inflation rates. Hint: Round your answers in the first row down to the nearest movie ticket. For example, if you find that the deposit will cover 20.7 movie tickets, you would round the purchasing power down to 20 movie…
