A household has $6 and MB of consumption of $1.9, 1.65, 1.45, 1.36, 1.28 and 1.2
ID: 1139123 • Letter: A
Question
A household has $6 and MB of consumption of $1.9, 1.65, 1.45, 1.36, 1.28 and 1.2, for 1st, 2nd.. dollar. A firm faces MR of $1.7, 1.5, 1.4, 1.33, 1.25 and 1.18, for 1st, 2nd,.. dollar. If the interest rate is 38%, the market for funds is ___ equilibrium and _____.
An wealth investor is choosing between Super Bonds and Great Bonds. Super Bonds have a price of $150 and payout $209 in one year, while Great Bonds have a price of $550 and payout $650 in one year. Then the investor should
in equilibrium; the market clearsExplanation / Answer
1. A household has $6 and MB of consumption of $1.9, 1.65, 1.45, 1.36, 1.28 and 1.2, for 1st, 2nd dollar and so on. A firm faces MR of $1.7, 1.5, 1.4, 1.33, 1.25 and 1.18, for 1st, 2nd dollar and so on. If the interest rate is 38%, the market for funds is not in equilibrium and there is excess demand for funds. So the correct option is B.
2. An wealth investor is choosing between Super Bonds and Great Bonds. Super Bonds have a price of $150 and payout $209 in one year, while Great Bonds have a price of $550 and payout $650 in one year. Then the investor should buy super bonds. So correct option is A. This is because super bonds will provide returns of 39.33% while the great bonds will provide returns of 18.18%.
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