1. The table below shows hypothetical levels of average household debt and debt-

Question

1. The table below shows hypothetical levels of average household debt and debt-service payments in two years, 2005 and 2008. Assume households are paying only interest on their debt and not part of the principal.

Annual debt-service payments

At what annual interest rate would consumers have had to borrow for the debt-service payments in 2008 to equal the debt-service payments in 2005, despite the increase in household debt?

Instructions: Round your answer to two decimal places.

___percent.

2. The table below gives information on income and debt for a small nation for the years 2008 through 2011. The nation had average household debt of $35000 at the end of 2007. Use this information to fill in the blanks in the table below.

Instructions: Round your dollar-based answers to the nearest dollar and your percentage answers to two decimal places.

Annual debt-service payments

Explanation / Answer

1.

Annual interest rate (based on 2005) = (annual payments / Household debt) × 100

                                                            = ($600 / $20,000) × 100

                                                            = 3% (Answer)

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