Answer:
Complete the following table with how much each student will have a year later when the project pays its return.
Student Money a Year Later
Yakov <u>$1,040</u>
Charles <u>$1,070</u>
Dina <u>$1,150</u>
Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate r.
If a student’s expected rate of return is greater than r, he or she would choose to (lend, borrow).
Suppose the interest rate is 6 percent.
Among these three students, the quantity of loanable funds supplied would be <u>$1,000</u>, and quantity demanded would be <u>$2,000</u>.
Now suppose the interest rate is 12 percent.
Among these three students, the quantity of loanable funds supplied would be <u>$2,000</u>, and quantity demanded would be <u>$1,000</u>.
At an interest rate of <u>7%</u>, the loanable funds market among these three students would be in equilibrium.
At this interest rate, <u>Yakov</u> would want to borrow, and <u>Dina</u> want to lend.
Suppose the interest rate is at the equilibrium rate.
Complete the following table with how much each student will have a year later after the investment projects pay their return and loans have been repaid.
Student Money a Year Later
(Dollars)
Yakov <u>$1,070</u>
Charles <u>$1,070</u>
Dina <u>$1,230</u>
True or <u>False</u>: Only borrowers are made better off, and lenders are made worse off.
