Unit 3.3 Chapter 9 Questions 7, 8, 9 Date: May 26th

7. If the duplicating machine costs 500 dollars and is expected to contribute 550 dollars to the years net revenue then the machine contributes 50 dollars to profit and the expected rate of return will be:

$50/$500 = 10% rate of return

If the interest rate is 8% then the total interest cost will be 40 dollars which will then leave a 10 dollar profit. Therefore, because there is still profit that can be earned, the handbill publisher should purchase the duplicator.

8. a) 20 billion b)30 billion c) 35 billion
This curve is the investment demand curve because it shows the relationship between the interest rate and the dollars invested in the economy. The relationship between these two is inversely related, therefore this means that as the interest rate increases, the dollars invested in the economy decreases.

9. The multiplier effect is where a change in input to the economy will result in a greater change in real GDP. The larger the MPC then the larger the real GDP will be and the opposite is for MPS.
MPS = 0 = infinite multiplier
MPS = .4 = 2.5 x mulitplier
MPS = .6 = 1.67 x multiplier
MPS = 1 = no multiplier

MPC = 1 = infinite mulitplier
MPC = .9 = 10 x multiplier
MPC = .67 = 3.03 x multiplier
MPC = .5 = 2 x multiplier
MPC = 0 = no multiplier

With a multipler of 0.8, GDP will rise by 6.4 billion dollars with an investment of 8 billion. With a multiplier of 0.67, GDP will rise by 5.36 billion dollars with an investment of 8 billion dollars.