Q.1.Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up t

Q.1.Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the students’ investment projects: Harry 5 percent Ron 8 percent Hermione 20 percent a. If borrowing and lending is prohibited, so each student uses only his or her saving to finance his or her own investment project, how much will each student have a year later when the project pays its return? [0.5 Marks] b. 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. What would determine whether a student would choose to be a borrower or lender in this market? [0.5 Marks] c. Among these three students, what would be the quantity of loanable funds supplied and quantity demanded at an interest rate of 7 percent? At 10 percent? [0.5 Marks] d. At what interest rate would the loanable funds market among these three students be in equilibrium? At this interest rate, which student(s) would borrow, and which student(s) would lend? [0.5 Marks] e. At the equilibrium interest rate, how much does each student have a year later after the investment projects pay their return and loans have been repaid? Compare your answers to those you gave in part (a). Who benefits from the existence of the loanable funds market—the borrowers or the lenders? Is anyone worse off? [0.5 Marks] [Graph-0.5 Marks]


Assignment No. 2
Course: Macroeconomics(Econ-201)
Academic Year:1439-1440 H
Student name:
Student ID:
Semester: 2nd
Student grade: / 3
CRN:
Level of the marks:
Instructions:

This Assignment must be submitted on Blackboard (WORD format only) via
the allocated folder.

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reduced for poor presentation. This includes filling your information on the
cover page.

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Late submission will result in ZERO marks being awarded.

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result in ZERO marks.

Use Times New Roman font 12 for all your answers.
Assignment Questions
Q.1.Three students have each saved $1,000. Each has an investment opportunity in which he or
she can invest up to $2,000. Here are the rates of return on the students’ investment projects:
Harry
5 percent
Ron
8 percent
Hermione
20 percent
a. If borrowing and lending is prohibited, so each student uses only his or her saving to
finance his or her own investment project, how much will each student have a year later when
the project pays its return? [0.5 Marks]
b. 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. What would determine whether a student
would choose to be a borrower or lender in this market? [0.5 Marks]
c. Among these three students, what would be the quantity of loanable funds supplied and
quantity demanded at an interest rate of 7 percent? At 10 percent? [0.5 Marks]
d. At what interest rate would the loanable funds market among these three students be in
equilibrium? At this interest rate, which student(s) would borrow, and which student(s) would
lend? [0.5 Marks]
e. At the equilibrium interest rate, how much does each student have a year later after the
investment projects pay their return and loans have been repaid? Compare your answers to those
you gave in part (a). Who benefits from the existence of the loanable funds market—the
borrowers or the lenders? Is anyone worse off? [0.5 Marks] [Graph-0.5 Marks]
Answer: –

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