Answer:
A. an appreciation of the Canadian dollar and a higher quantity of Canadian dollars
traded
Explanation:
An increase in the demand for the Canadian dollar will lead to
an appreciation of the Canadian dollar and a higher quantity of Canadian dollars traded.
When, the demand for Canadian dollar increases, it means, the Canadian dollar will appreciate against other currencies and higher quantity of the Canadian dollar will be traded.
A rightward shift in demand( increase) means the demand curve has moved up along the
supply curve causing the price of the currency measured on the horizontal axis to increase.
Smith Company makes and sells a single product called a Pod. Each Pod requires 1.4 hours of labor at a labor rate of $9.60 per hour. Smith Company needs to prepare a Direct Labor Budget for the second quarter of the year. In June the company has budgeted to produce 22,000 Pods. The finished goods inventory on June 1 and June 30 were budgeted at 500 and 800 units, respectively. Budgeted direct labor costs incurred in June would be:
A. $470,400
B. $295,680
C. $240,000
D. $211,200
Answer:
Total direct labor costs= $295,680
Explanation:
Giving the following information:
Each Pod requires 1.4 hours of labor at a labor rate of $9.60 per hour.
Production= 22,000 Pods.
First, we need to calculate the total direct labor hours required:
Total direct labor hours= 22,000*1.4= 30,800 hours
Now, the total direct labor costs:
Total direct labor costs= 30,800*9.6
Total direct labor costs= $295,680
Assume a company pays out $100 in dividends in Year 1. What would the annual growth rate (rounded to the nearest 1%) for dividends have to be during years 2-5 so total dividends paid out during years 1-10 would be $2000
Answer:
The answer is "The dividends in 5 to 10 years will be the same".
Explanation:
The dividend value will be increasing in the 5 years after that it will be stabilized.
The growth rate value is = 24.24% , and the year dividend value in the form table can be defined as follows:
[tex]\boxed{\boxed{\bold{years}} \ \ \ \ \ \ \boxed{1}\ \ \ \ \ \boxed{2}\ \ \ \ \ \boxed{3} \ \ \ \ \ \boxed{4} \ \ \ \ \ \boxed{5} \ \ \ \ \ \boxed{6} \ \ \ \ \ \boxed{7} \ \ \ \ \ \boxed{8} \ \ \ \ \ \boxed{9} \ \ \ \ \ \boxed{10} }[/tex]
[tex]\boxed{\boxed{\bold{values}} \ \ \boxed{100}\ \ \boxed{124.2}\ \ \boxed{154.3} \ \ \boxed{191.8} \ \ \boxed{238.2}\ \ \boxed{238.2} \ \ \boxed{238.2} \ \ \boxed{238.2} \ \ \boxed{238.2} \ \ \boxed{238.2} }[/tex]In this question we use the goal seek function, that's calculation is defined in the attachment file. please find it.
On January 1, 2016, Dreamworld Co. began construction of a new warehouse. The building was finished and ready for use on September 30, 2017. Expenditures on the project were as follows: January 1, 2016 $319,000 September 1, 2016 $468,000 December 31, 2016 $468,000 March 31, 2017 $468,000 September 30, 2017 $319,000 Dreamworld had $5,600,000 in 12% bonds outstanding through both years. Dreamworld's capitalized interest in 2016 was:
Answer:
$638,000.
$319,000.
$475,000.
$554,750.
My respond is 638,000
Explanation:
If all investors become more less risk-averse, the SML will _______________ and stock required returns will ________.
a. have the same slope but larger intercept; fall
b. have the same intercept with a flatter slope; fall
c. have the same intercept with a steeper slope; rise
d. have the same slope but smaller intercept; rise
Answer:
Option B, have the same intercept with a flatter slope; fall.
Explanation:
Option B is correct because a more risk-averse person faces a steeper curve while the less risk-averse person faces a flatter slope. While the more risk-averse person has more return on the stock while the less risk-averse person has less return. Therefore, in the given situation, the SML will have the flatter slope and its return will fall. As it is a less risk-averse investor.
Two products, QI and VH, emerge from a joint process. Product QI has been allocated $12,300 of the total joint costs of $33,000. A total of 1,900 units of product QI are produced from the joint process. Product QI can be sold at the split-off point for $13 per unit, or it can be processed further for an additional total cost of $11,000 and then sold for $15 per unit. If product QI is processed further and sold, what would be the financial advantage (disadvantage) for the company compared with sale in its unprocessed form directly after the split-off point?
Answer:
Profit from selling at the split-off point = $13 x 1,900 units = $24,700
Profit from Processing further: = $15 x 1,900 - Processing total cost of $11,000
= $28,500 - $11,000
= $17,500
Comparison
$24,700 - $17,500
=$7,200
There is a decrease in overall profit
Conclusion: If product QI is processed further and sold, then overall profit will decrease by $7,200.
All of the following statements regarding the Federal National Mortgage Association (FNMA) are true EXCEPT:_________
A) FNMA is owned by the U.S. government.
B) FNMA pass-through certificates are not guaranteed by the U.S. government.
C) interest on FNMA certificates is taxable at all levels.
D) FNMA stock is publicly traded on the NYSE.
Answer:
A) FNMA is owned by the U.S. government.
Explanation:
Federal National Mortgage Association (FNMA) also commonly referred to as "Fannie Mae" is a government-sponsored enterprise (GSE) that provides services such as purchasing mortgages from lending institutions so as to expand the secondary mortgage market or effectively boost affordable lending activity at the lending institutions. It was founded as part of the "New deal" during the Great Depression in 1938.
All of the following statements regarding the Federal National Mortgage Association (FNMA) are true;
1. FNMA pass-through certificates are not guaranteed by the U.S. government.
2. Interest on FNMA certificates is taxable at all levels.
3. FNMA stock is publicly traded on the NYSE.
However, it is false or incorrect to say that the FNMA is owned by the United States of America (USA) government.
The Federal National Mortgage Association (FNMA) is only being sponsored by the U.S government under the umbrella of the Federal Housing Finance Agency (FHFA).
In comparing the absorption and variable cost methods, each of the following statements is true except:________.
1. SG&A fixed expenses are not included in inventory in either method.
2. Only the absorption method may be used for external financial reporting.
3. Variable costing charges fixed overhead costs to the period they are incurred.
4. When inventory increases over the period, variable net income will exceed absorption net income.
Answer: When inventory increases over the period, variable net income will exceed absorption net income.
Explanation:
In comparing the absorption and variable cost methods, the statements that are true are:
• SG&A fixed expenses are not included in inventory in either method.
• Only the absorption method may be used for external financial reporting.
• Variable costing charges fixed overhead costs to the period they are incurred.
Therefore, option D is wrong which states that "when inventory increases over the period, variable net income will exceed absorption net income".
Suppose you are tasked with designing a policy to lower emissions from automobile use. What type of policy (i.e. command and control standards, tradable permits, taxes, subsidies, liability, etc.) would you recommend and why
Answer:
Tradable permits
Explanation:
A tradable permit is a term that describes a market-based technique that provides the government with the chance or power to curb negative externalities produced by a group of companies.
In this situation, permits are traded among companies, whereby a company that has reduced production of the externality can trade permits to companies that are unable to make such reductions and are ready to pay for the permits.
Reason to recommend this Approach its policy:
It has been observed that, in every place where this approach or policy is used, the market for permits obtains the desired effect that is more profitable and productive for society
Suppose a brand has a heavy usage index of 1.5, penetration share of 0.6 and a market share of 15%. What is the share of wallet
Answer:
0.167
Explanation:
Given the following :
Heavy usage index = 1.5
Penetration share = 0.6
Market share = 15%
Using the formula:
Heavy usage index =
market share % / [Penetration share * share of wallet]
1.5 = 15% / [0.6 * share of wallet]
1.5 × [0.6 × share of wallet] = 15%
0.9 × share of wallet = 15%
Divide both sides by 0.9
Share of wallet = 15% / 0.9
Share of wallet = 0.15 / 0.9
Share of wallet = 0.16666
Share of wallet = 0.167
which of the following is most likely to perform all of the management functions
Answer:
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Explan
________systems can help keep logistics costs down, improve the satisfaction of customers, and help a firm become more competitive so as to grow its revenues.
a. Quality management
b. Relationship management
c. Integrated logictics management
d. Logistics
Answer:
c. Integrated logistics management
________systems can help keep logistics costs down, improve the satisfaction of customers, and help a firm become more competitive so as to grow its revenues.
Explanation:
How? Integrated logistics management systems interconnect and integrate all the activities and systems that affect the flow of materials, information, and goods from the point of origin to the point of arrival at the customers' end. An integrated logistics management system ensures that the six areas of logistics are handled seamlessly. These areas are Warehousing, Warehouse Management System, Transportation Management System, Real-Time Location System, Inventory Management System, and Reverse Logistics. With the integration of these systems and activities, the costs of logistics are drastically reduced, customers - who are at the center of these - become more satisfied, and the firm competitively grows its revenues and bottomline.
A company purchased a machine for $100,000. The accumulated depreciation on the machine is now $100,000. Which of the following statements is TRUE regarding the disposal of the machine for no cash proceeds?
A) There will be no gain or loss on the disposal.
B) The journal entry to record the disposal will decrease net assets.
C) The cost of the asset, but not its accumulated depreciation, must be removed from the books.
D) A gain or loss on the disposal can occur.
Answer:
A) There will be no gain or loss on the disposal.
Explanation:
Given that
Purchase value of a machine = $100,000
Accumulated depreciation = $100,000
Based on the above information
Since the purchase value is equivalent to the accumulated depreciation i.e. both the amount consist of $100,000
So at the time of sale of the machine no loss or gain should be there
Hence, the correct option is A.
Baylor Bank believes the New Zealand dollar will appreciate over the next five days from $.48 to $.50. The following annual interest rates apply:
Currency Lending Rate Borrowing Rate
Dollars 7.00% 7.50%
New Zealand dollar (NZ$) 6.75% 7.25%
Baylor Bank has the capacity to borrow either NZ$10 million or $5 million.
If Baylor Bank's forecast is correct, what will its dollar profit be from speculation over the five-day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)?
Answer:
Its dollar profit from speculation over the five-day period will be $208,035.93.
Explanation:
This can be determined as follows:
Assuming Baylor Bank borrow $5,000,000
The borrowing will be converted to New Zealand dollar at the current exchange rate and we will have:
Conversion = $5,000,000 / 0.48 = NZ$10,416,667
The NZ$10,416,667 shall be invested at an annualized based on New Zealand lending rate of 6.75% over five days. This will produce future value (FV) as follows:
FV of investment = Amount invested * (1 + NZ lending rate)^(5 years / 360 days) = NZ$10,416,667 * (1 + 6.75%)^(5 / 360) = NZ$10,426,121.44
Converting the NZ$10,426,121.44 to dollar at the new rate of $.50 as follows:
New conversion = NZ$10,426,121.44 * $.05 = $5,213,060.72
Amount to repay based on the US borrowing rate = Amount borrowed in USD * (1 + US borrowing rate)^(5 years / 360 days) = $5,000,000 * (1 + 7.5%)^(5 / 360) = $5,000,000 * 1.00100495826555 = $5,005,024.79
Profit = New conversion - Amount to repay = $5,213,060.72 - $5,005,024.79 = $208,035.93
Therefore, its dollar profit from speculation over the five-day period will be $208,035.93.
If the price of a soda is $2, the price of a hamburger is $6, and George has $20 of income, George's utility maximizing combination of sodas and hamburgers per day is:
Answer:
2 hamburgers and 4 sodas
Explanation:
The utility's function was missing, so I looked for it:
Hamburgers per Day Total Utility Marginal Utility MU per $
1 30 30 5
2 52 22 3.67
3 67 15 2.5
4 76 9 1.5
5 80 4 0.67
Sodas per Day Total Utility Marginal Utility MU per $
1 20 20 10
2 35 15 7.5
3 47 12 6
4 57 10 5
5 64 7 3.5
If George wants to maximize his utility per dollar spent, he should buy 2 hamburgers and 4 sodas. This will yield him 52 utils (form hamburgers) and 57 utils (form sodas) = 109 utils per day
The following information is from ABC Company's general ledger: Beginning and ending inventories, respectively, for raw materials were $16,000 and $20,000 and for work in process were $40,000 and $44,000. Raw material purchases and direct labor costs incurred were $72,000 each, and manufacturing overhead applied amounted to $40,000. Determine the total cost of goods manufactured during the period.
Answer:
cost of goods manufactured= $176,000
Explanation:
Giving the following information:
Direct materials:
Beginning inventory= $16,000
Ending inventory= $20,000
Purchase= $72,000
WIP:
Beginning inventory= $40,000
Ending inventory= $44,000
Direct labor= $72,000
Manufacturing overhead applied= $40,000
To calculate the cost of goods manufactured, we need to use the following formula:
cost of goods manufactured= beginning WIP + direct materials + direct labor + allocated manufacturing overhead - Ending WIP
Direct material used= beginning inventory + purchases - ending inventory
Direct material used= 16,000 + 72,000 - 20,000= 68,000
cost of goods manufactured= 40,000 + 68,000 + 72,000 + 40,000 - 44,000
cost of goods manufactured= $176,000
Straight Cut beauty salon merges with Clean-Cut beauty salon. This is an example of
A) vertical merger.
B) horizontal merger.
C) conglomerate merger.
D) concentration ratio.
Answer:
The answer is B. horizontal merger
Explanation:
Horizontal merger is a type of merger found between two competing firms operating in the same industry. Straight Cut beauty salon and Clean-Cut beauty salon are in the same industry performing the same or similar function.
Horizontal merger are done to increase the market share or enjoys economies of scale.
Straight Cut beauty salon and Clean-Cut beauty salon after the merger can introduce a wide range of services within the beauty salon
ABC Ltd (ABC) engaged the accounting firm of Ace & King to perform its annual audit. Ace amp; King performed the audit in a competent, non-negligent manner and billed ABC for $30 000, the agreed fee. Shortly after delivery of the audited financial report, Sam Lloyd, the assistant controller, disappeared, taking with him $40 000 of ABCâ s funds. It was then discovered that Sam had been engaged in a highly sophisticated, novel defalcation scheme during the past year. He had previously embezzled $50 000 of ABCâ s funds. ABC has refused to pay the auditorâ s fee and is seeking to recover the $90 000 that was stolen by Sam. Which of the following is correct?
The auditor cannot recover the audit fee and is liable for $90 000.
The auditor is entitled to collect the audit fee and is not liable for $90 000.
ABC is entitled to recover the $40 000 defalcation of the current year and is not liable for the $30 000 fee.
ABC is entitled to rescind the audit contract and thus is not liable for the $30 000 fee, but it cannot recover damages.
Answer:
The auditor is entitled to collect the audit fee and is not liable for $90 000.
Explanation:
Ace & King did their job in a competent way, the fact that the company's controller was doing something illegal is not their responsibility. External auditors work with the information that is given to them and their job is limited to analyzing them and making their conclusions about them.
In this case, the controller was the person responsible for giving the information to the auditing company, so he had the chance to direct their conclusions. An external auditor is not responsible for what happens inside a firm, and if someone steals money or assets, he/she is responsible for it.
Part 1: Firms in the real estate investment trusts (REITs), airlines, electric utilities, and paper products industries tend to have high leverage. Explain why firms in these industries would prefer to have high leverage. Part 2: Firms in the computer hardware, footwear, apparel and luxury goods, and data processing industries tend to have low leverage. Explain why firms in these industries would prefer to have low leverage.
Answer and Explanation:
1. Firms in the real estate industry have high leverage because they are capital intensive businesses, requiring higher capital for their operations and do not make profit or reach breakeven early. Therefore they are more inclined to leveraging than the share market .There is also the benefit of tax savings from debt sources
2. Firms in the computer hardware, footwear, apparel and luxury goods, and data processing industries have low leverage because they can reach breakeven or make profit early and so can rely on share market as against real estate industry.
Shelley wants to cash in her winning lottery ticket. She can either receive fourteen, $188,000 semiannual payments starting today, or she can receive a single-amount payment today based on a 6% annual interest rate. What is the single-amount payment she can receive today
Answer:
$2,123,661.75
Explanation:
We are to find the present value of the payments
but first we are to determine the future value of the payments
The formula for calculating future value = A (B / r)
B = [(1 + r)^n] - 1
R = interest rate = 6% / 2 = 3%
N = number of years = 14
(1.03^14 - 1 ) / 0.03 = 17.086324
$188,000 x 17.086324 = $3,212,228.94
Present value = future value(1 + r ) ^-N
$3,212,228.94(1.03)^-14 = $2,123,661.75
If the exports (in million $) for the period 2006 through 2010 were $878, $892, $864, $870, and $912, respectively, what are these values called g
Answer:
Time series data
Explanation:
here are the option to this question:
Moving average
Linear trend equation
Logarithmic trend equation
Time series data
Time series data is a set of values or data arranged according to time - according to the time they occurred.
The export data were ordered according to time from 2006 - 2010
Baxter Inc. owns 90 percent of Wisconsin Inc. and 20 percent of Cleveland Company.
Wisconsin, in turn, holds 60 percent of Cleveland's outstanding stock.
No excess amortization resulted from these acquisitions.
During the current year, Cleveland sold a variety of inventory items to Wisconsin for $40,000 although the original cost was $30,000. Of this total, Wisconsin stll held $12,000 in inventory (at transfer price) at year-end.
During this same period, Wisconsin sold merchandise to Baxter for $100,000 although the original cost was only $70,000. At year-end, $40,000 of these goods (at the transfer price) was still on hand.
The initial value method was used to record each of these investments.
None of the companies holds any other investments.
Using the following seperate income statements, determine the figures thet would appear on a consoldated income statement:
Baxter Wisconsin Cleveland
Sales $(1,000,000) $(450,000) $(280,000)
Cost of goods sold 70,000 280,000 190,000
Expenses 110,000 60,000 30,000
Dividend income:
Wisconsin (36,000) 0 0
Cleveland (4,000) (12,000) 0
Net income $260,000 $122,000 $60,000
Consolidated Income Statement:
Sales
Cost of goods sold
Expenses
Dividend income
Non-controlling interests in subsidiaries' income
Controlling interest in consolidated net income
Answer:
$350,380
Explanation:
Calculation to determine the amount that would appear on the consolidated income
Consolidated income statement.
Sales$1,590,000
($1,000,000+$450,000+$280,000-$100,000-$40,000)
Less :Cost of goods sold ($1,015,000)
($670,000+$280,000+$190,000-$100,000-$25,000)
Less :Expenses ($200,000)
($110,000+$60,000+$30,000)
Dividend income$0
Consolidated net income $375,000
Noncontrolling interests in subsidiaries' income $24,620
Controlling interest in consolidated net income $350,380
Therefore the amount that would appear on the consolidated income will be $350,380
You need a 25-year, fixed-rate mortgage to buy a new home for $210,000. Your mortgage bank will lend you the money at a 7.1 percent APR for this 300-month loan. However, you can afford monthly payments of only $950, so you offer to pay off any remaining loan balance at the end of the loan in the form of a single balloon payment. How large will this balloon payment have to be for you to keep your monthly payments at $950?
Answer:
$450,732, the loan's principal balance increases because the monthly payment doesn't even cover interest expense
Explanation:
In order for you to pay the debt completely in 25 years, you would need to pay $1,497.66 per month. But since you can only afford to pay $950 per month, the remaining balance will be $450,732.
I prepared an amortization schedule in an excel spreadsheet
Which of the following generational groups is most likely to represent the present owners of cottages surrounding Witmer Lake?A) Baby Boomers.
B) Echo Boomers.
C) Gen Xers.
D) Lost Generation.
E) Millennials.
Lost Generation is the generational groups is most likely to represent the present owners of cottages surrounding Witmer Lake. Thus, the correct option is D). Lost Generation.
Where is Witmer Lake located?Witmer Lake is a very large natural lake that is located in LaGrange County, Indiana near Wolcottville. This lake is very big in size as it is 204 acres in size. Witmer Lake is considered as a part of the Indian Lakes Chain.
Witmer Lake is very well known as an all-sports lake as various adventourous activities like boating, swimming, fishing, skiing, kayaking, and more can be enjoyed on the crystal water of the Witmer Lake.
Basically, Witmer Lake is a part of five lakes of the Indian Lake Chain and those lakes are the Witmer, Westler, Dallas, Hackenberg and Messick Lakes.
Learn more about Witmer Lake here:-
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A company manufactures and sells x smartphones per week. The weekly price-demand and cost equations are p=500−0.5x and C(x)=20,000+135x respectively.
a. What price should the company charge for the phones and how many phones should be produced to maximize the weekly revenue? What is the maximum weekly revenue ?
b. What is the maximum weekly profit ? How much should the company charge for the phones, and how many phones should be produced to realize the maximum weekly profit ?
Answer:
a)
revenue = x amount of phones x price
revenue = x(500 - 0.5x)
revenue = 500x - 0.5x²
we find revenue' (derivative):
revenue' = 500 - x
x = 500
the company should sell 500 smartphones to maximize revenue, the selling price = 500 - (0.5 x 500) = $250 per smartphone. Maximum weekly revenue = $250 x 500 = $125,000
b)
profit = revenue - cost
profit = 500x - 0.5x² - 20,000 - 135x
profit = -0.5x² + 365x - 20,000
we must find profit' (derivative):
profit' = -x + 365
x = 365
In order to maximize profits, you have to sell 365 smartphones per week. Maximum weekly profit = -0.5(365²) + 365(365) - 20,000 = -66,612.50 + 133,225 - 20,000 = $46,612.50.
The smartphone's price = 500 - (0.5 x 365) = $317.50
Some shows are produced specifically for the syndication market. These are known as ________ syndication.
Answer: First-run syndication
Explanation:
Syndication refers to when multiple television and radio stations are able to lease the rights to a program without them having to do so through a broadcast network.
First-run syndication means that a show was first broadcast on several television stations because it was made to be broadcast as such. In other words the creators produced it specifically for the syndication market or purchased the rights from another country and then sold it into syndication in a country in which it was broadcasting for the first time.
Answer:
First-run syndication
Explanation:
Syndication refers to when multiple television and radio stations are able to lease the rights to a program without them having to do so through a broadcast network.
First-run syndication means that a show was the first broadcast on several television stations because it was made to be broadcast as such. In other words, the creators produced it specifically for the syndication market or purchased the rights from another country and then sold it into syndication in a country in which it was broadcasting for the first time.
A dean at NYU has a guaranteed salary of $120, 000 at the end of each year for the next five years at which point they are scheduled to retire. The school would like the dean to retire now. How much should the school offer today? Suppose current interest rates are 1.5% at all maturities.
Answer:
the school should offer $573,917.40 today.
Explanation:
The amount to be offered today is known as the Present Value and is calculated as :
Pmt = $120, 000
Fv = $0
P/yr = 1
n = 5
r = 1.5%
Pv = ?
Using a Financial Calculator, the amount that the school should offer today, PV is $573,917.40.
The income summary account has expenses of $65,000 and revenues of $55,000. The company had which of the following: Select one: a. Net income of $10,000 b. Net income of $120,000 c. Net loss of $10,000 d. Net loss of $120,000
Answer: Net loss of $10,000
Explanation:
From the question, we are informed that the income summary account has expenses of $65,000 and revenues of $55,000.
In this scenario, since the expense is more than the revenue, it means that there will be a net loss. Therefore, the net loss will be calculated as:
= $65,000 - $55,000
= $10,000
There's a net loss of $10,000.
10. Which of the following is NOT normally regarded as being a good reason to establish an ESOP?
a. To make it easier to grant stock options to employees.
b. To help retain valued employees.
c. To increase worker productivity.
d. To help prevent a hostile takeover.
e. To enable the firm to borrow at a below-market interest rate.
Answer:
The answer for your question is the OPTION : E
Calculate the consumers' surplus at the indicated unit price p for the demand equation
p = 8−2q^1/3;p=6.
Answer:
consumer surplus = 0.5 cents
Explanation:
The unit price: p = 6 , demand equation = [tex]p = 8 - 2q^{\frac{1}{3} }[/tex]
first find the value of q by equating the unit price and the demand equation
[tex]8 - 2q^{\frac{1}{3} } = 6[/tex]
= 8 - 6 = 2q^1/3
hence q = 1
now the consumer surplus can be calculated by integrating and inputting all the values
[tex]Cs = \int\limits^1_0 {(8-2q^(1/3) )} \, dq - 6[/tex]
= [tex][ 8q - 2(\frac{(q^(4/3))}{4/3}) ] - 6[/tex] applying the limits of q = 1 , 0
Cs = 8 - 3/2 * ( 1 ) ^ 4/3 - 0 + 0 - 6
= 8 - 3/2 - 6 = 1/2 = 0.5 cents
Consider a variant of the IS-LM model studied in class, where Investment, I = I0 + b1*Y - b2*r, and the demand for money, L(r,Y) = m0 + k*Y - h*r. We know with certainty that a tax increase must cause which of the following?
a. a decrease in the interest rate and an ambiguous effect on investment.
b. an increase in the interest rate and an upward shift in the LM curve.
c. no change in output if the Fed simultaneously pursues expansionary monetary policy.
d. a decrease in the interest rate and an increase in investment.
Answer:
The correct answer is D
Explanation:
Taxes have a regressive effect on Aggregate Consumption which in turn catalyses a decrease in output/income.
Lower income/output will lead to lower interest rate because a drop in demand will result in a drop in supply. When companies are not producing, there is no point seeking investment in the form of debt or equity. Hence interest rate also drops.
At this point, businesses become interested in borrowing funds given the low rate of interest.
Cheers!