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Homework answers / question archive / Investment Projects Project A Project B Project C Expected Profit Rate 10 % 6 % 4 % The table above shows the expected profits associated with four different investment projects for Company Millennium

Investment Projects Project A Project B Project C Expected Profit Rate 10 % 6 % 4 % The table above shows the expected profits associated with four different investment projects for Company Millennium

Economics

  1. Investment Projects Project A Project B Project C Expected Profit Rate 10 % 6 % 4 % The table above shows the expected profits associated with four different investment projects for Company Millennium. Which of the project(s) in the table above will be feasible for Company Millennium if the current market interest rate is 8 %? All of them A and B Only A B and C

  2. You are given the following data C=260+0.5 (1-t) Y (Consumption) I=240 (Investment) t= 0.5 (tax rate) G=100 (Government Spending) a. What does (1-t)Y show us? b. What is the equilibrium level of output? c. What will be the change in the equilibrium value of output if autonomous consumption increases by 60?

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1 

  • Interest rates and level of investment are inversely related to each other. Typically higher interest rates reduces investment and this in turn requires higher rate of return for the project to be profitable.
  • Here the current market interst rate is 8 percent so the expected profit rate of the investment projects must he greater than 8 percent to be profitable.
  • In the table provided only project A has higher return of 10 percent greater than 8 percent of market interest rate.
  • Thus only project A will be feasible for the company.

Thus option c is the correct answer.

2 

SOLUTION :

GIven:

Consumption : C = 260+0.5(1-t)Y

Investment : 240

Tax rate : 0.5

Government : 100

A. (1-t) is explain that Lump-sum of tax income . it means if any person earn X income then he pay 0.5% of tax of Government.

B. First C= 260+0.5(1-0.5)Y

C = 260+ 0.5(0.5)Y

C = 260+0.25Y

Y= C+I+G

Y= 260+0.25Y+240+100

Y= 600+0.25Y

Y-0.25Y = 600

Y = 1/0.75*600

Y = 800.

Thus Equilibrium Output is 800.

C. When autonomus cunsumption is increase 260 to 320,then outpt is 860.

it means 800+60 = 860.

Because automatic cunsumption not extra effect on output.

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