Economics Homework Eleven Answers - Student Three

Anna M

1\. If you were to loan someone money, why would you want him to pay you something extra (interest) when he pays back the loan? Give at least one reason.

It gives him the incentive to pay you back faster. You earn something from loaning the money.

Good.

2\. Suppose I loaned you $1000 today, and interest rates are 5% per year (compounded annually), and you repaid the loan plus interest in 2 years, then what is the total you would pay to satisfy this debt?

$1102.50

Correct!

3\. Review: is the cost of the bus for a trip to D.C. a "fixed cost" or a "variable cost"? Explain, assuming for the purpose of this question that one and only one bus can be used (in reality, we may have several buses).

Fixed. No matter how many people are on one bus, the price is the same.

Right.

4\. Which concept in Economics do you think is the best self-motivator, which you might use to achieve more?

I think the best self motivator would be either 'Time is Money' or Carpe Diem. Both of these could be used to convince you to achieve more.

Excellent.

5\. Suppose I will pay you $1000 in two years, and the interest rate is 10% per year, compounded annually. How much should you pay me today to receive $1000 in two years? Show your work.

To find the amount paid the second year, divide $1000 by 1.1. Then you take that number and you divide that by 1.1 again, and your result is $826.45, which is the answer.

Superb!

Perfect! 50/50. Congratulations!--Andy Schlafly 23:36, 4 December 2009 (EST)