Assessment Brief

1. Hana purchased for $100,000 two-year Treasury notes
with a total principal amount of $110,000 and all with coupon rates of  5%
paid annually.  With one year before the notes mature (and after receiving
the coupon payments for the first year), Hana sells the notes in the open
market when Treasury notes with one year left to maturity are yielding
11.0577%.  Hana’s rounded one-year rate of return earned from her purchase
of the Treasury notes is equal to _____%. Answer:9.502.
Dave’s Mirror Company expects to sell $900,000 worth
of mirrors while producing $600,000 worth of mirrors in the coming year. 
The company plans to, and does, purchase, $500,000 of new equipment during the
year.  Sales for the year turn out to be $500,000.  ACTUAL INVESTMENT
by Dave’s Mirror Company equals _____ and PLANNED INVESTMENT equals
_____. Answer: $600,000;
$200,0003.An economy produces 1100 computers valued at $1000
each.  Households purchase 400 computers of which 100 are imported. 
Businesses purchase 500 computers of which 200 are imported.  The
government purchases 100 domestically produced computers and 300 domestically
produced computers are sold abroad.  The unsold computers at the end of
the year are held in inventory by the computer manufacturers.  What is
value of the investment component of GDP from these activities?Answer:  $600,0004.Suppose there is $600 million of cash in existence with $400 million
of it held in bank vaults as reserves.  A bank run reduces the cash held
in bank vaults as reserves to $200 million when the public withdraws $200
million of cash from the banks.  If the required reserve to checking
deposit ratio is 25% and if banks never hold excess reserves, then the money
supply will _____ as a result of the bank run.  (Hint:  One method of
solution is to calculate the money supply both before and after the bank run.) Answer: decrease by $600 million5.To maintain purchasing power parity, when the domestic exchange rate
(as defined in the course) is growing at a rate of  5% and when the
domestic inflation rate is 15%, requires a foreign inflation rate of _____
(assuming instantaneous rates of compounding). Answer:20%6.
If a $20,000 bank deposit earns a simple nominal
return of 44.3% while at the same time (one year) the price of a shmoo
increases at a simple annual rate of 30% from an initial price of $1000, then
the SIMPLE ONE-YEAR REAL return from the deposit will be ______%. Answer:11.07.
Dave’s Mirror Company expects to sell $800,000 worth
of mirrors while producing $900,000 worth of mirrors in the coming year. 
The company purchases $400,000 of new equipment during the year.  Sales
for the year turn out to be $700,000.  Planned investment by Dave’s Mirror
Company equals _____ and unplanned investment equals _______.  Answer: $500,000;  $100,000