Can you please write it by a computer. Treasury bills have a fixed face valtze p
ID: 1205311 • Letter: C
Question
Can you please write it by a computer. Treasury bills have a fixed face valtze pay, $1,000) and pay interest by selling at a discount for example, if a one-year bill with a $1,000 face what sells today for $950, it will pay $1,000- $850 -$50 in interest over its life. The interest rate on the bill is therefore $50/$950 - 0.526, or 5.26 percent. Suppose the price of the Treasury bill falls to $925. What happens to the interest rate? Suppose instead, that the price rises to $975. What is the interest rate now?
Explanation / Answer
Q4 is a Finance question, not Economics. I'm answering Q-II which is an Economics question.
(Q-II)
In equilibrium,
Y = C + I + G + X - IM
= 49 + 0.9(Y - T) + 300 - 2000r + 800 + 60 = 49 + 0.9[Y - (10 + Y/3)] + 1160 - (2000 x 0.05)
= 49 + 0.9[(2Y / 3) - 10] + 1160 - 100 = 49 + 0.6Y - 9 + 1000
(1 - 0.6)Y = 1040
0.4Y = 1040
Y = 2600
(b) When Y = 2600,
T = 10 + Y / 3 = 10 + (2600 / 3) = 10 + 867 = 877
(c) T = 10 + 0.2Y & r = 0.06
Y = 49 + 0.9[Y - (10 + 0.2Y)] + 1160 - (2000 x 0.06) = 49 + 0.9(Y - 10 - 0.2Y) + 1160 - 120
= 1089 + 0.9(0.8Y - 10) = 1089 + 0.72Y - 9
(1 - 0.72)Y = 1080
0.28Y = 1080
Y = 3857
So, GDP rises by (3857 - 2600) = 1257
(d) X - IM falls by 20 & r = 0.04
Y = 49 + 0.9[Y - (10 + 0.2Y)] + 1160 - (2000 x 0.04) - 20
= 49 + 0.9(Y - 10 - 0.2Y) + 1160 - 80 - 20
= 1109 + 0.72Y - 9
(1 - 0.72)Y = 1100
0.28Y = 1100
Y = 3929
Note: The first question in Economics is answered in full.
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