1 pts Recall our brewery example: You need $100,000 to open the brewery. Assume
ID: 2732332 • Letter: 1
Question
1 pts Recall our brewery example: You need $100,000 to open the brewery. Assume the bank has offered to give you a loan. The annual interest rate is 6% and the loan will mature (come due) in one year. If you expect the project to generate a return of 4% in the first year, should you proceed with the expansion? No, because the interest rate was greater than the expected rate of return (the project won’t pay for itself) Now assume that the Fed has decided to increase money supply. The purchase of Tbills will result in a(an) _increase_______ in the supply of funds available for loans, which will __decrease___________ interest rates. Will the Fed’s actions have any influence on your ability to expand the brewery?
Yes
No
Explanation / Answer
Yes, the action taken by Fed influence the ability to expand the brewery.
In result of increase in money supply by Fed if the interest rate decreases to any rate below 4% then the rate of return will become more than the interest rate charged by the bank which becomes the favourable condition for the me and the expansion should be done.
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