Question
$10.00 Business Math
- From Business: Finance , Mathematics: General-Mathematics
- Closed, but you can still post tutorials
- Due on Feb. 16, 2011
- Asked on Feb. 15, 2011 at 07:41:31AM
Q:
Explain how periods and rates are calculated in compounding problems. Compare simple interest to compound interest. Find an example in a newspaper or magazine that identifies the problems with interest in today’s economic environment. Why do you think the situation happened?
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- Posted on Feb. 15, 2011 at 09:07:36AM
A:
Preview: ... interest rate compounded annually. How long will it take to double your investment?
LN [(20,000 * .0905) / (10,000 * .0905)] / LN (1 .0905) =
LN (2) / LN (1.0905) =.69314 / . 08663 =Â 8 years
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It May Be Time for the Fed to Go Negative
By N. Gregory Mankiw is a professor of economics at Harvard. He was an adviser to President George W. Bush.
With unemployment rising and the financial system in shambles, it’s hard not to feel negative about the economy right now. The answer to our problems, however, could well be more negativity. But I’m not talking about attitude. I‘m talking about numbers.
Skip to next paragraphLet’s start with the basics: What is the best way for an economy to escape a recession?
Until recently, most economists relied on monetary policy. Recessions result from an insufficient demand for goods and services — and so, the thinking goes, our central bank can remedy this deficiency by cutting interest rates. Lower interest rates encourage households and businesses to borrow and spend. More spending means more demand for goods and services, which leads to greater employment for workers to meet that demand.
The problem today, it seems, is that the Federal Reserve has done just about as much interest rate cutting as it can. Its target for the federal funds rate is about zero, so it has turned to other tools, such as buying longer-term debt securities, to get the economy going again. But the efficacy of those tools is uncertain, and there are risks associated with them.
In many ways today, the Fed is in uncharted waters.
So why shouldn’t the Fed just keep cutting interest rates? Why not lower the target interest rate to, say, negative 3 percent?
At that interest rate, you could borrow and spend $100 and repay $97 next year. This opportunity would surely generate more borrowing and aggregate demand.
The problem with negative interest rates, however, is quickly apparent: nobody would lend on those terms. Rather than giving your money to a borrower who promises a negative return, it would be better to stick the cash in your mattress. Because holding money promises a return of exactly zero, lenders cannot offer less.
Unless, that is, we figure out a way to make holding money less attractive.
At one of my recent Harvard seminars, a graduate student proposed a clever scheme to do exactly that. (I will let the student remain anonymous. In case he ever wants to pursue a career as a central banker, having his name associated with this idea probably won’t help.)
Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to 9 out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10 percent.
That move would free the Fed to cut interest rates below zero. People would be delighted to lend money at negative 3 percent, since losing 3 percent is better than losing 10.
Of course, some people might decide that at those rates, they would rather spend the money — for example, by buying a new car. But because expanding aggregate demand is precisely the goal of the interest rate cut, such an ince ...
The full tutorial is about 2669 words long plus attachments.
complete answer only at $2.docx (26K) $10.00
Compound and Simple Interest
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Rating (226):A+
Questions Asked: 0
Tutorials Posted: 360,
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Earned: $4,407.02
A:
Preview: ... e more than happy to explain my reasoning ...
The full tutorial is about 39 words long plus attachments.