1. Hana purchased for $100,000 two-year Treasury noteswith 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 receivingthe coupon payments for the first year), Hana sells the notes in the openmarket when Treasury notes with one year left to maturity are yielding11.0577%. Hana’s rounded one-year rate of return earned from her purchaseof the Treasury notes is equal to _____%. Answer: 9.502.Dave’s Mirror Company expects to sell $900,000 worthof 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 theyear. Sales for the year turn out to be $500,000. ACTUAL INVESTMENTby Dave’s Mirror Company equals _____ and PLANNED INVESTMENT equals_____. Answer: $600,000;$200,0003.An economy produces 1100 computers valued at $1000each. Households purchase 400 computers of which 100 are imported. Businesses purchase 500 computers of which 200 are imported. Thegovernment purchases 100 domestically produced computers and 300 domesticallyproduced computers are sold abroad. The unsold computers at the end ofthe year are held in inventory by the computer manufacturers. What isvalue of the investment component of GDP from these activities?Answer: $600,0004.Suppose there is $600 million of cash in existence with $400 millionof it held in bank vaults as reserves. A bank run reduces the cash heldin bank vaults as reserves to $200 million when the public withdraws $200million of cash from the banks. If the required reserve to checkingdeposit ratio is 25% and if banks never hold excess reserves, then the moneysupply will _____ as a result of the bank run. (Hint: One method ofsolution 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 thedomestic 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 nominalreturn of 44.3% while at the same time (one year) the price of a shmooincreases at a simple annual rate of 30% from an initial price of $1000, thenthe SIMPLE ONE-YEAR REAL return from the deposit will be ______%. Answer: 11.07.Dave’s Mirror Company expects to sell $800,000 worthof mirrors while producing $900,000 worth of mirrors in the coming year. The company purchases $400,000 of new equipment during the year. Salesfor the year turn out to be $700,000. Planned investment by Dave’s MirrorCompany equals _____ and unplanned investment equals _______. Answer: $500,000; $100,000

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