Question

Suppose that Amanda, Bobby, and Camilla have each saved 1 million rupiahs. Each of them could invest up to two (2) million rupiahs on their specific investment projects. The rates of return respectively are 6% (on Bobby’s project), 10% (on Arina’s project), and 15% (on Amanda’s project).

If they cannot borrow nor lend funds, how much saving will each person have after one year when they get the returns from their investment projects?

If they can borrow and lend among themselves at an interest rate , thus small market for loanable funds is now available, how much would be the supply (from the lender(s)) of and the demand (from the borrower(s)) for loanable funds at an interest rate of 8 percent? At 12 percent?

(Explain what is happening in the market in each situation).

Answer 1

Amanda, Bobby, and Camilla will have different savings after one year due to their investments. The supply and demand for loanable funds will depend on the interest rate and the investment needs of the individuals.

Step-by-step explanation:

Investment Returns:

Suppose that Amanda, Bobby, and Camilla each have 1 million rupiahs. Amanda invests her money at a rate of 15% and will have 1.15 million rupiahs after one year. Bobby invests his money at a rate of 6% and will have 1.06 million rupiahs after one year. Camilla also invests her money at a rate of 10% and will have 1.1 million rupiahs after one year.

Loanable Funds:

When they have the option to borrow and lend funds among themselves, the supply of loanable funds would be the total amount of money they are willing to lend. At an interest rate of 8%, the supply of loanable funds would be 2 million rupiahs because each person can lend up to 1 million rupiahs. The demand for loanable funds would be the total amount of money they need to borrow. Depending on their investment projects, the demand for loanable funds might vary at different interest rates.