# Economics questions (Graded A+) - use as a guide only - 34013

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## arsalanahmed

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1. A very small country’s gross domestic product is \$12 million.
• If the government expenditures amount to \$7.5 million and gross private domestic investment is \$5.52 million, what would be the amount of net exports of goods and services?
2. How would your answer change in Problem 1 if the gross domestic product had been \$14 million?
3. Assume personal income was \$28 million last year. Personal outlays were \$20 million and personal current taxes were \$5 million.
• What was the amount of disposable personal income last year?
• What was the amount of personal saving last year?
• Calculate persona saving as a percentage of disposable personal income.

1. A thirty-year U. S. Treasury bond has a 4.0 percent interest rate. In contrast, a ten-year Treasury bond has an interest rate of 3.7 percent. If inflation is expected to average 1.5 percentage points over both the next ten years and thirty years, determine the maturity risk premium for the thirty-year bond over the ten-year bond.
2. A thirty-year U.S. Treasury bond has a 4.0 percent interest rate. In contrast, a ten-year Treasury bond has an interest rate of 2.5 percent. A maturity risk premium is estimated to be 0.2 percentage points for the longer maturity bond. Investors expect inflation to average 1.5 percentage points over the next ten years.

• Estimate the expected real rate of return on the ten-year U. S. Treasury bond.
• If the real rate of return is expected to be the same for the thirty-year bond as for the ten-year bond, estimate the average annual inflation rate expected by investors over the life of the thirty-year bond.

3. You are considering an investment in a one-year government debt security with a yield of 5 percent or a highly liquid corporate debt security with a yield of 6.5 percent. The expected inflation rate for the next year is expected to be 2.5 percent.

• What would be your real rate earned on either of the two investment?
• What would be the default risk premium on the corporate debt security.
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