Walter used to work as a high school teacher for $40,000 per year but quit in order to start his own painting business. To invest in his painting business, he withdrew $20,000 from his savings, which paid 3 percent interest, and borrowed $30,000 from his uncle, whom he pays 3 percent interest per year. Last year Walter paid $25,000 for supplies and had revenue of $60,000 . Walter asked Tyler the
accountant and Greg the economist to calculate his painting business's profit.
a. Tyler says his profit is $25,900, and Greg says his profit is $66,500.
b. Tyler says his profit is $35,000 . and Greg says he lost $5,900.
c. Tyler says his profit is $34,100, and Greg says he lost $6,500.
d. Tyler says his profit is $34,100, and Greg says his profit is $34,100.
c
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A decrease in which of the following would decrease the tax wedge?
A) federal budget deficit B) national debt C) money supply D) marginal tax rate
The nominal interest rate in the U.S. is 5% and the nominal interest rate in Canada is 3%. The spot value of the U.S. dollar is 1 ($/Canadian dollar) and the forward rate is 1.2 ($/Canadian dollar). Calculate the forward discount or premium for the dollar. Does the interest parity condition hold? If not explain what is likely to occur in foreign exchange markets. Assume that interest rates cannot
change. What will be an ideal response?