South Central Bank Pays 2

question 7

Multiple Choice

South Central Bank pays 2.5 percent interest, compounded annually, on its savings accounts.Northern Bank pays 2.5 percent simple interest on its savings accounts.You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today.The amount you must deposit today:

• A)is the same regardless of which bank you choose because they both pay the same rate of interest.
• B)is the same regardless of which bank you choose because they both pay simple interest.
• C)is the same regardless of which bank you choose because the time period is the same for both banks.
• D)will be greater if you invest with South Central Bank.
• E)will be greater if you invest with Northern Bank.

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Definitions:

Supply of Loanable Funds

The supply of loanable funds is the total amount of capital available for borrowers to secure, typically originating from savings in the economy, and forming the basis for interest rates determination.

Interest Rate

The amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal, per period of time.

Human Capital

The economic value of a worker's experience and skills, including education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality.

Productivity

A measure of the efficiency of production that is often quantified as the ratio of output to inputs used in the production process, such as labor and capital.