Suppose You Could Borrow $500,000 for One Year at an Interest

question 7

Short Answer

Suppose you could borrow $500,000 for one year at an interest rate of 10 percent.You were virtually certain of investing this $500,000 for one year and making a profit of $75,000 (from which you would pay the interest you owe).
-Would the deal be acceptable if the interest rate were 5 percent?

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Definitions:

Marginal Productivity

The additional output derived from the use of one more unit of a variable input while other inputs remain constant.

Equilibrium Wage Rate

The equilibrium wage rate is the wage level at which the quantity of labor supplied by workers equals the quantity of labor demanded by employers in the market.

Marginal Productivity

The change in output resulting from employing one more unit of a particular input, keeping all other inputs constant.

Income Distribution

Refers to how a nation’s total GDP is distributed amongst its population.