Introduction to Finance

a. 
Determine the nation’s gross domestic product (GDP).
b. 
How would your answer change in (a) if exports of goods and 
services were $5 million and imports were 80 percent of exports?
c. 
Show how the GDP in (a) would change under the following 
three scenarios:
 
Scenario 1 (probability of .20): the GDP components would be 
120 percent of their values in (a). 
 
Scenario 2 (probability of .50): the GDP component values used 
in (a) would occur. 
 
Scenario 3 (probability of .30): the GDP components would be 
75 percent of their values in (a). 
d. 
Determine the nation’s gross savings last year.
e. 
Show how your answer in (d) would change if each account sim-
ultaneously increases by 10 percent.
f. 
Show how your answer in (d) would change if each account sim-
ultaneously decreases by 10 percent.
g. 
Show how your answer in (d) would have changed if capital con-
sumption allowances had been 10 percent less and personal con-
sumption expenditures had been $400 million.

---

190
CHAPTER 
8
Interest Rates
L E A R N I N G O B J E C T I V E S
After studying this chapter, you should be able to do the following:
LO 8.1
Describe how interest rates change in response to shifts in the supply and demand 
for loanable funds.
LO 8.2
Identify the major components of market interest rates.
LO 8.3
Describe the types of U.S. Treasury marketable securities and indicate who 
owns them.
LO 8.4
Defi ne the term structure of interest rates and describe the three theories used to 
explain the term structure.
LO 8.5
Discuss historical and recent price movements in the United States and describe 
the various types of infl ation.