AP Macroeconomics : Flow of Funds
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Example Questions
Example Question #1 : Real Interest Rate
The real interest rate can be approximated by the Fisher equation:
What is the exact formula for the real interest rate?
The Fisher equation always gives the exact real interest rate.
The real interest rate is defined as the nominal appreciated value of assets divided by the new price level of the assets. The nominal appreciated value is simply 
Example: 
The Fisher equation comes close, but is not actually correct.
Example Question #1 : Flow Of Funds
A consumer who discounts future payments at a rate of 10% per year will be willing to pay what amount for an asset that will pay $5000 in 3 years?
$5000
$3756.57
$6655
$4545.45
$4132.23
$3756.57
The consumer's discount rate tells us what return on the investment the consumer must make every year in order to consider the asset worth buying. To determine the cost necessary to make the return worthwhile use the present discount formula:
Example Question #1 : How To Find Net Exports
A depreciation in the value of a nation's currency will lead to what?
An increase in wages
Higher exports
Higher imports
An increase in tax revenue
Higher exports
A devaluation of a currency makes a nation's goods cost less to holders of foreign currency. Since the goods are now cheaper, there will be an increase in the quantity of goods demanded by holders of foreign currency. More foreigners buying goods means those goods must be shipped to them leading to an increase in exports.
Example Question #1 : How To Find Net Exports
A trade surplus results from a country having __________.
net exports that equal more than one half of total GDP
more net exports than net imports
more net imports than net exports
net imports that exceed the total GDP
net imports that equal less than one third of total GDP
more net exports than net imports
Net imports describe all goods brought into a country through trade, and net exports describe all goods sold to foreign countries. A trade surplus describes any situation in which net exports are greater than net imports. A trade surplus is a target for most nations.
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