Another Source of Hints

You can find more helpful hints at:

http://economics10.blogspot.com/

Thanks Yani!

Cashing in Bonds on PS4

For problem 1 on PS4, when the problem says that Christine cashes in $1000 of Treasury Bonds, this means that she holds bonds that she can sell for a current price of $1000. However, in selling the bonds she is giving up the interest that she could have gotten by not selling them. So by selling the bonds she gets $1000 but gives up the $70 she would have gotten for the year in interest by not selling them. (To a first approximation, she could sell the bonds next year for $1000 instead and get the $70 in interest in the meantime, giving her total payout over the year of $1070) We will talk more about bonds in macro next semester.