# Economics Questions

## Question

1. SendhilMullainathan of Harvard found that an average fruit vendor in Chennai, India borrows 1000 rupees (\$45.75 PPP) every morning to buyher working capital, and have to pay back in the evening at a daily interest rate of 4.68%. What is the cost of her interest payment
i. per month, in rupees and in USD PPP
ii. per year, in rupees and in USD PPP

2. Now reconsider the strategy mentioned in lecture 9: save 5 rupees each day (by drinking 6 fewer cups of tea per day), and use this savings to cut down borrowing. For instance, save 5 rupees on the first day, and thus on the first day have to borrow 5 rupees less. Then save an additional 5 rupees on the second day, and thus on the second day only have to borrow 10.23 rupees less (5 rupees saved from drinking less tea + 5 rupees saved from not having to pay to money lender + .23 rupees from not having to pay interest on those 5 rupees). And so on…
i. In how many days will she no longer need to borrow 1000 rupees each day? (Show your reasoning and calculations below)
ii. How much would she save each year from this strategy? (Again, both in rupees and in USD PPP. And show your work below.)

3. List your question or questions that you would like to write about in your midterm below.

4. Search on google scholar for academic articles in peer-reviewed economic journals related to your question(s). Find at least 15 articles, preferably at least 10 of them are highly cited (google scholar tells you the number of citations each article has; if an article is cited more than 50 times, it is probably decent, 100 times, it is probably good, 1000 times, it is probably very good) and/or in top 20 journals. Note that working papers (i.e., manuscripts not yet submitted) are ok, as long as they are cited well. Beside these 15 citations, feel free to cite books and other sources (including newspapers such as, but not limited to, the Economist, New York Times, or Financial Times…).
In total, at least 10 of your citations should be recent (after 2000). List them in the following style:
Last Name, First name init. (year) “title…”, Name of Journal or book publisher
For example:
Acemoglu, D. and Robinson, J. (2001) “The Colonial Origins of Comparative Development: An Empirical Investigation”, American Economic Review

## Solution Preview

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1. SendhilMullainathan of Harvard found that an average fruit vendor in Chennai, India borrows 1000 rupees (\$45.75 PPP) every morning to buyher working capital, and have to pay back in the evening at a daily interest rate of 4.68%. What is the cost of her interest payment:

i. per month, in rupees and in USD PPP

cost of interest payment per month=30×(1000×4,68%)=30×46,8=1.404 rupees=\$64,23 PPP

ii. per year, in rupees and in USD PPP

cost of interest payment per year=12×cost of interest payment per month=12×1.404=16.848 rupees=\$770,796 PPP...
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