How can fed cause real interest rate to increase or decrease

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In a column in the New York Times, Harvard economist Edward Glaeser argues: "Theory and data both predict that the 1.2 percentage point drop in real interest rates that America experienced between 1996 and 2006 should cause a [housing] price increase of somewhat less than 10 percent. . . ."

a. How can the Fed cause the real interest rate to increase or decrease?

b. Why would a decline in real interest rates cause an increase in housing prices?

Reference no: EM131305977

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