What happens to the domestic real interest rate

Reference no: EM13900757

a. Assume that money demand takes the form decreases by 10%?

b. Suppose that domestic inflation remains the same. What happens to the domestic real interest rate? What is likely to happen to the growth rate?

c. What happens to the official budget deficit? What happens to the inflation-adjusted deficit?

d. Suppose the growth rate decreases from 2% to 0%. What happens to the change in the debt ratio?

(Assume that the primary deficit/surplus ratio to GDP is unchanged, even though the fall in growth may reduce tax revenues.)

e. Were the investors' fears of investors justified?

Reference no: EM13900757

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