Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Interest rate determination
The real interest rate r will be equal to the equilibrium real interest rate
In the classical model we define equilibrium real interest rate r* as the real interest rate where savings is equal to investments, S(r*) = I(r*). As we know that S = I is a requirement for the financial market to be in equilibrium.
In the classic model, real interest rate determines the flow of funds into and from the financial market. A higher real interest rates will result in larger flows of funds into the market (savings depends positively on r) and smaller flows out from the market (investment depends negatively on r). Real interest rate will be such that the flows into market are specifically equal to the flows out of the market.
Figure: Determination of the real rate
From this graph we can determine the size of investments and savings. In equilibrium when r = r*, S = I that is what we need for GDP identity to hold. Once we know savings, we can determine household savings from SH = S - SG - SR.
In the classical model, expected inflation pe is an exogenous variable and because R = r + pe we can determine nominal interest rate from the real rate.
Neo-classical synthesis is a synthesis of classical model and Keynesian model. In brief, it states that Keynesian model is correct in the short run whereas the classical analysis i
Prepare an essay regarding the concept of maximization and the assumptions associated with the behavior of the economic man.
Collecteconomic data for three countries: Australia, China and Greece.The data is toobtainedfrom official sources as time series forthe key macroeconomic variables. These arereal G
Q. What is IS-LM model with inflation? The IS-LM model with inflation The basic assumption We developed IS-LM model with constant wages and prices. We can now exten
Derive the conditions for steady state in the Solow model. What are its implications? In what respects is the golden rule different from the steady state?
Cowboy Corporation is estimating its WACC. The firm's debt structure contains: (1) 30,100 long-term bonds with an 8.1% coupon, paid semiannually, a 10 years-to-maturity, and a $10
solutions to central problems of economy.
what role does interst rate play in refernce to output?
What is Monetary base The monetary base is defined as the total value of all currency (banknotes and coins) outside the central bank and commercial banks' (net) reserves with t
money demand = 3500 - 250i what is the interest rate present if the money market is in equilibrium
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd