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.
The LM curve with inflation We know that LM curve will shift upwards when P increases (presuming MS is constant). This is still true though we can also add that LM curve glid
Gasoline, insurance, depreciation, and repairs are all costs of owning a car. Which of these can be considered opportunity costs in the context of each of the following decisions?
Suppose a major brokerage firm advised its clients to buy cigarette stocks under the assumption that, if consumer incomes rise by 50% as expected over the next decade, cigarette sa
what is credit creation process
explain the profit maximizing/loss minimizing rule may be applied under the 3 scenarios
Suppose that you decide to leave your current job(with a salary of $60,000) to start your own business in a building (with a market value of $400,000) you already own. You pay $45,
Address the following issues concerning technological and strategic barriers to entry. (a) Explain the role of economies of scale and (long run) fixed costs as technological bar
WHAT IT MEAN
Money is generally considered to have three economic functions: A medium of exchange. This is its most significant role. Without money we would live in a barter economy wher
Consider the case of cleaning up chemical contamination at an industrial site. The marginal benefits of additional cleanup are decreasing as the amount of cleanup increases. Howeve
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