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.
state and explain two factors that cause the shifts in the balance of payments curve.
illustrate the effects of a reeal wage existing in the labour market if it is perfectly competitive
factor for long run trend of term of trade
show on the market for cheese that impact of what happened in the milk market.
uses of national income statistics..
How much money can banks create? Does this mean that banks can create an unlimited amount of money? The answer is no - that would require them to lend an unlimited amount of m
What is the difference in changing the scope between a spiral approach and a waterfall approach? Ans) The scope of needs changes in Waterfall model is less than that in Spiral M
Which of the following investments has a larger future value: Investment A an $1,000 investment earning 5% per year for 6 years? Or Investment B a %500 investment earning 10% per y
ACCOUNTING SYSTEM-EXAMPLE III Now suppose the Jam Co. manufactures some herbal chemicals and flavors which it sells partly to Extracts Co., partly to Bottling Co., some are co
Habelers theory of opportuniyu cost
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