Suppose real interest rates fall because of eased credit market conditions. How willreal GDP, émployment, and the general price level be affected in the short run?Explain in words and a graph.1.oe

Real interest rate is the cost of investment and decrease in real interest rate decreases cost of…

Answered: Suppose real interest rates fall…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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3. Inflation and the nominal interest rate When the actual and expected (or anticipated) inflation rates are both zero, the nominal interest rate must equal the real interest rate. How might inflation affect the nominal interest rate? The nominal interest rate is determined by the forces of supply and demand in the loanable funds market (in millions of dollars). The following graph input tool shows the market for loanable funds. Use the graph input tool to help you answer the questions that follow. You can shift the supply and demand curves by changing the values of the supply and demand shifters on the right. You will not be graded on any changes you make to the graph input tool. INTEREST RATE (Percent) 0 0 100 200 400 300 LOANABLE FUNDS (Millions of dollars) 500 Graph Input Tool Interest Rate (Percent) Quantity demanded. (Millions of dollars) Demand Shifter Expected Inflation (percent) When the expected inflation rate is zero, the nominal interest rate is rate of and a real interest…

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Suppose real interest rates fall because of eased credit market conditions. How will real GDP, émployment, and the general price level be affected in the short run? Explain in words and a graph. 1.