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Eco 4223 - Chapter 4 - Chapter Summary Questions And Answers With Verified Solutions (GRADED A+)
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Eco 4223 - Chapter 4 - Chapter Summary Questions And Answers With Verified Solutions (GRADED A+)
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Eco 4223 - Chapter 4 - Chapter Summary Questions And Answers With Verified Solutions (GRADED A+) 4.0 - ANSWER✔✔ This chapter surveys the determinants of interest rates and differences among rates on different bonds & loans 4.1 The Loanable Funds Theory - ANSWER✔✔ - In the loanable funds theory, the real interest rate is determined by the supply & demand for loans - The demand for loans equals investment. A higher interest rate reduces the quantity of loans demanded. - The supply of loans equals savings plus net capital inflows. A higher interest rate raises both parts of this sum, so it increases the quantity of loans supplied. -The equilibrium real interest rate, r*, is the rate at which th e supply & demand for loans intersect 4.2 Deteminants of Interest Rates in the Loanable Funds Theory - ANSWER✔✔ - Shifts in the supply & demand for loans cause changes in the equilibrium real interest rate. Theses shift results from changes in investment, savings arise from changes in private savings and public savings (the budget surplus or deficit) Net capital inflows shift because of changes in confidence and changes in foreign interest rates. - The nominal interest rate is the equilibrium real interest rate plus expected inflation. Countries with high inflation have high nominal interest rates. 4.3 The Liquidity Preference Theory - ANSWER✔✔ -In the liquidity preference theory, the nominal interest rate isdeteremined by the supply and demand for money.The benefits of buying summaries with Stuvia:
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