Equilibrium in the financial capital market occurs at an interest rate of 6 % GDP is $500 billion, and the budget deficit is $15.5 billion. GDP is expected to increase by $100 billion, so the budget deficit will be $37.2 billion. Assume that an increase in the budget deficit by 1 % of GDP will cause an increase in the long-term interest rate of 0.5 percentage points. Determine the long-term interest rate. Throughout your calculations, round to one decimal place if necessary, and enter your answer in the box below.
Equilibrium in the financial capital market occurs at an interest rate of 6 % GDP is $500 billion, and the budget deficit is $15.5 billion. GDP is expected to increase by $100 billion, so the budget deficit will be $37.2 billion. Assume that an increase in the budget deficit by 1 % of GDP will cause an increase in the long-term interest rate of 0.5 percentage points. Determine the long-term interest rate. Throughout your calculations, round to one decimal place if necessary, and enter your answer in the box below.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter31: The Impacts Of Government Borrowing
Section: Chapter Questions
Problem 29P: During the most recent recession, some economists argued that the change in the interest rates that...
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