Answered: Problem 6* (IS-LM 2) 1. Explain why…

Problem 6* (IS-LM 2) 1. Explain why investment depends on the real interest rate, define the real interest rate, and derive and exact and approximate expression for the real interest rate.

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter14: Modern Macroeconomics And Monetary Policy

Section: Chapter Questions

Problem 11CQ

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Question

Problem 6* (IS-LM 2)
1. Explain why investment depends on the real interest rate, define the real interest rate, and
derive and exact and approximate expression for the real interest rate.
2. Would it be realistic to assume that the central bank chooses the real interest rate rather
than the nominal (policy) interest rate, i?

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