Answered: the equilibrium real interest rate in…

the equilibrium real interest rate in some country is quite low. What could be three possible explanations for this situation?

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

Chapter9: An Introduction To Basic Macroeconomic Markets

Section: Chapter Questions

Problem 5CQ

See similar textbooks

Related questions

Q: What is a capital gain, and what role does it play in the arbitrage equation?

A: Arbitrage Equation The arbitrage equation a very important tool in economic analysis that helps…

Q: According to the table, in which year did buyers of six-month Treasury bills receive the highest…

A: According to Fisher's Equation, Real interest rate= (Nominal interest rate - Inflation).

Q: The idea that people like to borrow more money at lower real interest rates and prefer to borrow…

A: Answer - Given in the question - People like to borrow more money at lower rates and prefer to…

Q: Looking at business fixed investment, elaborate on why investment is negatively related to the…

A: Investments are negatively related rate of interest.

Q: There is recently an increase in private saving in Canada. Assume this occured by a drop in…

A: A loanable funds market is where households, who save some proportion of their money, enter the…

Q: When interest rates decrease: Group of answer choices people who are borrowing money will benefit…

A: Interest rates affect the economy by influencing bond and stock interest rates, consumer and…

Q: By using graphs, show and explain each of the following events as either leading to an increase or a…

A: A decrease in price level (deflation) will lead to interest rate of the economy because there is…

Q: Over the last 25 years, real interest rates in the developed world have O have increased have fallen…

A: When a borrower repays a loan with interest, the real interest rate represents the percentage gain…

Q: The IS relation means that the output increase leads to an interest rate decrease. TRUE or FALSE?…

A: IS curve denotes the relationship between interest rate and output level in the economy.

Q: Show graphically how the capital stock will respond to (i) a permanent increase in output price;…

A: The marginal product of capital (MPK) is the extra production by a firm when it adds an extra unit…

Q: Negative real interest rates

A: For a properly functioning economy, inflation and deflation are the least cases. Inflation is…

Q: How do the sophisticated financial systems of modern economies affect the relationship between…

A: Financial markets (such as those in which stocks or bonds are traded), securities (from bank CDs to…

Q: If the government wants to increase the amount of savings in the economy, how should it alter…

Q: Discuss briefly whether zero interest rate policy is advantageous or disadvantageous to economy.

A: Zero interest rate lowers the cost of borrowing and people take more loans and as a result capital…

Q: For a given level of national income, a decrease in private consumption or government and the flow…

A: The Solow Model of economic growth or the neo classical model of growth This model is also known as…

Q: 1. When interest rate i increases, equilibrium output Y will _____. A. Increase B. Decrease C.…

A: Whenever interest rates are raised, investment will be discouraged due to the greater opportunity…

Q: Suppose there is a decrease in the demand for investment, and increase in saving in an economy. Show…

A: An investment curve is downward sloping due to the negative relationship between interest rate and…

Q: Is the statement below true, false or uncertain? Explain your answer. Note: Include a diagram as…

A: Interest Rate refers to the cost of borrowing or the return on lending of money. It is basically the…

Q: By using graphs, show and explain each of the following events as either leading to an increase or a…

A: a) When central bank adopts contractionary monetary policy then LM curve will shift to the left and…

Q: What might cause interest rates to be low one year and high the next?

A: Interest rates are best thought of as the "cost of money." If a borrower wishes to spend more money…

Q: Which of the following is an effect of a decrease in the interest rate? a. it shifts money…

A: Macroeconomics is a part of economics that deals with production, decision and allocation concerning…

Q: Explain what happens to savings, investment and the real interest rate in an economy if the…

A: Government expenditure is basically the amount of money that is spent by the government on…

Q: Suppose that stock prices were to fall by 10 percent in the stock market. All else equal, would the…

A: The economy's gross domestic product is made of consumer spending, private sector spending, net…

Q: In Classical theory, Saving may increase due to decrease in Interest Rate

A: Classical economists tend to maintain that the economy is always capable to achieve the natural…

Q: Suppose that the government creates a disincentive for private saving by increasing the tax that…

A: When there is an increment in taxes takes place there will be a decrease in real income that can be…

Q: If the IS curve is given by Y=1,700–100r and the LM curve is given by Y=500+100r, then equilibrium…

A: The income level in an economy plays a very important role in determining how the economy is…

Q: In which of the following circumstances would the world interest rate change little or not at all?…

A: An interest rate is normally expressed as an annual percentage and is the proportion of an amount…

Q: The most likely effect of an increase in the supply of loanabke funds is which of the following? I.…

A: we have upward sloping supply curve of loanable funds and downward sloping demand of loanable funds.…

Q: How – through which macroeconomic channels do interest rates affect markets for goods and services?

A: The macro economic policy is a type of policy which changes the macroeconomic variables to influence…

Q: The importance of income in determining savings has persisted since the time of Keynes. Why have…

A: Keynes: It refers to the economic theory under which economy's total spending and its effect are…

Q: How will equilibrium real interest rate and equilibrium quantity of loans change?

A: Equilibrium in the market for loanable funds occurs where the quantity demanded and supplied of…

Q: Consider a closed economy. The introduction of new technology and an increase in the precautionary…

A: In the closed economy, any investment and consumption activities performed by the people will affect…

Q: For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain!…

A: Bonds are defined as the fixed income securities issued by the private companies and government…

Q: When real interest rates fall, the opportunity cost of current spending ________ and the consumption…

A: A real interest rate is an interest rate that has been adjusted to remove the effects of inflation.…

Q: By using graphs, show and explain each of the following events as either leading to an increase or a…

Question

the equilibrium real interest rate in
some country is quite
low. What could be three possible
explanations for this situation?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

How might a sudden increase in people’s expectationsof future real estate prices affect interest rates?
A decline in the interest rate, other things constant, shifts the investment schedule downward. O True O False
Assume the following model of the economy: Y = C + I + G C = 120 + 0.5(Y - T) I = 100 - 10r G = 50 T = 40 Md = Y - 20 r Ms = 600 P = 2 What are the equilibrium level of income and equilibrium interest rate?
Consider a closed economy. A decrease in the price of goods that firms produce and anincrease in the marginal propensity to save of households will decrease the equilibriumreal interest rate and equilibrium investment in this economy. ture or false or uncertain
For an IS/LM model of an economy with the following equations: C = 200 + 0.8Yd I = 220 – 25i G bar = 240 TR bar= 150 T = .2Y L = .1Y – 3i M bar / P bar =125 The equilibrium interest rate and output combination is (9.2, 1526) (69.5, 2168.4) (30, 1250) (3, 125)
Whathappens if the real interest rate is lowered?
How do yield curves act as a predictor of economic activity ? Mention inverse yield curve as predictor of recession etc
Consider an economy described by the following equations:Y = C + I + GY = 5,000G = 1,000T = 1,000C = 250 + 0.75(Y −T )I = 1,000 − 50 r. a)Find the new equilibrium interest rate
Assume the following model of the economy: Y = C + I + G C = 120 + 0.5(Y - T) I = 100 - 10r G = 50 T = 40 Md = Y - 20 r Ms = 600 P = 2 Graph both the IS and the LM curves. Use r = 5, 10, 15 What are the equilibrium level of income and equilibrium interest rate?
What’s the value of real interest rate when the economy is outputting at its long-run level?
Y6 4.) The following equations describe an economy. Y = C + I + G C = 50 + 0.7(Y-T) I = 108 -200r G = 120 T = 120 (M/P)d = 2Y -200r M = 1000 P = 1 a.) Use the relevant set of equations to derive the IS curve. Graph it on an appropriately labeled graph. b.) Use the relevant set of equations to derive the LM curve. Graph it on an appropriately labeled graph. c.) What is the equilibrium level of income and the equilibrium real interest rate? d.) Now consider that the LRAS curve is Y = 600. Draw the LRAS curve on the IS-LM Model and the AD-AS Model for this economy. (Remember, P= 1) e.) What will happen for this economy to reach long run equilibrium?
(A) Derive the equation for the IS curve and LM curve. (B) Compute the equilibirum levels of income, Y and interest rates.