Explain the effect of real interest rate and planned aggregate expenditure.

Question

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Answer 1

Question

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.

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Answer 2

Question

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.

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Answer 3

Question

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.

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Answer 4

Question

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.

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Answer 5

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.

Answer 6

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.

Answer 7

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Answer 8

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.