Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
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Question
Chapter 4, Problem 6QAP
To determine
To ascertain the negative relationship between the interest rates and
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Draw a graph depicting interest rates at the quantity of loanable funds. Answer the following questions regarding this graph.
Explain why the supply of loanable funds is upward sloping.
Explain why the demand of loanable funds is downward sloping.
If the Federal Reserve sells government bonds, show what will happen to this graph. Explain the effects on interest rates and the quantity of loanable funds.
If the Federal Reserve lowers the required reserve rate, show what will happen to this graph. Explain the effects on interest rates and the quantity of loanable funds.
In which of the following situations would you prefer to be borrowing?A) The interest rate is 2 percent and the expected inflation rate is 4 percent.B) The interest rate is 4 percent and the expected inflation rate is 1 percent.C) The interest rate is 25 percent and the expected inflation rate is 5 percent.D) The interest rate is 9 percent and the expected inflation rate is 7 percent
The reduction in interest rates by the Reserve Bank also stimulated the demand for housing, and some people argue there is now a house price bubble. Using a graph, explain how asset price bubbles occur and why they are inconsistent with the ‘efficient markets hypothesis.’
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Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
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- Between 2000 and 2003 the federal government reduced the key (most important) interest rate for the economy to 1%; what effects did this have on the economy? Select one: a. It helped reduce the unemployment rate and created more inflation b. It helped reduce the unemployment rate and reduced inflation c. It caused the unemployment rate to rise but helped control inflation d. It caused the unemployment rate to rise and created more inflationarrow_forwardMany countries have policies that limit how much interest a moneylender can charge on a loan. Do you think these limits are a good idea? Who benefits from the laws and who loses? What are likely to be the long-term effects of such laws? Tips: For part 2, you may think about how a low interest rate would affect the poor and those who owe huge debts. For part 3, you may think about how it would affect the profitability of the banking sector and the supply of lending (will lenders be encouraged to lend more?), and what implications it may have for "credit rationing" (being credit constrained).arrow_forward
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