Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Interest rate determination
The real interest rate r will be equal to the equilibrium real interest rate
In the classical model we define equilibrium real interest rate r* as the real interest rate where savings is equal to investments, S(r*) = I(r*). As we know that S = I is a requirement for the financial market to be in equilibrium.
In the classic model, real interest rate determines the flow of funds into and from the financial market. A higher real interest rates will result in larger flows of funds into the market (savings depends positively on r) and smaller flows out from the market (investment depends negatively on r). Real interest rate will be such that the flows into market are specifically equal to the flows out of the market.
Figure: Determination of the real rate
From this graph we can determine the size of investments and savings. In equilibrium when r = r*, S = I that is what we need for GDP identity to hold. Once we know savings, we can determine household savings from SH = S - SG - SR.
In the classical model, expected inflation pe is an exogenous variable and because R = r + pe we can determine nominal interest rate from the real rate.
determination of interest rate in classical model
Engineers sometimes add chlorine to pipes to disinfect water. It is desired to achieve four logs of kill. This means that the effluent concentration of microorganisms is 10 -4 tim
If the airline industry was an oligopoly and Qantas and Virgin could collude, what would be a dominant (Nash equilibrium strategy) that they could adopt with reference to their pri
Question 1 Discuss the relationship between microeconomics and macroeconomics Question 2 What do you understand production method? What precaution should be taken while
Compare the three investments below in terms of their riskiness. What is the best way to evaluate the riskiness of an investment given the information you have on them? Project Exp
what is credit creation process
Please answer the question below relating it to BUSINESS in today's world. What are the major tenents of the ethical theory of Utilitarianism, and how would this theory be appli
Define the individual consumer surplus and total producer surplus. Individual consumer: Individual consumer surplus is the net profit to an individual buyer through the purc
Hi, I need help with my Aplia macroeconomics problem sets.
A bakery has fixed costs of $10 per day and variable costs of $1 per loaf. Its oven can handle up to 50 loaves a day and it is impossible to obtain additional capacity. Sketch the
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd