For each of the following changes, what happens to the real interest rate and output in...
For each of the following changes, what happens to the real interest rate and output in the very short run, before the price level has adjusted to restore general equilibrium?
(a) Wealth declines.
(b) Money supply declines.
(c) Expected inflation rises
Homework Answers
A ) The real interest rates will increase as a result of the decline in wealth. The decline in wealth will also symbolise the decrease in the savings . Hence real interest rate will increase.
B ) If the money supply will decline , there will be increase in the interest rate due to lower investment in case of low money supply.
C ) The real interest rates will fall if there is the expectation of the rise in the rate of inflation.
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For each of the following changes, what happens to the real
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What reference?
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short answer required
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