8. What is the relationship between real money demand and interest rate? (Please justify)

Expert Solution

The organic market impacts the demand and supply of money—and the activities of the Federal Reserve and business banks. The Federal Reserve sets the rates of interest, which figure out what banks charge each other to get cash, what the Fed charges banks to acquire some money, and what the buyer needs to pay to obtain some cash.

Setting rates of interest include evaluating the quality of the economy, expansion, joblessness and supply, and request. More cash coursing through the economy compares with lower financing costs, while less cash accessible creates higher rates.

Rates of interest additionally reflect hazard premium—how much hazard the two borrowers and banks are happy to take on.

The cash supply in the United States varies depending on the activities of the Federal Reserve and business banks. By the law of supply, the loan fees charged to acquire cash will, in general, be lower when there is a more amount of it.

In any case, showcase chance is another weight on financing costs that considerably impacts them. Financial specialists call these double capacities "liquidity inclination" and "hazard premium."

Rahul Sunny answered 8 months ago

What is the relationship between money supply, interest rate, and exchange rate?

1-In the long run, what is the theoretical relationship between the rate of growth in real GDP and the real rate of interest?

1-In the long run, what is the theoretical relationship between the rate of growth in real GDP and the real rate of interest? A) Over the long run, rates of growth in real GDP and the real interest rate should be equal. B)There is little correlation between rates of growth in real GDP and the real interest rate. C)Rates of growth in real GDP and the real interest rate have both historically been approximately 5% in the United States....

What happens to expected inflation, nominal interest rate and real money demand when there is a...

What happens to expected inflation, nominal interest rate and real money demand when there is a permanent decrease in money supply growth?

What is the relationship between the interest rate and futurevalue? What is the relationship between...

What is the relationship between the interest rate and future value? What is the relationship between the interest rate and present value? You can use intuition, math, or both to explain.

Could you explain the relationship between the real interest rate, nominal interest rate, and inflation rate?...

Could you explain the relationship between the real interest rate, nominal interest rate, and inflation rate? How can we get the approximate value of the real interest rate (show the formula)? Could you also give me a real-life example to show this relationship? Subject: Finance

(a) Which interest rate (nominal or real) affects investment? Which affects money demand?

Answer the following questions about interest rates and present values: (a) Which interest rate (nominal or real) affects investment? Which affects money demand? How do changes in the relevant interest rate affect these variables? (b) A restaurant is considering remodeling. It estimates the remodel will cost $6,000 and as a result revenues will rise by $3,000 the first year, $2,500 the second year, $1,500 the third year and have no effect in subsequent years. If the interest rate is 5%,...

What is the distinction between the nominal interest rate and the real interest rate? 4. In a...

What is the distinction between the nominal interest rate and the real interest rate? 4. In a diagram, show the effect on the real interest rate and amount of investment if people’s disposable income increases. 5. Explain how a government budget deficit affects the market for loanable funds. What is the effect on investment? Ignore the possibility of a Ricardo-Barro effect. 6. Before there is any international trade or international lending and borrowing, suppose the world real interest rate is less than the...

Question 2. (10 marks) Briefly explain the relationship between real interest rate and the nominal interest...

Question 2. Briefly explain the relationship between real interest rate and the nominal interest rate in an economy with the aid of a numerical example? How would a strategy to channel your money into a savings account be affected by inflation? If a Commercial Bank A offers its savers 9.1% annual interest rate and pays interest annually, while another Commercial Bank B offers its savers 9% annual interest rate but pays monthly. Which Commercial Bank you would deposit your money,...

If real U.S. interest rate is higher than real European interest rate, the demand for U.S....

If real U.S. interest rate is higher than real European interest rate, the demand for U.S. Dollar would likely ____, and the supply of Euros to be exchanged for dollars would likely ____, other factors held constant. 1 point a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease

Equilibrium interest rate is achieved in the money market when aggregate demand for real monetary assets...

Equilibrium interest rate is achieved in the money market when aggregate demand for real monetary assets equals the supply of real monetary assets. a. Write down the condition required for equilibrium in the money market using real quantities of monetary assets. b. The aggregate real money demand function is given as L(R, Y). For a given level of income, real money demand decreases as interest rate increases. Explain why L is negatively related to interest rates. How is the real...

Question