In the long run the real interest rate is determined by and in the short-run the...

In the long run the real interest rate is determined by and in the short-run the Federal Reserve can control the real interest rate by setting the nominal interest rate if inflation adjusts

Select one:

a. saving and investment; slowly

b. the Federal Reserve; to equal the increase in the money supply

c. the Federal Reserve; slowly

d. saving and investment; quickly

Solutions

Expert Solution

ans. a

Interest rate in equilbrium is where savings is equal to investment. Inflation adjusts slowly then real interest rate can be controlled by fed

real interest rate = nominal interest rate - inflation

Rahul Sunny answered 2 years ago

Next > < Previous

Related Solutions

Find the real interest rate and the value of the price in the long run equilibrium

Suppose desired consumption and desired investment are Cd = 300 + 0.75(Y − T) − 300r T = 100 + 0.2Y Id = 200 − 200r G is the level of government purchases and G=600 Money demand is Md P = 0.5Y − 500(r + πe ) where the expected rate of inflation, πe , is 0.05. The nominal supply of money M = 133,200. Suppose the full employment output is 2500 and the price level in the short...

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 are the short-run and long-run effects of monetary tightening on nominal interest rate? 12. Ture...

What are the short-run and long-run effects of monetary tightening on nominal interest rate? 12. Ture of False (based on Question 11 above): In the short run, normal interest rate does not rise as much as the real interest rate. (Please justify)

What is the difference in the short run and the long run? In the short run,...

What is the difference in the short run and the long run? In the short run, A. at least one of the firm's inputs is fixed, while in the long run, at least one of the firm's inputs is variable. B. at least one of the firm's inputs is fixed, while in the long run, the firm is either able to vary all its inputs, adopt new technology, or change the size of its physical plant. C. at least one...

1. How are the firms profit maximizing output and price determined in the short run? long...

1. How are the firms profit maximizing output and price determined in the short run? long run? 2. Are the firms demand curve and the industrys demand curve the same? why or why not? 3. What are the relationships among the different average costs and marginal costs in the short run and long run? 4. How are firms supply and the industrys supply curves determined in the short and long run?

5. How does short-run and long run profit affect the real world? Give examples.

A monetary expansion will: decrease the interest rate in the short run, but increase it in...

A monetary expansion will: decrease the interest rate in the short run, but increase it in the medium run. increase output in the short run and in the medium run. increase the interest rate in the short run and in the medium run. increase the price level in the short run and in the medium run. increase output in the short run, but reduce it in the medium run. In which of the following cases will the real exchange rate...

11. What are the short-run and long-run effects of monetary tightening on no minal interest rates?...

11. What are the short-run and long-run effects of monetary tightening on no minal interest rates? (Please justify)

what’s the general long- run model’ based on the real exchange rate？

(a) In a small open economy with a floating exchange rate, how does an exogenous increase or decrease in investment effect real interest rate rate in the short run

(a) In a small open economy with a floating exchange rate, how does an exogenous increase or decrease in investment effect real interest rate rate in the short run(b) According to the Mundell-Fleming model, under flexible and fixed exchange rates how will expansionary fiscal policy effect income in the short run(c) (true or false ) Assume two economies are identical in every way except that one has a lower saving rate. According to the Solow growth model, in the steady state...

Subjects