Consider the the file HW3 - Loadable Funds Graph. Currently lenders and borrowers expect the inflation rate to be 2 percent. Therefore, currently, the equilibrium nominal interest rate equals 6.00 percent. Because of some news about oil prices, lenders and borrowers revise their expectations of inflation downwards. They now expect the inflation rate to be 1 percent. According to the Fisher Effect, the quantity of loanable funds demanded will change to 600.00 million dollars and the quantity of supply to 400.00 million dollars. The resulting disequilibrium in the loanable funds market will then cause the nominal interest rate to change to 7.00 percent.

Consider the the file HW3 - Loadable Funds Graph. Currently lenders and borrowers expect the inflation rate to be 2 percent. Therefore, currently, the equilibrium nominal interest rate equals 6.00 percent. Because of some news about oil prices, lenders and borrowers revise their expectations of inflation downwards. They now expect the inflation rate to be 1 percent. According to the Fisher Effect, the quantity of loanable funds demanded will change to 600.00 million dollars and the quantity of supply to 400.00 million dollars. The resulting disequilibrium in the loanable funds market will then cause the nominal interest rate to change to 7.00 percent.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter13: Inflation

Section: Chapter Questions

Problem 8SQP

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