Equilibrium in the financial capital market occurs at an interest rate of 6 % GDP is $500 billion, and the budget deficit is $15.5 billion. GDP is expected to increase by $100 billion, so the budget deficit will be $37.2 billion. Assume that an increase in the budget deficit by 1 % of GDP will cause an increase in the long-term interest rate of 0.5 percentage points. Determine the long-term interest rate. Throughout your calculations, round to one decimal place if necessary, and enter your answer in the box below.
Equilibrium in the financial capital market occurs at an interest rate of 6 % GDP is $500 billion, and the budget deficit is $15.5 billion. GDP is expected to increase by $100 billion, so the budget deficit will be $37.2 billion. Assume that an increase in the budget deficit by 1 % of GDP will cause an increase in the long-term interest rate of 0.5 percentage points. Determine the long-term interest rate. Throughout your calculations, round to one decimal place if necessary, and enter your answer in the box below.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Equilibrium in the financial capital market occurs at an interest rate of 6 % GDP is $500 billion, and the budget deficit is $15.5 billion. GDP is expected to increase by
$100 billion, so the budget deficit will be $37.2 billion. Assume that an increase in the budget deficit by 1% of GDP will cause an increase in the long-term interest rate
of 0.5 percentage points.
Determine the long-term interest rate. Throughout your calculations, round to one decimal place if necessary, and enter your answer in the box below.
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