In 2018, the nominal interest rate on bonds was 5 percent a year and the real interest rate was 2 percent a year. Investment was 2.7$ trillion and the government budget deficit was 0.5$ trillion. By 2020, the real interest rate had increased to 5 percent a year, but the nominal interest rate increased to 4 percent a year. Investment has crashed to 1.8$ trillion and the government budget deficit had climbed to 3.8$ trillion. Assume that the private demand for and private supply of loanable funds did not change between 2018 & 2020. What was the inflation rate in 2018 and 2020? What happened to the price of bond between 2018 and 2020? Did the change in the government budget deficit crowed out some investment?
In 2018, the nominal interest rate on bonds was 5 percent a year and the real interest rate was 2 percent a year. Investment was 2.7$ trillion and the government budget deficit was 0.5$ trillion. By 2020, the real interest rate had increased to 5 percent a year, but the nominal interest rate increased to 4 percent a year. Investment has crashed to 1.8$ trillion and the government budget deficit had climbed to 3.8$ trillion. Assume that the private demand for and private supply of loanable funds did not change between 2018 & 2020. What was the inflation rate in 2018 and 2020? What happened to the price of bond between 2018 and 2020? Did the change in the government budget deficit crowed out some investment?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
In 2018, the nominal interest rate on bonds was 5 percent a year and the real interest rate was 2 percent a year. Investment was 2.7$ trillion and the government budget deficit was 0.5$ trillion.
By 2020, the real interest rate had increased to 5 percent a year, but the nominal interest rate increased to 4 percent a year. Investment has crashed to 1.8$ trillion and the government budget deficit had climbed to 3.8$ trillion.
Assume that the private demand for and private supply of loanable funds did not change between 2018 & 2020.
- What was the inflation rate in 2018 and 2020?
- What happened to the price of bond between 2018 and 2020?
- Did the change in the government budget deficit crowed out some investment?
- What happened to the demand for loanable funds between 2005 and 2009? How do you know?
- What happened to the quantity of saving and investment?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education