lation affect the money interest rate? The nominal interest rate is determined by the forces of supply and demand in the loanable funds market (in llions of dollars). e following calculator shows the market for loanable funds. You can shift the supply and demand curves by changing the values of the supply and mand shifters on the right. Use the calculator to help you answer the following questions. You will not be graded on any changes you make to the culator.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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When the actual and expected (or anticipated) inflation rates are both zero, the money interest rate must equal the real interest rate. How might
inflation affect the money interest rate? The nominal interest rate is determined by the forces of supply and demand in the loanable funds market (in
millions of dollars).
The following calculator shows the market for loanable funds. You can shift the supply and demand curves by changing the values of the supply and
demand shifters on the right. Use the calculator to help you answer the following questions. You will not be graded on any changes you make to the
calculator.
INTEREST RATE (Percent)
12
10
2
0
0
Supply
Demand
100
200 300 400 500
LOANABLE FUNDS (Millions of dollars)
Graph Input Tool
Interest Rate
(Percent)
Quantity
demanded
(Millions of dollars)
Demand Shifter
Expected Inflation
(percent)
If the expected inflation rate increases to 2%, then the demand for loanable funds will decrease
will increase
When the expected inflation rate is zero, the money interest rate is 6%
of 6% and a real interest rate of 8%
6
250
0
Quantity supplied
(Millions of dollars)
Supply Shifter
Expected Inflation
(percent)
(?)
250
and the supply of loanable funds
0
Thus, an expected inflation rate of 2% results in a money interest rate
Transcribed Image Text:When the actual and expected (or anticipated) inflation rates are both zero, the money interest rate must equal the real interest rate. How might inflation affect the money interest rate? The nominal interest rate is determined by the forces of supply and demand in the loanable funds market (in millions of dollars). The following calculator shows the market for loanable funds. You can shift the supply and demand curves by changing the values of the supply and demand shifters on the right. Use the calculator to help you answer the following questions. You will not be graded on any changes you make to the calculator. INTEREST RATE (Percent) 12 10 2 0 0 Supply Demand 100 200 300 400 500 LOANABLE FUNDS (Millions of dollars) Graph Input Tool Interest Rate (Percent) Quantity demanded (Millions of dollars) Demand Shifter Expected Inflation (percent) If the expected inflation rate increases to 2%, then the demand for loanable funds will decrease will increase When the expected inflation rate is zero, the money interest rate is 6% of 6% and a real interest rate of 8% 6 250 0 Quantity supplied (Millions of dollars) Supply Shifter Expected Inflation (percent) (?) 250 and the supply of loanable funds 0 Thus, an expected inflation rate of 2% results in a money interest rate
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