Explain the effect of real interest rate and planned aggregate expenditure.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

MC The diagram shows a pharmaceutical firm's demand curve and marginal cost curve for a new heart medication for which the firm holds a 20-year patent on its production. Assume this pharmaceutical firm charges a single price for its drug. At its profit-maximizing level of output, it will generate a total profit represented by OA. areas J+K. B. areas F+I+H+G+J+K OC. areas E+F+I+H+G. D. - it is not possible to determine with the informatio OE. the sum of areas A through K. (...) Po P1 Price F P2 E H 0 G B Q MR D ō

Price Quantity $26 0 The marketing department of $24 20,000 Johnny Rockabilly's record company $22 40,000 has determined that the demand for his $20 60,000 latest CD is given in the table at right. $18 80,000 $16 100,000 $14 120,000 The record company's costs consist of a $240,000 fixed cost of recording the CD, an $8 per CD variable cost of producing and distributing the CD, plus the cost of paying Johnny for his creative talent. The company is considering two plans for paying Johnny. Plan 1: Johnny receives a zero fixed recording fee and a $4 per CD royalty for each CD that is sold. Plan 2: Johnny receives a $400,000 fixed recording fee and zero royalty per CD sold. Under either plan, the record company will choose the price of Johnny's CD so as to maximize its (the record company's) profit. The record company's profit is the revenues minus costs, where the costs include the costs of production, distribution, and the payment made to Johnny. Johnny's payment will be be under plan 2 as…

Which of the following is the best example of perfect price discrimination? A. Universities give entry scholarships to poorer students. B. Students pay lower prices at the local theatre. ○ C. A hotel charges for its rooms according to the number of days left before the check-in date. ○ D. People who collect the mail coupons get discounts at the local food store. ○ E. An airline offers a discount to students.

Answer 2

Question

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.

Answer 6

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.

Answer 7

Chapter 12, Problem 1RQ

To determine

Explain the effect of real interest rate and planned aggregate expenditure.

Answer 8

Expert Solution & Answer

Explanation of Solution

If the real interest rate increases, then people will desire to save more than they are essentially consuming.
A higher interest rate makes it costly to finance consumer durables and housing, which causes to decrease the spending on those items.
If the real interest rate increases, then the firm will purchase less new capital as the cost of borrowing increases the finance of capital goods purchased.

Thus, the higher real interest rate leads to decrease both the planned aggregate expenditure components of consumption and investment.