The impact of increasing real interest rate when others are kept constant.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 32, Problem 1CQQ

To determine

The impact of increasing real interest rate when others are kept constant.

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'c' is correct.

Explanation of Solution

The foreign exchange market is the place of market where the participants are able to buy and sell different foreign currencies with exchange to the domestic currency. Here, the lonable fund interest rate theory applies. The lonable fund includes all the forms of credit of the economy which includes the loans, bonds, and the savings deposits.

Option (c):

When the real interest rate in the economy increases while all other variables are kept constant in the economy, the incentive to save more will increase in the economy. This is because when the interest rates are higher, the interest earned from the savings will be higher. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. The higher real interest rate will attract the capital from around the world and thus the capital outflow will also decline. So, option 'c' is correct.

Option (a):

When the real interest rate is higher, it will fetch higher earnings to those who saves more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. Since option explains that the national savings will decline, option 'a' is incorrect.

Option (b):

When the real interest rate is higher, it will fetch higher earnings to those who save more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. The higher real interest rate will attract the capital from around the world, and thus the capital outflow will also decline. Here also, the option explains that the national savings of the economy will decline, which is incorrect. So, option 'b' is incorrect.

Option (d):

The national savings will increase when the real interest rate of the economy is increased because the higher interest rate will provide higher returns to those who save. So, people will save more to earn more in interest. Since the national savings is the summation of the private and the government savings, it will also increase. So, the option explaining the national savings would decline is incorrect. So, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Real interest rate: The real interest rate of the economy is determined by the interaction of the demand for lonable funds and the supply of lonable funds in the lonable fund market.

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!

05:28

Students have asked these similar questions

An economy originally operates at the full employment output level. Suppose the economy suddenly experiences a rapid growth in aggregate demand. a. With the aid of an AS-AD diagram, explain why there will be inflationary pressure in the short run. b. suppose the government does not intervene. Using the same diagram in part (a) and with reference to the market adjustment mechanism from the short run to the long run, explain whether the inflationary pressure can be relieved in the long run. C. With the aid of another diagram, suggest ONE fiscal policy that can deal with the inflation. Suggest THREE methods that the government can use to promote economic growth in the long run.

The table below shows pizza topping preferences for Marcus, Dakota, and Austin, and that each individual has strictly transitive preferences. Suppose that three individuals make up our "society." In this society, prefer pepperoni to cheese pizza; _prefer cheese to supreme; and prefer supreme to pepperoni. This example illustrates that _ Person Marcus Dakota Austin 0000 First Preference Pepperoni Supreme Cheese Second Preference Cheese Pepperoni Supreme Third Preference Supreme Cheese Pepperoni two-thirds; two-thirds; two-thirds; even if individuals' preferences might satisfy the transitive property, societal preferences may not. two-thirds; two-thirds; everyone; if individuals' preferences satisfy the transitive property, societal preferences must also. two-thirds; two-thirds; everyone; even if individuals' preferences might satisfy the transitive property, societal preferences may not. two-thirds; two-thirds; two-thirds; if individuals' preferences satisfy the transitive property,…

Consider the table below, which has data on insurance status and medical expenditures for different types of professors at Hypothetical University (HU), economics & criminology professors. Assume that there are an equal number of economics and criminology professors. Assume further that econ professors all have the same level of health and criminology professors all have the same level of health. In 2020, every professor was offered a full insurance contract with no premium. In 2021, HU charged any employee who wanted to keep health insurance the actuarially fair premium based on 2020 expenditures. This premium would be equal to and, as a result,professors dropped their coverage in 2021. _ 2020 2021 Insured? Avg. Expenditures Insured? Avg. Expenditures Economics Professors Criminology Professors Yes Yes $25,000 $15,000 000000 $15,000; criminology $25,000; econ $20,000; econ $15,000; econ $20,000; criminology $25,000; criminology ??? $28,000 ??? $10,000

Answer 2

Question

Chapter 32, Problem 1CQQ

To determine

The impact of increasing real interest rate when others are kept constant.

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'c' is correct.

Explanation of Solution

The foreign exchange market is the place of market where the participants are able to buy and sell different foreign currencies with exchange to the domestic currency. Here, the lonable fund interest rate theory applies. The lonable fund includes all the forms of credit of the economy which includes the loans, bonds, and the savings deposits.

Option (c):

When the real interest rate in the economy increases while all other variables are kept constant in the economy, the incentive to save more will increase in the economy. This is because when the interest rates are higher, the interest earned from the savings will be higher. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. The higher real interest rate will attract the capital from around the world and thus the capital outflow will also decline. So, option 'c' is correct.

Option (a):

When the real interest rate is higher, it will fetch higher earnings to those who saves more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. Since option explains that the national savings will decline, option 'a' is incorrect.

Option (b):

When the real interest rate is higher, it will fetch higher earnings to those who save more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. The higher real interest rate will attract the capital from around the world, and thus the capital outflow will also decline. Here also, the option explains that the national savings of the economy will decline, which is incorrect. So, option 'b' is incorrect.

Option (d):

The national savings will increase when the real interest rate of the economy is increased because the higher interest rate will provide higher returns to those who save. So, people will save more to earn more in interest. Since the national savings is the summation of the private and the government savings, it will also increase. So, the option explaining the national savings would decline is incorrect. So, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Real interest rate: The real interest rate of the economy is determined by the interaction of the demand for lonable funds and the supply of lonable funds in the lonable fund market.

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!

05:28

Answer 3

Question

Chapter 32, Problem 1CQQ

To determine

The impact of increasing real interest rate when others are kept constant.

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'c' is correct.

Explanation of Solution

The foreign exchange market is the place of market where the participants are able to buy and sell different foreign currencies with exchange to the domestic currency. Here, the lonable fund interest rate theory applies. The lonable fund includes all the forms of credit of the economy which includes the loans, bonds, and the savings deposits.

Option (c):

When the real interest rate in the economy increases while all other variables are kept constant in the economy, the incentive to save more will increase in the economy. This is because when the interest rates are higher, the interest earned from the savings will be higher. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. The higher real interest rate will attract the capital from around the world and thus the capital outflow will also decline. So, option 'c' is correct.

Option (a):

When the real interest rate is higher, it will fetch higher earnings to those who saves more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. Since option explains that the national savings will decline, option 'a' is incorrect.

Option (b):

When the real interest rate is higher, it will fetch higher earnings to those who save more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. The higher real interest rate will attract the capital from around the world, and thus the capital outflow will also decline. Here also, the option explains that the national savings of the economy will decline, which is incorrect. So, option 'b' is incorrect.

Option (d):

The national savings will increase when the real interest rate of the economy is increased because the higher interest rate will provide higher returns to those who save. So, people will save more to earn more in interest. Since the national savings is the summation of the private and the government savings, it will also increase. So, the option explaining the national savings would decline is incorrect. So, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Real interest rate: The real interest rate of the economy is determined by the interaction of the demand for lonable funds and the supply of lonable funds in the lonable fund market.

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!

05:28

Answer 4

Question

Chapter 32, Problem 1CQQ

To determine

The impact of increasing real interest rate when others are kept constant.

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'c' is correct.

Explanation of Solution

The foreign exchange market is the place of market where the participants are able to buy and sell different foreign currencies with exchange to the domestic currency. Here, the lonable fund interest rate theory applies. The lonable fund includes all the forms of credit of the economy which includes the loans, bonds, and the savings deposits.

Option (c):

When the real interest rate in the economy increases while all other variables are kept constant in the economy, the incentive to save more will increase in the economy. This is because when the interest rates are higher, the interest earned from the savings will be higher. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. The higher real interest rate will attract the capital from around the world and thus the capital outflow will also decline. So, option 'c' is correct.

Option (a):

When the real interest rate is higher, it will fetch higher earnings to those who saves more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. Since option explains that the national savings will decline, option 'a' is incorrect.

Option (b):

When the real interest rate is higher, it will fetch higher earnings to those who save more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. The higher real interest rate will attract the capital from around the world, and thus the capital outflow will also decline. Here also, the option explains that the national savings of the economy will decline, which is incorrect. So, option 'b' is incorrect.

Option (d):

The national savings will increase when the real interest rate of the economy is increased because the higher interest rate will provide higher returns to those who save. So, people will save more to earn more in interest. Since the national savings is the summation of the private and the government savings, it will also increase. So, the option explaining the national savings would decline is incorrect. So, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Real interest rate: The real interest rate of the economy is determined by the interaction of the demand for lonable funds and the supply of lonable funds in the lonable fund market.

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!

05:28

Answer 5

Chapter 32, Problem 1CQQ

To determine

The impact of increasing real interest rate when others are kept constant.

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'c' is correct.

Explanation of Solution

The foreign exchange market is the place of market where the participants are able to buy and sell different foreign currencies with exchange to the domestic currency. Here, the lonable fund interest rate theory applies. The lonable fund includes all the forms of credit of the economy which includes the loans, bonds, and the savings deposits.

Option (c):

When the real interest rate in the economy increases while all other variables are kept constant in the economy, the incentive to save more will increase in the economy. This is because when the interest rates are higher, the interest earned from the savings will be higher. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. The higher real interest rate will attract the capital from around the world and thus the capital outflow will also decline. So, option 'c' is correct.

Option (a):

When the real interest rate is higher, it will fetch higher earnings to those who saves more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. Since option explains that the national savings will decline, option 'a' is incorrect.

Option (b):

When the real interest rate is higher, it will fetch higher earnings to those who save more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. The higher real interest rate will attract the capital from around the world, and thus the capital outflow will also decline. Here also, the option explains that the national savings of the economy will decline, which is incorrect. So, option 'b' is incorrect.

Option (d):

The national savings will increase when the real interest rate of the economy is increased because the higher interest rate will provide higher returns to those who save. So, people will save more to earn more in interest. Since the national savings is the summation of the private and the government savings, it will also increase. So, the option explaining the national savings would decline is incorrect. So, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Real interest rate: The real interest rate of the economy is determined by the interaction of the demand for lonable funds and the supply of lonable funds in the lonable fund market.

Answer 6

Chapter 32, Problem 1CQQ

To determine

The impact of increasing real interest rate when others are kept constant.

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'c' is correct.

Explanation of Solution

The foreign exchange market is the place of market where the participants are able to buy and sell different foreign currencies with exchange to the domestic currency. Here, the lonable fund interest rate theory applies. The lonable fund includes all the forms of credit of the economy which includes the loans, bonds, and the savings deposits.

Option (c):

When the real interest rate in the economy increases while all other variables are kept constant in the economy, the incentive to save more will increase in the economy. This is because when the interest rates are higher, the interest earned from the savings will be higher. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. The higher real interest rate will attract the capital from around the world and thus the capital outflow will also decline. So, option 'c' is correct.

Option (a):

When the real interest rate is higher, it will fetch higher earnings to those who saves more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. Since option explains that the national savings will decline, option 'a' is incorrect.

Option (b):

When the real interest rate is higher, it will fetch higher earnings to those who save more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. The higher real interest rate will attract the capital from around the world, and thus the capital outflow will also decline. Here also, the option explains that the national savings of the economy will decline, which is incorrect. So, option 'b' is incorrect.

Option (d):

The national savings will increase when the real interest rate of the economy is increased because the higher interest rate will provide higher returns to those who save. So, people will save more to earn more in interest. Since the national savings is the summation of the private and the government savings, it will also increase. So, the option explaining the national savings would decline is incorrect. So, option 'd' is incorrect.

Economics Concept Introduction

Concept introduction:

Real interest rate: The real interest rate of the economy is determined by the interaction of the demand for lonable funds and the supply of lonable funds in the lonable fund market.

Answer 7

Chapter 32, Problem 1CQQ

To determine

The impact of increasing real interest rate when others are kept constant.

Answer 8

Expert Solution & Answer

Answer to Problem 1CQQ

Option 'c' is correct.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

The foreign exchange market is the place of market where the participants are able to buy and sell different foreign currencies with exchange to the domestic currency. Here, the lonable fund interest rate theory applies. The lonable fund includes all the forms of credit of the economy which includes the loans, bonds, and the savings deposits.

Option (c):

When the real interest rate in the economy increases while all other variables are kept constant in the economy, the incentive to save more will increase in the economy. This is because when the interest rates are higher, the interest earned from the savings will be higher. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. The higher real interest rate will attract the capital from around the world and thus the capital outflow will also decline. So, option 'c' is correct.

Option (a):

When the real interest rate is higher, it will fetch higher earnings to those who saves more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. Since the investment and the rate of interest are inversely related, the increase in the real interest rate will reduce the domestic investment of the economy. Since option explains that the national savings will decline, option 'a' is incorrect.

Option (b):

When the real interest rate is higher, it will fetch higher earnings to those who save more. As a result of this, the private savings of the economy will increase and since the national savings are the summation of the private savings and the government savings, the national savings will increase. The higher real interest rate will attract the capital from around the world, and thus the capital outflow will also decline. Here also, the option explains that the national savings of the economy will decline, which is incorrect. So, option 'b' is incorrect.

Option (d):

The national savings will increase when the real interest rate of the economy is increased because the higher interest rate will provide higher returns to those who save. So, people will save more to earn more in interest. Since the national savings is the summation of the private and the government savings, it will also increase. So, the option explaining the national savings would decline is incorrect. So, option 'd' is incorrect.

Answer 12

Economics Concept Introduction

Concept introduction:

Real interest rate: The real interest rate of the economy is determined by the interaction of the demand for lonable funds and the supply of lonable funds in the lonable fund market.

Answer 13

Ch. 32.1 - Prob. 1QQ Ch. 32.2 - Prob. 2QQ Ch. 32.3 - Prob. 3QQ Ch. 32 - Prob. 1CQQ Ch. 32 - Prob. 2CQQ Ch. 32 - Prob. 3CQQ Ch. 32 - Prob. 4CQQ Ch. 32 - Prob. 5CQQ Ch. 32 - Prob. 6CQQ Ch. 32 - Prob. 1QR

The impact of increasing real interest rate when others are kept constant.

Solution Summary: The author explains how the lonable fund interest rate theory applies to the foreign exchange market.

The impact of increasing real interest rate when others are kept constant.

Answer to Problem 1CQQ

Explanation of Solution

Want to see more full solutions like this?

Chapter 32 Solutions