ECON: MACRO4
4th Edition
ISBN: 9781305436862
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 7, Problem 3.9PA
To determine
- The effect of an increase in the expected inflation in the equilibrium in the loanable funds market.
Concepts introduced Expected Inflation - This refers to the anticipated increase in the level of prices over a given period of time resulting from the subjective views about price trends in future. In other words, prices today are affected by what they may be tomorrow culminating into expected inflation.
Fisher Effect
In the late 1930s, U.S. economist Irving Fisher established an economic hypothesis
is implies that the nominal or the current interest rate is the real interest rate adjusted for the rate of inflation.
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Gross Domestic Product (GDP) represents the total value of all goods and services produced by a country. The news reporter shows excitement because rising GDP signifies positive economic performance. Consumer spending has increased while businesses expand and new job opportunities become available. If the GDP rises, your delivery business will likely handle more packages as consumer purchasing increases. The increase in business activity will lead to more opportunities for your company to generate higher profits. You may need to take action by hiring additional staff and purchasing extra delivery vehicles or finding ways to improve your operation speed and efficiency to meet increased demand.
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