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Macroeconomics 11th Edition by Michael Parkin
Edition 11ISBN: 9780133423884Macroeconomics 11th Edition by Michael Parkin
Edition 11ISBN: 9780133423884 Exercise 15
The Loanable Funds Market
Greenspan's Conundrum Spells Confusion for Us All
In January 2005, the interest rate on bonds was 4 percent a year and it was expected to rise to 5 percent a year by the end of 2005. As the rate rose to 4.3 percent a year during February, most commentators focused not on why the interest rate rose, but on why it was so low before. Explanations of this "conundrum" included that unusual buying and expectations for an economic slowdown were keeping the interest rate low.
a. Explain how "unusual buying" might lead to a low real interest rate.
b. Explain how investors' "expectations for an economic slowdown" might lead to a lower real interest rate.
Greenspan's Conundrum Spells Confusion for Us All
In January 2005, the interest rate on bonds was 4 percent a year and it was expected to rise to 5 percent a year by the end of 2005. As the rate rose to 4.3 percent a year during February, most commentators focused not on why the interest rate rose, but on why it was so low before. Explanations of this "conundrum" included that unusual buying and expectations for an economic slowdown were keeping the interest rate low.
a. Explain how "unusual buying" might lead to a low real interest rate.
b. Explain how investors' "expectations for an economic slowdown" might lead to a lower real interest rate.
Explanation
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Verified
b) Here in these scenario investors' exp...
Macroeconomics 11th Edition by Michael Parkin
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