Are the investment and savings decisions of families and firms influenced by real or nominal interest rates?
2. If inflation is expected to be 2 percent per year and the nominal interest rate is 5 percent per year, what is the real interest rate?
3. How does the increase in interest rates affect the aggregate expenses of families through the effect of temporary substitution?
4. How can the effects of the increase in interest rates be different for the wealthiest families and the least wealthy families? 5. Since an increase in interest rates can increase income for savers, why can we think that an increase in interest rates is likely to cause a decrease in consumption?
6. How can an increase in interest rates affect the aggregate expenses of families through the income effect?
7. How can an increase in interest rates affect the aggregate expenses of families through the wealth effect? 8. Why might a household reduce its consumption even before a change in the policy interest rate begins to operate through the intertemporal effects of substitution, income and wealth?
9. What do we understand by the effects of the second round of the transmission mechanism?
10. How does the increase in interest rates affect business expenses through the effect of the financing cost?
11. How could the increase in interest rates affect the behavior of firms' expenses and investments through the effect of the cost of financing?
12. How would a change in interest rates affect financial institutions?
13. How does the interest rate increase through the credit channel work