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Interestratesareimportantinexplainingeconomicactivity (a)Usingacorrectlylabeledmoneymarketgraph,describehowan increaseintheincomelevelwillaffectthenominalinterestrateintheshortrun. (b)Usingacorrectlylabeledloanablefundsmarketgraph,describehowa decisionbyhouseholdstoincreasesavingsforretirementwillaffecttherealmarket interestrateintheshortrun. (c)Supposethenominalinterestratehasbeen6%withnoexpected inflation.Ifinflationisnowexpectedtobe2%,determinethevalueofeachofthe following. i.Thenewnominalinterestrate ii.Therealinterestrate

Interestratesareimportantinexplainingeconomicactivity

(a)Usingacorrectlylabeledmoneymarketgraph,describehowan increaseintheincomelevelwillaffectthenominalinterestrateintheshortrun. (b)Usingacorrectlylabeledloanablefundsmarketgraph,describehowa decisionbyhouseholdstoincreasesavingsforretirementwillaffecttherealmarket interestrateintheshortrun. (c)Supposethenominalinterestratehasbeen6%withnoexpected inflation.Ifinflationisnowexpectedtobe2%,determinethevalueofeachofthe following.

i.Thenewnominalinterestrate ii.Therealinterestrate

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