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The graph represents the market for loanable funds in the hypothetical country of Bunko. Assume the market is initially Market for Loanable Funds in equilibrium
The graph represents the market for loanable funds in the hypothetical country of Bunko. Assume the market is initially Market for Loanable Funds in equilibrium and inflation expectations are 2%. 10 a. Adjust the graph to demonstrate the effects of inflation 9 expectations increasing from 2% to 4%. 8 S 7 b. What is the real interest rate after the change in Interest rate (%) inflation expectations? A 3% D 2 c. Which effect below characterizes the relationship 2 between inflation expectations and nominal interest 6 8 10 12 14 16 18 20 Quantity of loanable funds (billions of S) rates? The Fisher effect
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