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How does change in interest rate effect investment demand and GDP?
Hearsimbarar21
Generally we assume the real interest rate, r, to be negatively correlated with investment, I. Thus in the national income model, Y=C+I+G, we can assume an increase in r will lead to contraction in the economy.
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What is the difference between interest rate and APY when you are shopping for a certificate of deposit?
APR simply reflects the annual interest rate that is paid on an investment, but doesnÕt take into effect how interest is applied. APY takes into account how often the interest is applied to the balance, which can vary daily to annually.
What is bond immunization?
Strategy to derive a specified rate of return regardless of what happens to market interest rates over holding period. Seeks to offset the opposite changes in bond valuation caused by price effect and reinvestment effect -price effect: change un bond value caused by interest rate chnages -reinvestment effect: as coupon payments are received, they are reinvested at higher or lower rates that original coupon rate. Bond immunization occurs when the average duration of the bond portfolio just equals the investment time horizon
Effect of interest rate on consumer finance?
Effect of interest rate on consumer finance?
How would a balloon payment effect interest on a loan?
how would a balloon payment effect interest on a loan
Potentential effect of an increase in mortgage interest rate?
Increase in principal + interest payment.
What is the effect of compound interest?
The effect of compound interest is that interest is earned on the accrued interest, as well as the principal amount.
What is the crowding-out effect?
A situation when increased interest rates lead to a reduction in private investment spending such that it dampens the initial increase of total investment spending is called crowding out effect
Explain movements along the aggregate demand curve and shifts of the aggregate demand curve?
Movements along the aggregate demand curve are caused by changes in price level - real wealth effect, interest rate effect and open economy effect. If some non-price level determinant causes total spending to increase/decrease then the curve will shift to the right/left - consumption, investment, government expenditure, net exports.
How does a government budget surplus affect interest rates and investment and economic growth?
In a budget surplus the government receieves more tax than it spends (taxation>government spending), therefore the government will not need to rely on borrowing money from banks in order to funds its projects There is less demand for borrowed money Therefore in a demand a supply diagram for loanable funds, it can be shown that if demand decreases, the price of interest rates will also decrease. Investment becomes more cheaper, and would potentially increase investment, increasing economic growth. However, this effect is only minor compared to to the effect of increased taxing - this will reduce dispoable income of firms and consumers, reducing their ability to borrow funds.
What effect does change in demand have on price and quantity?
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What would have no effect on the demand for motorcycle?
A change in the cost of steel.
What is the Difference between income effect and substitution effect?
Income effect-change in the amount that consumers will buy because their income changed.substitution effect-change in the amount that consumers will buy because they purchase goods instead.substitution effect the change in demand for a good when the relative price between a good and its substitute changes. income effect the change in demand for a good when the income of the consumer change.
What is the difference in price effect and a change in demand?
price effect is the inclination of people to buy less of something at higher price than they would buy at lower prices. a change in demand if the entire line of demand must move or shift.
Why demand curve is horizontally curve?
horigontal demand curve means perfectly elasticity..i.e ed=infinity.in this case price is fixed and what ever change in demand will not effect the price.it can be said that supply of good in not limited in this case..i.e why it not effect the price with change in demand.
What is the crowding out?
A situation when increased interest rates lead to a reduction in private investment spending such that it dampens the initial increase of total investment spending is called crowding out effect
You want the characteristics of perfect inelastic demand curve?
A verticle demand curve, where a change in price does not effect quantity.
What is the price-level effect?
The change in the interest rate due to a change in the price level.
