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Would you expect the federal government demand

    Assignment Instructions

    Assignment ID: FG133135976

    Questions –

    1. Interest Rate Movements Explain why interest rates changed as they did over the past year.

    2. Interest Elasticity Explain what is meant by interest elasticity. Would you expect the federal government’s demand for loanable funds to be more or less interestelastic than household demand for loanable funds? Why?

    3. Impact of Government Spending If the federal government planned to expand the space program,how might this change affect interest rates?

    4. Impact of a Recession Explain why interest rates tend to decrease during recessionary periods. Review historical interest rates to determine how they reacted to recessionary periods. Explain this reaction.

    5. Impact of the Economy Explain how the expected interest rate in one year depends on your expectation of economic growth and inflation.

    6. Impact of the Money Supply Would increasing the money supply growth place upward or downward pressure on interest rates?

    7. Impact of Exchange Rates on Interest Rates Assume that if the U.S. dollar strengthens, it can place downward pressure on U.S. inflation. Based on this information, how might expectations of a strong dollar affect the demand for loanable funds in the United States and U.S. interest rates? Is there any reason to think that expectations of a strong dollar could also affect the supply of loanable funds? Explain.

    8. Nominal versus Real Interest Rate What is the difference between the nominal interest rate and the real interest rate? What is the logic behind the implied positive relationship between expected inflation and nominal interest rates?

    9. Real Interest Rate Estimate the real interest rate over the last year. If financial market participants overestimate inflation in a particular period, will real interest rates be relatively high or low? Explain.

    10. Forecasting Interest Rates Why do forecasts of interest rates made by experts differ?

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