This topic contains a solution. Click here to go to the answer

Author Question: In the short run, how is the interest rate determined? If the interest rate is less than the ... (Read 120 times)

Mr.Thesaxman

  • Hero Member
  • *****
  • Posts: 514
In the short run, how is the interest rate determined? If the interest rate is less than the equilibrium interest rate, what occurs?
 
  What will be an ideal response?

Question 2

Why do economists use graphs?
 
  What will be an ideal response?



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

coreycathey

  • Sr. Member
  • ****
  • Posts: 333
Answer to Question 1

The interest rate is determined in the money market by the interaction of the demand for money and the supply of money. If the interest rate is less than the equilibrium, there is an excess demand for money. In order to increase the quantity of money they hold, people sell bonds and other financial assets. As a result, the price of financial assets falls and the interest rate rises. People continue to sell assets and the interest rate continues to rise until it reaches its equilibrium.

Answer to Question 2

Graphs help economists, and others, to visualize the relationships between economic variables. Graphs that plot variables together help economists understand if the variables are related and how they are related. Graphs also help provide a visual picture of economic models that link different variables. Indeed, many other disciplines use such visual models. For example, architects work with blueprints (their model) and the blueprints represent every detail of a building. Economists' models do not reflect of every detail of the real world, but the graphs that they use nonetheless are valuable because they help clarify the linkages between the variables.




Mr.Thesaxman

  • Member
  • Posts: 514
Reply 2 on: Jun 29, 2018
Great answer, keep it coming :)


frankwu0507

  • Member
  • Posts: 322
Reply 3 on: Yesterday
Wow, this really help

 

Did you know?

No drugs are available to relieve parathyroid disease. Parathyroid disease is caused by a parathyroid tumor, and it needs to be removed by surgery.

Did you know?

Adults are resistant to the bacterium that causes Botulism. These bacteria thrive in honey – therefore, honey should never be given to infants since their immune systems are not yet resistant.

Did you know?

Asthma occurs in one in 11 children and in one in 12 adults. African Americans and Latinos have a higher risk for developing asthma than other groups.

Did you know?

Most women experience menopause in their 50s. However, in 1994, an Italian woman gave birth to a baby boy when she was 61 years old.

Did you know?

Long-term mental and physical effects from substance abuse include: paranoia, psychosis, immune deficiencies, and organ damage.

For a complete list of videos, visit our video library