Author Question: During the 1990s, Japan experienced periods of deflation and very low nominal interest rates, ... (Read 139 times)

TVarnum · **on:** Jun 29, 2018

During the 1990s, Japan experienced periods of deflation and very low nominal interest rates, approaching zero percent. Why would lenders of money agree to a nominal interest rate of almost zero?

What will be an ideal response?

Question 2

What is the difference between aggregate expenditure and consumption spending?

What will be an ideal response?

fatboyy09 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

With the deflation, the real interest rate exceeded the nominal interest rate. Lenders were making their decisions based on the higher real interest rate, not the very low nominal interest rate.

Answer to Question 2

Aggregate expenditure represents the total spending in the economy. Consumption spending is just one component of aggregate expenditure. The other components of aggregate expenditure are: planned investment, government purchases, and net exports.