This topic contains a solution. Click here to go to the answer
« previous next »

Author Question: In the 1970s, nominal interest rates in the United States were quite high, while real rates were ... (Read 98 times)

neverstopbelieb

  • Hero Member
  • *****
  • Posts: 534
on: Jun 30, 2018
In the 1970s, nominal interest rates in the United States were quite high, while real rates were extremely low.
 
  Which group wins in this circumstance, lenders or borrowers? What might explain the willingness of the losers to accept disadvantageous loan terms?

Question 2

Changes in net worth and liquidity may significantly affect the volume of lending and economic activity according to the
 
  A) interest rate channel.
  B) balance sheet channel.
  C) money channel.
  D) bank lending channel.


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

bimper21

  • Sr. Member
  • ****
  • Posts: 309
Reply #1 on: Jun 30, 2018
Answer to Question 1

Borrowers win when the real interest rate is low. The lenders' generosity is mostly because lending terms are based on expected inflation. If actual inflation turns out to be higher than expected, the real cost of borrowing is lower than had been expected. Also, most loans are made by financial institutions that are in the business of selling money. When expected inflation is high, some lenders might try to attract borrowers by offering a nominal interest rate that does not compensate fully for the expected inflation. That is, the lender accepts a lower real interest rate in order to increase its loan business.

Answer to Question 2

B


neverstopbelieb

  • Member
  • Posts: 534
Reply 2 on: Jun 30, 2018
Thanks for the timely response, appreciate it

flexer1n1

  • Member
  • Posts: 373
Reply 3 on: Yesterday
:D TYSM

« previous next »
 

Did you know?

In the United States, congenital cytomegalovirus causes one child to become disabled almost every hour. CMV is the leading preventable viral cause of development disability in newborns. These disabilities include hearing or vision loss, and cerebral palsy.

Did you know?

The use of salicylates dates back 2,500 years to Hippocrates's recommendation of willow bark (from which a salicylate is derived) as an aid to the pains of childbirth. However, overdosage of salicylates can harm body fluids, electrolytes, the CNS, the GI tract, the ears, the lungs, the blood, the liver, and the kidneys and cause coma or death.

Did you know?

There are over 65,000 known species of protozoa. About 10,000 species are parasitic.

Did you know?

If you use artificial sweeteners, such as cyclamates, your eyes may be more sensitive to light. Other factors that will make your eyes more sensitive to light include use of antibiotics, oral contraceptives, hypertension medications, diuretics, and antidiabetic medications.

Did you know?

Vampire bats have a natural anticoagulant in their saliva that permits continuous bleeding after they painlessly open a wound with their incisors. This capillary blood does not cause any significant blood loss to their victims.

Teenage Pregnancy Rates in Developed Countries Teenage Pregnancy Rates in Developed Countries
Example of coastal cities Recharge Rates Example of coastal cities Recharge Rates
The level of emissions from transport in the United States is twice as high as the global average The level of emissions from transport in the United States is twice as high as the global average
Effect of dietary fats on high- and low-density cholesterol levels Effect of dietary fats on high- and low-density cholesterol levels
During a period of high power demand, the voltage output of the power company is reduced by ... During a period of high power demand, the voltage output of the power company is reduced by ...
Groundwater troubles in the United States Groundwater troubles in the United States
Video: Exercise and cardiac output

For a complete list of videos, visit our video library