Question : How will the interest rate and planned investment spending change as the following events occur?
How will the interest rate and planned investment spending change as the following events occur?a. An increase in the quantity of money by the Federal Reserve increases the amount of money that people wish to lend at any interest rate.c. Baby boomers begin to retire in large numbers and reduce their savings.I am a little bit lost. I'm learning about the interest rates, spending, and the multiplier in my Macroeconomics class right now.
- asked by islndnative
All Answers:
Answer #1
a. This will decrease the interest rate (cost ofmoney) becasue the supply of money has increased. Lower rates will mean more spending, loosercredit, and more planned investments (like housesand cars).c. Inclined to say this will increaserates and decrease investment spending for theaforementioned reasons. Banks lend againstsavings, and when savings deposits are depleted,they will not be able to lend as much (althoughsome will recycle right back into savings butprobably not at a 1 to 1 ratio). Also, increasedspending in masse by baby boomers will createinflationary pressure with also leads to higherinterest rates, reducing planned investment.
- answered by Nathan
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