16. What do real interest rates account for that nominal interest rates do not?
ID: 1190899 • Letter: 1
Question
16. What do real interest rates account for that nominal interest rates do not?
17. Because of its vast oil reserves, Saudi Arabia is a rich country. Saudi Arabia exemplifies the general fact that differences in___________ are responsible for some of the differences in standards of living around the world.
18. The level of real GDP is a good measure of economic prosperity, and the growth of real GDP is a good measure of __________.
19.Define GDP in your own words.
20.A higher interest rate makes more attractive. Therefore the quantity of loanable funds supplied increases.
21. A higher interest rate makes less attractive. Therefore the quantity of loanable funds
demanded decreases.
22.How do banks make profits?
23.The financial system is important because it helps to match one person’s with another person’s _________.
Explanation / Answer
16. Real interest rates signifies the actual increase in the value of the money invested. It factors in the effect of inflation while calculating the return of interest. While nominal rate just tells the increase in money but not the value.
For Eg: If the Nominal rate of interest is 10% and inflation is at 10%, then it says that an amount of $ 100 invested gave a nominal return of 10% and its nominal value is $110 currently. But the real rate of interest factors in the inflation i.e. real=nominal-inflation. So, real rate of interest tells that the actual value or real value of that $ 100 remained at $100 because the value appreciation was offset by the inflation.
17. Natural resources.
18. Healthy or Sound economy.
19. Gross Domestic Product is nothing but the increase in the monetary value of all the goods and services produced within a particular territory and in a given specific period of time. In general, a country is considered as a territory and a 12-month period is considered as a period of time.
20. Higher interest rates are used to reduce the money supply or to pump the money out of the system. Because with higher interest rates people tend to save more as they are getting more returns. Also, capital investments go down because of high cost of capital. Hence, high interest rate regimes are not conducive for a growing economy unless the country is facing extremely high rates of inflation.
21. When interest rates are low, cost of funds go down and firms tend to invest more than saving.
22. Banks make profit in two ways. 1. Non-interest income and 2. Interest Income.
23. Ability to avail capital at almost equal rates.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.