Describe the expectations (or Fisher) effect
The expectations effect (or Fisher effect, named for economist Irving Fisher) refers to the change in the interest rate that is brought about by a change in the expected inflation rate. A change in the expected inflation rate affects both the supply of and demand for loanable funds. As the expected inflation rate rises, borrowers (demanders of loanable funds) will be willing to pay a higher interest rate in order to be able to make purchases now, before prices rise. In addition, lenders (the suppliers of loanable funds) require a higher interest rate to compensate them for the reduced purchasing power of the money they receive as the loan is repaid. So the demand for loanable funds curve shifts rightward and the supply of loanable funds curve shifts leftward, both of which will cause the interest rate to rise.
You might also like to view...
The short-run profit-maximizing output level for a monopolistically competitive firm is the point at which
A) P = ATC. B) MR = MC. C) MR > P. D) MR > ATC.
In a market economy, the real, or inflation-adjusted, price of a resource measures its
a. contribution to revenue. b. relative scarcity. c. productivity. d. contribution to efficiency.
There exists asymmetric information in a market:
A. if both sides of the market have the same information about the good. B. only if buyers have better information about the good than sellers. C. only if sellers have better information about the good than buyers. D. if either buyers or sellers have better information than the other group.
Recall the Application about the manufacture of fake killer whales used to scare sea lions off the Washington coast to answer the following question(s).Recall the Application. If a fake killer whale to be used to scare sea lions away from steelhead and other threatened and commercially valuable species cost $11,000 for the mold and $5,000 for materials for each fake killer whale made, then the average or per unit cost of producing five fake killer whales would be:
A. $5,000. B. $7,200. C. $11,000. D. $16,000.