Why are real interest rates more important than nominal interest rates with regard to analyzing the supply and demand of loanable funds?
Nominal interest rates only indicate the amount of dollars that are paid or received as interest. Real interest rates indicate the amount of purchasing power paid or received as interest. Borrowers are more influenced by the purchasing power than they will sacrifice to borrow money; similarly savers are more influenced by the purchasing power they will receive for on their deposits.
You might also like to view...
Dustin's copy shop can use four alternative plants. The figure above shows the average total cost curves for Plant 1 (ATC1), Plant 2 (ATC2), Plant 3 (ATC3), and Plant 4 (ATC4)
What is Dustin's long-run average cost if the output is 3,000 copies per day? A) 3.7 cents per copy B) 5.0 cents per copy C) 8.5 cents per copy D) More information is needed to determine the long-run average cost.
Full employment is the rate of employment that results when
a. all labor resources of an economy are employed. b. there is efficient use of the labor force, with allowance made for normal unemployment due to dynamic changes and the structural conditions of the economy. c. cyclical unemployment is between 4 and 5 percent of the labor force. d. everybody who wants a job can find one.