Answered: Analyze what will happen to the…

Analyze what will happen to the equilibrium interest rate when discount rate increases and the level of aggregate output increases? Using graph

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter15: Monetary Theory And Policy

Section: Chapter Questions

Problem 1.2P

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Question

Analyze what will happen to the equilibrium interest rate when discount rate increases and the level of aggregate output increases? Using graph

Definition Definition Total supply of goods and services in an economy at a certain price level in a specific time period.

Expert Solution

Step 1

Bank rate is also known as the Discount rate is the rate at which commercial banks take money from the central bank. If the discount rate increases it means it increases the cost of borrowing and there will be less injection of money in the economy and if the discount rate decrease it means it decreases the cost of borrowing and there will be more injection of money because commercial banks will be willing to take more money from the central bank.

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